They are the ones who question the status quo and come up with solutions for problems that trouble the world as a whole. Problems, sometimes which we don’t even realize to be a problem.
But, not everybody is built to be an entrepreneur. While entrepreneurship education certainly does exist at the university level, some still question its effectiveness. It is something that grows out of a gut feeling and also out of passion.
For first-time or first-gen entrepreneurs as they are often referred to, this translates into a period of difficulty. Everything they look at seems to be written in a language they can’t understand. Even with background knowledge in business administration and financial management, entrepreneurs often struggle to keep things under control when running their own businesses.
Money being something that can be easily lost with bad decisions can wreak disaster for a first-gen entrepreneur.
Tips for First Generation Entrepreneurs
This post covers some financial tips to help the first-gen entrepreneurs make right decisions to save them from long-term business disasters.
Don’t worry. You won’t need your accountant by your side to understand what I have compiled. You will totally relate to what I have on offer.
1. Invest in Hiring Since People are Your Biggest Assets
“If you run a business, put on top your employees, the consumers, and then your shareholders.” ~ Richard Branson, Founder, Virgin Group.
People make up a business. People turn names into brands. It is people who turn your ideas into products. Investing in them is perhaps the best financial decision you can ever make.
How can it be a financial decision, you may ask. Investing in attractive employee benefits and hiring the cream of your candidates who can get things done and exceed expectations with results, are the most important decisions needed in the early stages of your startup.
As Steve Jobs, former CEO of Apple, said, “It doesn’t make sense to hire smart people and then tell them what to do; we hire smart people so they can tell us what to do.” You need smart people who can tell you what can be done to make your startup a success. Not employees who say “Yes Sir” all the time or the ones who just work to instructions.
2. Invest in Customer Loyalty as Much as New Acquisitions
It takes 10 times the cost to acquire a new customer compared to retaining a single old customer. This is 2017 and customer loyalty is the biggest strategic advantage. Look at Apple, Amazon, Starbucks, Nike and other favorite brands. They depend upon the strength of their customer loyalty.
Many first-gen entrepreneurs make the fatal mistake of having a belief that they can widen their customer base even if they lose their first few customers. Remember, your first customer is like your first love. He or she is the ones who paid for your product when the world did not even know about your brand. So it pays to keep that customer happy and coming back for more.
Along with investments to increase your new customer acquisitions, plan for customer loyalty programs, reward points and other tactics to keep your first customers happy. Their word-of-mouth publicity can go a long way in bringing in more business. BrightLocal’s survey results further assert the power of personal recommendations and word-of-mouth publicity.
3. When it Comes to Fixed Expenses, Keep Them as Low as Possible
Expenses like rent, salaries, interest on the debt, etc. are fixed overhead. You will incur them and have to pay them without fail on a timely basis. Now, you cannot run a business without fixed overhead. And taking and maintaining working capital loans will also prove difficult since your business is just getting started.
The best thing you can possibly do is to keep both fixed expenses and loans to a bare minimum. Also, try to increase and maintain the debtors turnover ratio at the highest level possible. This will give you enough working capital to meet your everyday business expenses. Low fixed expenses combined with high debtors turnover ratio will give you a healthy operational cash flow.
4. Marketing Should be Campaign Performance Based
Marketing is critical for building your brand. You need as much publicity as possible in the early days of your launch. But, should that force you to burn cash by marketing blindly?
Most first-gen entrepreneurs make the mistake of investing in high-profile paid advertising in online and offline channels to gain initial traction. Moreover, 50 percent of companies are using digital marketing, but they don’t have a plan. What they don’t understand is that marketing should always be planned proactively and tweaked further based on campaign performance.
Measure the response and lead flow from all your campaigns. Keep track of the ones that fail to meet the average ROI mark. Check them off and focus on the campaigns that bring in results. Paying for marketing that does not hold the promise to yield results either now or in the near future does not make sense at all.
5. Set Clear Cut Milestones for Investors and Lenders
Your investors and lenders will have sky-high expectations. It is mandatory to put in writing and come to a consensus as to what they expect your business to achieve in the next quarter, half-year or financial year.
Setting clear milestones in terms of sales volumes, business acquisition and profits will give direction to your business. It will empower your finance team to set the right directions to plan and spend financial resources in alignment with periodical budgets. Otherwise, they might be tempted to sign up vendor contracts that can either be postponed for a later stage or can even be put off altogether.
That brings us to the close of five major financial decisions you can make to steer your business in the right direction. As a first-gen entrepreneur, you are bound to make some mistakes in these areas. Financial management books follow textbook knowledge and may not be helpful in imparting practical real-world knowledge.
That is what motivated me to come up with these five pearls of financial wisdom for first-gen entrepreneurs. Hope this helps. Feel free to share any questions.