Consider these two scenarios:
One entrepreneur has jumped the gap, made it through the startup process successfully, hit their funding, and now they’re making a living with their own creation, or, well, trying to. If they miss a beat, they lose deals to competition, sacrifice eligibility for raising more capital, and have to catch up again.
Another entrepreneur is keeping up just fine. The company is growing and money is not a problem at all, but something is missing. The endless days at work don’t seem to signal success. Walking away from the office for just a day can seem dangerous if it isn’t for a business trip. Money may no longer be the issue, but the company might die without leadership.
What do these both have in common? They may both be a signal of personal success, but neither of them are financially sustainable. For such a common term, “financial sustainability” sure does have a lot of definitions, so what is it? Well, at its simplest, this means that a company won’t immediately start eating away at itself if left unwatched, and it won’t start tanking if leadership steps away.
The question remains, then, how do we become financially sustainable, and how do we check if we’re there? Here, I give some quick tips on the way to a self sustaining business at early growth stages, and how to test your business’s financial sustainability as you approach it.
1. Monitor cash flow
Everyone will agree that this should be obvious. Yet lots of new businesses are merely eyeballing what they should be carefully tracking. Everyone that has ever pitched for funding has the numbers. They can track weekly, monthly, and yearly progress. They should keep doing that, but actually use it for things beside pitching for capital.
Set a budget and stick to it. Not only will you be able to see where the money is going, but budgeting helps point out where spending produced no return. The better spending is tracked, the faster pivots can be made away from ineffective practices. Documentation is key, and as I’ve been told time and time again, “if it isn’t written down, it doesn’t exist”.
2. Avoid useless useful items
Once a budget is set up, business owners find it easy to track spending, but be sure to avoid spending on useless useful items. Sounds ridiculous, right? The most common of these is business software that we never use after buying it. I’ve heard tales of tens of thousands being spent on software that was never even used after day one. That’s a sizable amount of time researching, deciding on the best option, signing up, and trying it out before ultimately forgetting about it (hopefully cancelling a subscription before that last part).
These things seem useful when we are looking at them, and they might potentially be, but we often overlook the time and money lost by forming a new habit to use them that actually render them useless. That new cloud hosted project planner for a 15$/month subscription might take more cash and effort to learn than a 5$/month coffee fund, a Google Sheets template, and some elbow grease.
3. Leverage the freebies
Speaking of Google Sheets, there are a plethora of applications for different fields that are all hosted for free with optional paid versions. You don’t need Photoshop just to edit one logo (Gimp or Inkscape will suffice); you don’t need Sony Vegas Pro to edit a product demo video (Lightworks might do); and you don’t always need MATLAB’s image processing (it might be worth looking at OpenCV). In a world of ubiquitous social media, why would a new business pay for a television advertisement?
Before deciding that you absolutely need some costly resource, it’s always worth checking if there’s a cheaper underdog that you can work with. Do remember though, there’s a difference between just hacking it, and solving a problem.
4. Fulfill your promises
Some advertising methods might be free, but word of mouth is always more targeted and more effective. Your current customers are the best way to get new ones. Failing to follow through for a client though, leaves you at the mercy of the most dangerous threat to a business, negative reviews.
There will always be a great potential client to pursue; keyword: “potential”. Current customers are the only ones giving your company money right now and they deserve your focus. Consistently following through on your company’s promises will bring customers back, making it a prime gateway to stable income. The reputation made from this is indispensable, and your business will stay afloat far more easily with this in place. Without worrying about who to sell to next, business leaders can focus on growth.
5. Recognize leadership talent and check sustainability
The CEO is not the only person that can head your company, it just so happens there is only one of them. It’s far too easy as a company leader to turn a company into a ball and chain. By developing more autonomy in key employees, a leader will find that a company won’t die without them, and may even find things working better without their input.
For any entrepreneur, this can be a daunting process, since this could mean handing over power of their life’s work. Before passing the reigns though, be sure that key employees identify with and understand the company’s vision. Involve those employees with business decisions on a regular basis to develop their familiarity with similar situations. Then, when ready, entirely delegate these decisions onto them, establishing your trust, as leader, in their ability to make these decisions on your behalf. When comfortable, allow them to take control without supervision.
If revenue and growth doesn’t stop while you’re gone, and the phone doesn’t ring all day for “urgent” questions, you’ve done it! Your business has become financially sustainable. If the absence of a company’s leader leaves business productivity relatively unaffected, this likely translates to other positions in the company, meaning that the loss or addition of people to the company will not affect business either.
So if you enjoy your work and you make money while doing it, what is the value of this financial sustainability? By launching a business, entrepreneurs will have some sort of exit strategy. Whether that be an acquisition, IPO, or something else, these eventually will involve the addition, replacement or adjustment of positions within the company. With it established that these changes are less likely to damage future success, investors are far more inclined to go through with a sale, putting an entrepreneur in the best place to start a new adventure from the beginning.
About the Author
Santiago Ricoy is pursuing his Bachelor’s in Mechanical Engineering at UNLV’s Howard R. Hughes College of Engineering. A member of the Drones and Autonomous Systems Lab at UNLV, he loves everything robotics, and hopes to pursue a career in research and development within the engineering field.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of RVF or UNLV. In addition, thoughts and opinions are subject to change and this article is intended to provide an opinion of the author at the time of writing this article. All data and information is for informational purposes only.