I was invited to speak in a gathering of entrepreneurs and I could not attend for one reason or the other. I was given the topic above partly because it seems like the pain that entrepreneurs face in their daily operation either through scalability or basic survival. I immediately realized the problem with the topic because entrepreneurs have regularly asked me the same question either as one-on-one advice or in a forum of some sort. To attempt to heal the pain, I tweaked the topic to analyze and reflect the deep-rooted issue entrepreneurs seem to miss in their bid to honestly answer the question.
The story of the woman who lost her silver coin and was eager to find it – first thing she does was to light the lamp (capacity development), sweeps the floor (organization), and search carefully (sensitivity analysis) until she find it (the seed capital). The approach the woman took to find the coin was logical – one process feeds the next process – she cannot jump to the seed capital without first taking the three initial steps sequentially hence like most entrepreneurs looking to jump directly to get seed capital, she will go through a lot of pain, rejection and self doubt.
I remember trying to get loan facility from a bank and they asked me to produce the following prerequisites: Immediately, I recognized the meaning behind them, I realized I did not need the facility anymore.
1. Collateral – To find out if I have CAPACITY for the loan
2. An audited book – To find out if my company is ORGANIZED
3. Company Bank Statement – To support the audited book and to check the inflow and outflow to see if I can pay back the loan appropriately hence an output of my SENSITIVITY ANALYSIS
Now lets break the meaning one by one for easy understanding:
1. Capacity: For any career including entrepreneurship, capacity development is a must – you must be a subject matter expert in whatever your hands find to do either through experience (deliberately failing forward) or through working knowledge (immediate application of what you learn in books, journals or seminars). Without this, you cannot gain insight to organization.
I always advise graduates who want to venture into entrepreneurship to undergo at least 3 years of internship to gain capacity in whatever field they choose to venture in – this will save you a lot of money and pain.
2. Organization: Efficiency and orderliness to the way you manage resources and tasks is crucial to the next step to generating seed capital. The process, procedures and policies you put in place in your company through capacity development will become an asset to make you compete favorably in your chosen industry. When a company is organized, it is easy to root out potential problem and make informed decisions. With organization, the system can generate revenue without your direct input or involvement. Learning how to organize your business is a life-learning skill.
I advise start-up entrepreneurs to run their company in projects so they can easily map their business via work package structures and set milestones to gauge their metrics. This will give them immediate feedback on the health of their start-ups and much more. I always recommend PRINCE2 for start-up entrepreneurs.
3. Sensitivity Analysis: Since cash flow is a vital metrics for entrepreneurs, it is important to find the most important input variable to it. Sensitivity Analysis is finding the variable that impact most on your cash flow. For most business, customer acquisition and retention is most vital to cash flow thus deserve full attention of the entrepreneur.
Now, let’s step back a bit, you need to be a subject-matter expert (capacity development) to acquire customers and you need to manage customers efficiently (organization) to retain customers.
4. Seed Capital: This does not necessarily mean currency as I initially interpreted it to be when I went to the bank. It can be suppliers given you their merchandize on credit basis, it can be a financial partner, it can be a landlord given you office space on credit, etc. Seed capital can come in any form that promotes your business.
Personal Experience: In Jan 2008, I left my lucrative job to start a business – in 2 years; I developed capacity to get organized to acquire customers for my Washing Machine business. Now, suppliers are seeking me out to give me Washing Machines on credit. Sometime they pay my flight ticket to and fro to see their new products.
If you can demonstrate those three steps, people will be willing to take a risk on you.
Food for Thought!
Have you ever wondered why you invest into company stock?
