Do You Know The Burn Rate Of Your Big Idea?

The Startup Business Support Dr Ross McKenzie

Stephen was not happy in his corporate job, so he decided to set up his own business.

He thought this might be a way to spend more time with his young family and although in his early 40’s and his wife also working, he did not want to continue in the same way as things currently were.

Stephen wanted to make a difference.

He had worked in technology for many years, so had an excellent understanding of the many complexities technology can bring, but importantly how intertwined technology is today in this global and disruptive world.

He had identified a gap in the market place for a particular application and thought he could design something which can then lead to something bigger.

It sounded like a game changer.

When I first met Stephen at my local café in the city, he was 18 months into this venture and his passion for his “big idea” was incredibly contagious!

Until…

I asked him how I can assist him and that’s when his whole emotional state quickly changed. He then went on to tell me about his financial challenges and that he is yet to make any sales.

Zero, zilch, nada…

I politely asked him as to what sort of money was he talking about to date and this is what he said…

“I have spent maybe over 1.5 million dollars and I am in debt for most of that”

As you can imagine this is a serious situation.

How would you handle it?

I explained to him that I am not suitably qualified to provide him with financial advice and suggested he speak to someone who is, for an independent review (please make sure you always do this). However, I did ask him about his prospects, the opportunity he sees and to no surprise, his emotional state changed once again.

(It always amazes me the power of managing emotional states – because we need to be in the most positive and empowered state if we are to solve many of these challenges that come into our lives – what you focus on influences our states)

He explained to me that he is more confident than ever of succeeding, as he had made several prototypes, continually reiterating the design and then improving it.

He felt he was so close to a break through!

Fortunately, also for Stephen is that he has a close family and his wife is OK about being the main income source for now, but he also recognised he should have done more research, particularly around the financials, before he started what he calls his “amazing gap year”.

While there is a lot to be said for Stephen’s passion and shear courage of leaving his old corporate job to go out on his own, there are additional skills and capabilities that may not always be apparent but are critical to success when setting up a business, no matter how small or large.

Sadly, in my experience and talking to my students and clients, far too many “Stephens” do not get up and running. Instead they crash and burn – meaning they do not know their “burn rate” of capital required to sustain their business, while it is starting up.

When you are setting up a business, you need to consider all the possible scenarios and then only apply the “worst case” to ensure you have contingencies in place.

Can you fund your “gap year”?

Perhaps it will be over several years or more?

These questions and more, need to be fully answered.

I believe fundamentally that there has never been an exciting time to set up and scale a business today in the age of the entrepreneur.

I am not saying it is easy though – you need to be prepared, you need to learn new skills and ensure you have the best mentors and coaches guiding you and challenging you and your “big idea”.

But when you do, you will find yourself in a new place and if you are like me and Stephen, you will be asking yourself why you did not do this years ago!

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