Starting a business is hard, really hard. It’s a hell of a roller coaster of emotions with incredible highs (landing that big client) and devastating lows (being told no). Anyone can start a business in theory, but few are cut-out for it. I love Nassim Taleb’s quote: ‘The three most harmful addictions are heroin, carbohydrates, and a monthly salary’ – that last part being a large part why some people never try.
So why do business fail? There are two elements that I identify. The most obvious one is that they run out of money. Being unable to pay for your employees or for you infrastructure are sure killers. Cash flow is certainly King, and having a firm grip on this is vital to your business’ success.
There are two broad schools of thought for where this capital should come from for a startup. The first is Venture or Angel capital, the model prevalent in Silicon Valley and the one that gets all the headlines. The second, and the school that I firmly believe in, is bootstrapping. That is funding the business yourself or through your sales. This might not be as exciting as taking external funding, but it leaves you with full control of your business without external pressures for growth.
The second way, and perhaps the only true way that a business fails is by giving up. Even if you run out of money, you can temporarily get another job, or liquidate some assets. Sell cereal like the guys at AirBNB did, or something else just to keep money coming in. A business doesn’t die until you say it does.
This is not to say that there aren’t bad business, and ideas that should be given up on. If every business succeeded, then the amount of people starting them would naturally increase as the perceived risk of failure is reduced. But you will never know if you’ve got a business until you’ve tried to land your first paying client!
So here is my advise for those starting a business. Manage your cash flow and capital closely, and remember that your business only truly fails when you give up on it.