Entrepreneurial steps

In general, when we start a company we start abruptly – we have an idea and something drives us to put it into practice. We start working, selling, getting funds, well – everything that needs to be done in the crane’s working zone. That’s what I did, and that is how I see people around me building companies. And it’s good: the energy in the beginning, hitting one’s head against the wall… all of this helps to bring change about. After all, I heard someone saying that Edison invented the light bulb because he hadn’t heard it was impossible (after many had tried before him). On the other hand, in developing a company, knowing the processes and the systemic approach to the whole thing can help a lot.

So let’s take a look (not from books, but with an open mind) and see what the essential moments in a company’s life are from the beginning and until it becomes an independent “corporation” (you can find a photo in an older presentation of mine 🙂 ):

1. Founding the company – the initial moment when you practically have nothing. OK, and that nothing can be really nothing or an idea, or even better – a project. At this point, if you really need money, you will pay a very high price for it, meaning that you will give a lot (as a percentage) from the company. This is because a) the risk the investor takes is very high, as long as you haven’t even started anything and you are selling an idea and b) according to the math from the previous post, the value of what you have without an investment is very small, so what he brings is much more, as a percentage, from the new joint company. That’s why, at this time, it’s best to find money nearby: the famous 3Fs (Fools, Friends and Family :)), with the Romanian version – 3Ps. At least they won’t take everything you own. What’s more serious, in general, your parents are the only ones who will trust your “vision” at this time.

2. The first product – once you have a product, life is already more beautiful: you have something to show, you can at least prove your idea is viable from a technical standpoint, that it’s achievable. Not necessarily that it can sell, but the fact that you have a product shows a lot, even about your ability to create something (which in the previous period could easily be questioned). The investor’s risk is smaller (it still is big, but not as big as in the previous stage), and the potential cost of the funds obtained is lower, meaning that you will give less of the company for the same amount. That is also because the value of your company can somehow be negotiated a little higher, as now you have a product – right? 🙂 For the moment, the money should still come from the 3Fs, but with a little luck you can find an investment fund willing to take such big risks without skinning you alive, the more so as you need less money at this point and investment funds generally look at big investments. Possibly an angel investor (a person that earned money in his life and wants to invest it now) may come in useful here.

3. The first paying client – Weeeell, your vision is already confirmed. Someone needs the product you made and it’s not something only your geek imagination thought was necessary. As long as someone pays money for what you are doing, things are good. Growth money is even cheaper than in the previous cases; you can find it at angel investors and you already have VCs interested. People revolve around you, all interested, but questions still hang in the air. Will you be able to carry out your business plan? Will you be able to sell enough?

4. Breakeven – This is basically the most important moment: your company produces more than it consumes. You have become profitable; if you keep up the good work, you will fill your pocket year after year. This is the moment when everyone is interested in you. Everyone prefers to put money in the construction than fill in some holes, as was the case until this moment. Money can be found with VCs, strategic or financial investors, and even – if you grow a bit more – you can search for institutional investors through a stock exchange listing. Here you also have a better negotiating position, since you are no longer with your back against the wall, needing money like in the previous stages. The risk is small for the investor because you already proved what you had to prove and the company is bringing profit. You have experience (you and your team) and your opinions will be heard, your plans will be informed and, most of all, believable.

During these stages, it is interesting what kind of man manages the company:

Because, in the beginning, the manager (sometimes, formally, the CEO, other times – the informal manager) is a technical man. His goals are to create a very good product that corresponds to the strategic plans (we can follow a little bit the Connex / Vodafone Ro example – the first CEO was Al Tolstoy, with the goal to create a network in the country, a technical guy).

Once the goals are achieved, he moves on (Al Tolstoy went to the Czech Republic to create a similar operator there from scratch) and in his places comes a sales oriented person. He must move the company’s focus from technical construction to technical maintenance plus improvements, but especially from sales “somehow” made so far, to an aggressiveness that can make the company cover in the most effective way the target market (going back to our example, Ted Lattimore came after Al Tolstoy, a man with a sales background, with knowledge in creating a distribution channel and business development strategies). His objectives are measured in the percentage of revenue growth, without necessarily being interested in profitability.

Then comes the third period, when the manager is a financier, oriented towards lowering expenses. Now we can really talk about profitability goals! This manager is the one who puts the icing on the cake and completes the company through an exit, IPO… anyway, by monetizing the investment (in our case, Liliana Solomon).

I’ll end by saying that Conex / Vodafone Ro is a classic case, but, in practice, changes might not be so well formalized, the CEO may not be changed, but only the high influence persons in the company and possibly (if the CEO is capable – and I have seen many cases in which this is so) the CEO’s goals may change, and then he should be capable to refocus everything. And, no, this doesn’t apply only to large companies such as Conex, but also to small startups and they should also be aware of these stages.

OK, come on, it’s 11o’clock at night, Timisoara doesn’t seem to stand a chance at football, I’m going to bed 🙂 See you around…

(English version by Teodora Popescu)