It started off so well: you woke up in the middle of the night with the vision of starting your own business.
You were so enthusiastic that your ideas, without seeking to change the world, would finally allow you to develop a successful small business that would give you financial independence. So you quickly put together a business plan to show your friends and family. But to your surprise, no one would invest. This did not deter you: after all, you had joined one of the most important clubs in the world economy, you were an entrepreneur. A member of an elite group of people who are the engines of change and the backbone of some of the most powerful economies in the world.
Without getting discouraged, you went to an SME organization which made you more comfortable and guided you through a series of mentoring programs. Your business plan now included high-level terms such as competitive advantage, market share, and return on investment. Your financial numbers actually looked better and more refined, although they weren’t more realistic. You put on your best clothes and went to the bank. You got your bank loan and you were now in business. 2019 has been great… the business started to operate and while profits weren’t on the horizon just yet, you knew that sooner or later you could be paying yourself a salary. Expectations were high, but in 2020 there was a ‘Black Swan’ event: the COVID-19 pandemic, which brought with it the school of harsh reality and the lessons of corporate pain. A black swan in business is a rare and unpredictable event that is usually followed by serious consequences such as bankruptcy and bankruptcy.
Here’s your first hard lesson as an entrepreneur: Develop a defensive business and financial strategy to better prepare for the unexpected. A strategy that considers reducing costs, diversifying your sources of income and making cash reserves a priority. Immerse yourself in more seasoned business people, those of us who have gone through the school of hard reality, which teaches us that money is king. I talk to a lot of young entrepreneurs, and although they’ve tried to cut costs and diversify their sources of income, there seems to be a common thread: They can’t repay their loans.
So here is your second hard lesson. Avoid debt. You would rather give up a portion of your company’s equity rather than incur ruthless debt. Businesses have a life cycle that sees them go through the start-up phase, the growth phase, the maturity phase and decline. It’s hard to believe that even big brands will one day be seen as a thing of the past. As a start-up, your business is characterized by terms like ‘idea time’, ‘product test time’ and guess what, times of unstable income and cash flow.
When your income is volatile, you should only think of debt as a means of survival, if conditions can be restructured during a downturn, and only if your asset base is very liquid. While there are many more difficult lessons to learn, it is important that you, as a young entrepreneur, assess the current situation from a higher perspective. Black Swan events affect all businesses, some will survive and some will not. Remember the collapse of one of America’s largest investment banks at the start of the global financial crisis? The fate of one of the world’s largest auto companies was so dire that it had to be saved from bankruptcy.
If a crisis can deeply affect large organizations and their MBA armies with their financial acumen, I would say it may not be your strategy, your business plan, or even your management skills that are at issue. Some turbulent storms will overwhelm the strongest ships. If your business is struggling or perhaps is one of the many victims of the pandemic, take comfort in knowing that many great businesses have flourished by not giving up even after initial failures. Your business idea might still be good or even excellent, it just hasn’t had the chance to be tested under normal conditions. My recommendation is to be better prepared, to study investors’ appetites and criteria for a better future stock pitch, to always have a defensive strategy ready to be implemented and above all to never give up on your dream. .
Jose Lora is a business and financial strategist with over 40 years of experience in identifying and developing successful investment opportunities. In Oman since 2007, and trusted advisor to high net worth individuals, governments and leading business groups on investment management and complex real estate investment strategies.