For assured survival, startups need more than financing

startups

Starting any business right mean doing what needs to be done during initial stages of setting up the business.

Photo credit: Shutterstock

There is no single widely accepted definition of a startup. There are businesses that have been running for a decade and still see themselves as startups. Others never use the term "startup" in their history; they simply get started.

Recently, a colleague asked me what my understanding of a startup is and having been involved I was quick to point out that a startup is a business that plans to scale but is yet to or simply one that is in the process of setting up.

According to investopedia.com, "startups are companies or ventures that are focused on a single product or service that founders want to bring to market." SNDBX, the unique business accelerator headquartered in Nairobi, considers startups to be in four categories. Those that are organic, capitalised, and those started by professionals as well as international startups going global. What is your understanding of startup? Any business starting up needs some form of working capital.

Every business founder has a responsibility to finance operations way before there is adequate income coming in. There are startup expenses, account payables, inventory to be held, and cash needed to meet these expenses.

Working capital can be funded in many different ways. During the startup phase, the initial sales take a little while, and there are no earnings already retained. As such, financing of the working capital is mainly through bootstrapping, external debt, and equity.

Most startups are financed by founders’ savings, donations or debt from friends and family, debt from financial institutions such as banks or saccos, crowdfunding, and government grants, as well as debt or equity from others such as venture capitalists. If you are in business, how did you finance the early stages of your business? What was your seed capital?

Without the needed funds, it is certainly impossible to run a business. Is funding all that startups need? Definitely not. There are many startups that have failed despite being well funded. At a recent launch of the Kisima Startup products at the SNDBX, the startup lead and CEO of Ansa Africa, Herbet Thuo, highlighted many reasons why startups are dying.

They were poor marketing, inaccess to the market and customer insights, copy-and-paste business models, bad management, inability to have a mind shift, burnout, lack of systems, poor product and market fit, and a lopsided view of the competitive landscape, in addition to capitalisation and cash challenges.

These are only some of the reasons. Startups are also failing because of co-founders’ disputes and lack of compliance, among many other reasons. Have you ever been part of a failed startup? Why did it fail?

With so many reasons why businesses are failing during their early stage, it is critical for entrepreneurs and business founders to ask themselves—What do we need to do right? What are we not doing right? Starting any business right mean doing what needs to be done during initial stages of setting up the business.

These include having a good understanding of the customers’ needs to meet and creating and delivering value to the customers. In addition, I have observed that setting up internal systems and controls as well as committing to stay compliant helps many businesses survive a little longer in the marketplace. How will you start right beyond getting funding?

Dr Lucy Kiruthu is a Management Consultant and Trainer. Connect via Twitter @KiruthuLucy

Welcome!

You're all set to enjoy unlimited Prime content.