Paul Cook, co-Managing Director of Silvertree Internet Holdings, the investment growth partner behind some of South Africa’s internet brands, on what startup companies must do to survive.
There are many reasons why a business could fail within the first year. In some cases, the plan itself does not make sense and in some cases, it is the execution of it that fails. Whenever someone starts a business, they are often doing it out of a sense of personal passion or a sense of excitement and that can lead to overly optimistic projections, and we see this all the time.
There is always going to be a tough period during the first year or two when reality bites. It will happen in some way and it will happen in some form – there will be some piece of bad luck or a difficult time. It is at this time a real make-or-break situation happens.
If you have the right people around you, if you have the right personal resilience; that is what gets companies through.
If you don’t get past that point, the business fails. It is about resilience when you start a new company.
By definition, you don’t know what is going to happen…no matter how hard you plan for a new business, you will face unexpected events.
Make sure that you are good for the good and bad times during your entrepreneurial journey.
Your family too should be ready for the good and bad times… Try and build the right partnerships earlier on. Make sure that your relationships with whoever might be funding you – if there is an external funder – is right.
“No matter how hard you plan for a new business, you will face unexpected events.”
You should not be seeking funding for its own sake. It is very seductive to suddenly have a lot of money in the bank. You can also fail if you don’t have money, but if you have too much money, then you are tempted to focus on the wrong Key Performance Indicators (KPIs). Your objective in a startup is not to raise money; it is not to build revenue for its own sake, it is to build a business.
A business requires cost-control and it requires good unit economics. The more money you have in the bank, the harder it is to focus on cost-control. What you will end up doing is build a business that keeps growing but could never make any money… Also, if you raise too much money as an entrepreneur, you will end up not taking as many good terms [in deals] as you can.
Have a clear mind about what you want to get out of an investment…If you have proven as much as you can with a certain amount of money, you will be able to invest in marketing, stocks etc., then that makes sense.
When you are at an early stage of your business and are less than 10 employees, typically, everybody is in, not because of the salary but because of their passion for the business. You need to be a team and everybody needs to be on the same page.The period when you grow, from 10 to 50 employees, then all of a sudden, that is no longer the case. That is an extremely dangerous time for many companies.
We have seen several companies not succeeding, and that is a very sad part of the journey. It is then that you need to think who your core management is, [and] who are staff who don’t necessarily need to know everything. But you can also go too far the other way. Everyone needs to know the broad outlines of your thinking; keep the message simple for your team.
Be honest about where you need help and make sure your partners are able to help you on those topics. You should look at all the different [aspects] of your business.
Marketing and sales
Marketing and sales are absolutely vital, it is non-negotiable. But how you do it depends on your business. In some cases, it is going to be marketing and in some cases, it is going to be sales. So you need to work out the strategy and how it will be different as well.
Tips For Startup Success
- Build a business that can make money: We are very tempted to copy Silicon Valley’s approach where you come up with an idea and you work out how to make money at a later stage. That makes sense in Silicon Valley but it doesn’t make sense here [in Africa], because there isn’t that tonne of money that is going to postpone your day of reckoning…You need to have a revenue model and whatever you are selling needs to be a lot more than your cost price.
- Find the right business partner: If you look for investment, make sure that you find the right partner whose incentives and offerings match your own, for now, and in the future.
- Build resilience: Make sure you are ready for tough times because there will be tough times.