A few young men have got together and are doing what a lot of youngsters are doing. They have decided to become a start-up. For me, who belongs to another generation, we all ventured into something, it either worked or it failed. The difference then was the money was usually yours or close family, it was never from angle investors looking to exit in a couple of years at multiple times of X.
So it gladdened my heart when they said they wanted to venture into entrepreneurial waters but not to seek funding. So, they could focus on the nuts and bolts of their venture. They did not have to make a pitch or pitches, spend time developing a deck and hit every investor site for funds. Nor would they have to spend their time trying to make it on Shark Tank.
I watched an episode on Shark Tank, the start-up had valued itself at 25 times its sales. No one asked the logic, but 15 minutes later he sold stake at a valuation of just 6 times sales. The logic could be that the brand got huge exposure. Assuming everyone who watched wanted to buy, can the production we ramped up to reach the projected sales which was an 80-time increase. Where will the raw material come from, can the existing capacity/building support the production jump? More complicated because it was an agri product, so it meant seasonality, no one worried about that either. Money changed hands instantly. Believe me, women ask questions and haggle more when buying sarees. So you can understand my joy when I saw some old-fashioned entrepreneurs in front of me.
These kids had done their homework pretty well, but they missed a few points which many start-ups do, so with the objective to make others pay attention, we will discuss the same here.
They had their financials and were pretty happy they were not losing money, in their opinion breaking even. How much was paid to the three partners, oh at present it is gratis. It is possible in the initial stages partners do not take any salary or a small salary. However, initially itself partners should decide what will be their salary, they may not take it but it should be known. It can be based on their time contribution or based on what they would have gotten if they worked outside. Once the company can, they can cash it without having problematic discussion later. Similarly, they were not paying rent nor accounted for it. Such account heads must be factored in to get a clear picture that the pricing is right and not subsidised.
After the discussion, they wanted to know what I thought of the whole project. My take is this question should never be asked. The reason being, they are the only ones who have a vision of what they want to build with this project, no one can see it like them. There is a tale of a person wishing to start a company to take your documents and deliver them the next day, and everyone told him it was a stupid idea, we already had the postal service. Today, we all know that if we wish to send a document, a courier is first on our mind, not postal service. In my case, sitting in a dentist's chair, when I mentioned my project, the dentist dismissed it, there were many already. Can be pretty demoralising, but I said to myself, yes but there are many dentists and you are considered the best, so are we today in our field.
The entrepreneur has to be clear about the vision he sees and he must do everything to make it happen because naysayers there are many. Not because they are ill intention-ed but because they do not see what you can see.
These are exciting times to be young and I wish I was 25 again. Till next time...
(The writer is Managing Director at GMI Zarhak Moulders Pvt Ltd, and former president of Verna Industries Association, former director of Goa Industrial Development Corporation (GIDC), former chairman of CII Goa)
