Throughout the world and particularly in emerging market countries, the entrepreneurial landscape remains notoriously difficult to navigate, with an estimated 80 percent of small businesses failing to sustain themselves for a period of longer than five years.
However, with an increasing percentage of jobs now being directly attributable to small business ventures, financial backers in both private and public sectors are slowly starting to acknowledge the substantial impact of entrepreneurial activity on a nation’s economy.
Yet, despite the rising global trend toward VC backing of tech startups, there remain very few such initiatives present in emerging markets. Can this be accredited to unsustainable entrepreneurial ecosystems, or is success simply a mindset shift away?
Conservative Investors
A venture capital investor once told me that, out of ten investments, he expected seven to fail, two to return his investment and one to make a fortune. Those are fairly frightening odds for someone investing large amounts of capital, but even more terrifying for someone looking to leave the security of the job market to launch a startup business.
What’s more, bankers and financiers are generally not intent on funding ideas that might be perceived as “pie in the sky,” particularly when it comes to the technical and creative industries. As a result, it’s no wonder that many startups end before they even crank up the proverbial engine, the main reason being they couldn’t raise the venture capital financing required to start or were simply too afraid to try.
- Reduce your risks. But there is hope for would-be entrepreneurs looking to make the leap into small business ownership. Many of those at the forefront of today’s tech landscape, including Steve Jobs and Bill Gates, got their starts moonlighting as network engineers or software salesmen, in order to build up a solid track record that financiers were able to trust. This approach to entrepreneurship can take time but reduces the risk for the more cautious, who are able to earn an income while at the same time working to get a business off the ground.
- Refine your business plan. Much of your ability to acquire financial backing and sustain your startup will come down to the effectiveness of your business plan. A practical, adaptable plan, which takes into account potential stumbling blocks and market shifts, will be your best guide to navigating the minefield facing new business owners. Factor in potential challenges, such as rising interest rates, non-payment by debtors, electricity cuts, theft of delivery vehicles, declining product demand, seasonal variations in supply and demand, and so on. Ultimately, financiers will be looking not only at your big idea but also at your ability to sustain and develop it.
- Do your homework. More often than not, real success comes from doing your homework. There’s no use in launching a revolutionary product if your market simply isn’t ready for it. So do your analysis, beta test your product, see who bites, and don’t ever be afraid to put out a free tester. Once the thumbs go up and the market says “yes, please,” then you can start selling and make a very strong case to potential financiers, who can help you take your business to the next level.
- Manage your cash flow. Potential venture capitalist partners are looking for a solid sales track record. This doesn’t just mean more money; it means giving your prospective venture capital investors something to measure ROI against. If you can manage a solid growing flow of sales, then your prospective VC partners are able to feel a lot more secure about your ability to manage and nurture their seed capital. Professional VC companies have a very strict litmus test on profitability. Most will not accept a loss-to-win ratio of less than 50 percent, so you really need to be able to show them that your idea has the capacity to go all the way and that you are the one to take it there.
- Change your mindset. In spite of increasing opportunities, going it alone continues to be a frightening prospect, particularly in developing economies. However, armed with the correct mindset and the right amount of hard work, research and planning, there’s nothing stopping you from turning your big idea into a big business success.
BusinessCollective, launched in partnership with Citi, is a virtual mentorship program powered by North America’s most ambitious young thought leaders, entrepreneurs, executives and small business owners.