I recently covered the challenges of managing negative cash flows. Breaking through the cash flow break even barrier is a completely different matter. Start ups seem to reach this point and never leave it, a gravitational black hole not unlike the friend zone. Understanding this statistical anomaly requires a mix of finance and psychology.
Tag Archives: Entrepreneurship
Entrepreneurs Face Trust Challenges in the Middle East
Trust in the Middle East is based on social networks: how much I trust you depends on how often I have interacted with you and whether people I trust also trust you. Essentially, trust is a commodity that is built up over time. This model is found globally but there exist alternatives and substitute models that are applied when appropriate. One such model is the swift trust model that Americans often use when faced with situations where trust is needed but there is no time to build it up using a conventional model. This is a trust first, verify later model. A simple example is disaster relief groups which are composed from various sources who need to act immediately. This model is precisely why Americans seem to be able to repeatedly launch successful start ups, whilst in the Middle East many start ups seem stuck.
Cost Management Insights for Entrepreneurs
My basic philosophy on business is that opportunities and challenges are continuously presented to us and we need to respond appropriately. When it comes to managing challenges it makes sense to prepare in advance. My experience is that many entrepreneurs have difficulty doing this at two key points: right after a round of funding and when their business goes cash flow positive. The idea of saving for a rainy day goes right out the window and the dangerous assumption that the business will never go cash flow negative again sets in. This has destroyed many a promising start up.
Managing Negative Cash Flows
All entrepreneurs and many executives face in their professional careers the dreaded negative cash flow scenario.
For entrepreneurs this is a normal phase going from start up to, hopefully, mature company. For CEOs it can happen during an economic downturn or if the company had previously made serious mistakes or faced a catastrophe.
The underlying mistake that these managers nearly all make is to consider cash flow break even as a goal. It is a milestone. The goal, of course, is a pre-agreed return on equity (ROE). There might be many more milestones, such as cost per unit and number of customers, but ROE is the target. Continue reading
Monetising Business Opportunities
The ups and downs of a professional life, either as an employee and even more so as an entrepreneur, are quite often blamed on luck. If something positive happens it is good luck and if something negative happens it is bad luck.
his language is unfortunate as it implies that large portions of a person’s professional life are out of his hands. Although there are external events that are always out of a person’s hands, this does not mean that one has no control. Indeed, how one prepares for, recognises and responds to these events can alter the outcomes completely.
A helpful change in language can go a long way to improving one’s ability to manage unforeseen external events. Instead of calling them good luck and bad luck it is useful instead to call them opportunities and challenges. This small change immediately reframes the issue in a way that accepts the randomness of external events but still allows for the possibility that although the event is uncontrollable the outcome can still be influenced if not managed. Continue reading
Discovering the Meaning of Entrepreneurship
Entrepreneurs, often romanticised as modern day pioneers hewing their future from the raw fabric that is the global economy, have come to epitomise the current professional’s dream: master of your destiny, flexible schedule and lifestyle, ability to dictate the culture of the business with fantastic riches to be reaped. The salutary books on the subject buoyed by a sea of magazine articles and blogs has spread and reinforced these dangerous ideas to every corner of the globe. Any attempt to temper or broaden the discussion is met with a tidal wave of criticism usually accusing sceptics of being anti-capitalist and closed-minded. This is unfortunate as it makes it harder for would be entrepreneurs to receive a better idea of what can be a rewarding professional life. Continue reading