- Growing old while building a startup company will mature both you and the business.
The process proved the validity of two familiar slogans.
- “I wish I knew then what I know now,” and
- “You don’t know what you don’t know until you know it.”
In starting my business, there were many things I thought I understood, many assumptions I made, that simply turned out other than expected. If I had only known early in the process what I learned along the way, some of the “knocks” might have been mitigated.
2 Lessons on Running a Business
1. The first lesson dealt with predicting the future: you can’t.
Despite all of your research and careful analysis, the future will never play out as you planned. This primarily rests with the fact that most analytics are based on data that exists before you actually begin operating and “the past is a poor predictor of the future.”
- Pro Forma financial statements will be wrong. Sometimes better-more often worse, but never what you predict. Plan accordingly.
- Growth trajectories are very hard to predict. Moreover, growth often tends to be binary rather than smooth.
- Expect significant disruptive events. In my case, the Great Recession of 2008 radically altered demand in a way impossible to foresee.
- Be ready to pivot. Growth doesn’t last forever. Understand how to position your company to weather a storm. It may also be prudent to develop a contingency plan for early exit.
2. The corollary to not knowing everything at the outset is that you will also be confronted by things you never even knew would affect you: the things you don’t know you don’t know.
There are many variables that you will need to plan for.
- Identify the Critical Variables-those that will affect your operation the most:
- Fluctuations in Demand for your product or service
- Impact of changes in Cost of Goods Sold
- The time it takes to develop your product
- Sensitivity analysis, adjusting those key factors in your analysis and seeing how they affect outcomes, can be a very helpful tool.
However, understand that at some point you will be confronted by something you never knew was out there. The further away from your core competencies, the higher the likelihood this will occur. Stick with your core business, don’t get enamored of “shiny objects.”
All of these factors tend to increase uncertainty. This is why startups are inherently viewed as risky by investors. Consequently, your valuation and therefore what you will have to sacrifice in terms of equity is much greater in the early rounds of investment.
For more information on funding and investment rounds, check out our resources on The Funding Life Cycle.