How to improve startup profitability and manage it better

One must take some practical precautions before starting their startup. People become entrepreneurs to fulfil an aspiration and after the honeymoon period gets over, reality hits them on the face. They had imagined that they’ll launch a top-notch product, which will be a super hit in the market, users will come by millions and the founders will make billions. In a lot of cases, what happens is that the product launch gets delayed, there have to be compromises at few places, some talented engineers feel risky joining an early-stage startup and users need to be convinced for trying a new product. Even for services firms there are challenges getting contracts from private companies who ask for previous work done and government firms ask for balance sheets. Though you feel you’re doing something magnificent by generating employment, yet most people outside your office don’t even know or care about who you are or what you do (ouch!). In starting years the leaders have to do mundane tasks they had never anticipated, interview people smarter than them on subjects they aren’t aware of, and manage multiple things 24×7. And they must ensure that salaries to employees are paid on time, while handling their own family’s complaints of not giving them enough time, and what once seemed glorious now seems like a never-ending ever-challenging job.

Unless yours is an NGO, you’ll have to either make profits or capture the market (mainly by using investor’s money). There are many ways of making money and all come with their share of creative challenges. Profitability is essential because however good your idea or intent is, you’ll need to pay bills, salaries, tax and financial overheads on time. The best way to improve profitability is by managing your startup better. Follow the below mentioned steps, particularly in the first few years of your startup.

1.Values. When you start your company then write down the purpose behind it – why you want to do it (don’t write “because I want to be my own boss“). It should be meaningful and inspiring. Stick it somewhere and read it regularly so that you adhere to it at all times. Set expectations right for employees in the beginning itself so that people will get used to it. Don’t do this later, because otherwise your earlier employees will get used to set patterns and the new joiners will be influenced by behaviour of their seniors. Remember, it’s the directionless companies that fail. Values will also act as a reminder to keep going and even in case you need to change business model then you won’t change its core essence.

2.Business model. From Day 1 be clear on how you’ll do business and make money. Don’t get into this MBA thing of creating a survey and getting it filled from your friends, there’s a difference between people appreciating your idea and people actually paying money for it. The easiest way to find this out is to put yourself in customer’s shoes – will you be paying money for this kind of services? How many others do you feel will be paying for be same? Will this income be sustainable to run your business? Don’t, I repeat, don’t do this thing of starting a company for the sake of updating your LinkedIn profile and later figuring out how to make money. The market will keep changing and so will the ways of doing business, what will remain same are the basics. The only way you can succeed without any planning is if you have done a lot of good karma previously.

3.Diversify. Do it only when you have one business running on autopilot mode and you don’t need to give much time each day. Managing two premature companies is akin to doing two full-time jobs in one day and the onus for success of both will naturally lie with the founder. I once saw someone who started an education offshoot while managing an IT company, he couldn’t give 100% to both and last heard he has come close to shutting down one of them. When you’ve created 2 from 1 then use that 2 to create 4, don’t split that 2 to create two 1’s. There are several cases of people getting bogged down by their own initial success, they start flying in air, thus losing connect with the ground reality.

4.Hiring. Never hire someone just because they are overtly salaried or from a top company. Never hire someone just because you’re not getting anyone else. Look at their potential, how much they’re willing to learn and adapt to your company’s culture. If you yourself are convinced that your company has something different, then you’ll be able to convey the same to others.

5.Money. Once you start getting money from customers then expand wisely. Don’t spend all the money you have earned just because you have it. Invest it on fast machines, licensed software (use open source alternatives if you want), regular code backup, application security, learning materials for team, comfortable chairs, appreciation rewards and health insurance. Cheap is not always the best, nor is the most expensive one; look at what’s going to benefit your organisation. Avoid wasting money on fancy items that don’t have long-term returns. An attractive office is mostly a misnomer, eventually people will get used to it after few weeks and then care about the work they’re actually doing. If most of your clientele won’t visit office then there’s little use investing on an expensive location or executive cabin. Better, take a shared co working space. Initially you can register your company as LLP and after few years get it converted to Private Limited, thereby saving compliance and other overheads for that time period. Remember, more than a glamorous office and weekend parties, what matters is having a product that customers are paying for. Only those survive in the market who provide something unique over their competitors, in terms of features or cost or speed or all of these.

6.Team size. It’s a misconception that a 150 member company is always better than a 50 member one and two junior SEO managers of ₹20,000 salary are always better than one senior SEO manager of ₹40,000 salary. What matters is that each of your team members should be contributing productively to the company. You may or may not micromanage but ensure that every team member is accountable for their share of work and you have a fair idea of what they’re up to. An unexpected emergency such as accident of a critical employee shouldn’t halt operations, it helps if you have a backup plan in place.

7.Cash crunch. If you’re in a state where you need to borrow money from personal savings account or family to keep going, then it’s better to get money from VC or to shut down your company. This is a practical approach, better than over optimism. Keep yourself a time limit within which if you succeed then only you’ll persist. It’s a misconception that you need to keep pouring in money to succeed, if today you’re putting in ₹10 and making loss of ₹1 then in future you’ll put ₹100 to make loss of ₹10. Instead of spending more money to recover from losses, find out the real reasons why you’re in loss and then try to fix them.

8.Sharing. Try to document your startup journey somewhere such as your company blog or a personal diary. This will help you know what exactly you’re up to and also be able to advise budding entrepreneurs from your own mistakes (good news, you’re not alone, everyone makes them). Make sure you take viewpoint of your companion or parents before publishing anything online, even if they are not connected to your field of work. Genuine advise of well wishers, often go a long way.

9.Alternate option. Give to your startup as if your life depends on it, and yet always keep a Plan B ready. If things fail then will you go back to your previous job? Remember, 90% startups fail, at times due to external factors not in our control. Maybe your product was for the wrong market. Maybe you launched during recession. Maybe you would have done well after 5 years, like it happened to few Indian education startups launched much before Jio. Probably you’ll earn more money in a regular job, than compared to if you’re starting a completely new IT Services company relying entirely on local market. Or if you’ve quit at the right time with sufficient funds left then you can launch another startup, this time by not repeating mistakes of the previous one.

10.Vision. They say, if you’re chasing a rabbit then it won’t follow a linear path, along the way you may see other rabbits. Don’t try to change the rabbit, just change the direction you had anticipated while chasing. Same way keep aligned to your company’s overall goals despite all the distractions.

Conclusion

You can’t become a Doctor or Engineer, simply by sitting in an exam, you’ll have to prepare well for it. Same way, starting a company is like giving birth to a child, you have to prepare well for it, things will be different as per different ages of your kid. Start small but do start something if you really want to, maybe a side gig when still in a job, so that when it becomes profitable then you can go full time with it. That way you will minimise risk and also have a proven foot in the market when you start your own startup.

(Photo courtesy: Arjun Suri)