10 Things to get Right before ploughing your savings into a start-up


I have seen more wannabe entrepreneurs failing for lack of planning than for lack of a unique idea. Having spent so many years as a Financial Planner and also as a mentor to start-up entrepreneurs at Founder Institute, some of the insights I have gained reveal that planning and execution are the true keys to success. Some of these insights can be distilled into 10 critical ‘must-dos’ before you sink in your hard earned savings into a new idea or venture. Half of them are to do with the venture and the other half with the founder – and both are as critical.
Validation: Getting external validation of your idea will ensure there are new perspectives and experienced ones at that. Like a fond mother, one tends to fall in love with their ideas while being blind to its shortcomings. A bad idea gets filtered out at this stage itself before the founder commits resources or leaves her job.

Business Plan: Identify & Research your market and acceptance for the product / service. Prepare a business plan that includes capital requirement, cash flow, product pricing for atleast three years. Get a clear idea of capital requirement and sources!

Team: Yes, you are an adventurer, a pioneer – but you cannot do it alone. Get a team around you who can supplement you and compliment your strengths. Co-founders are as important as founders.

IPR: Before you jump in, check whether you are infringing on anyone else’s intellectual property rights. Finding out later is an avoidable mistake which can prove to be expensive

Legal: Get this right! Ensure you have entered into the right set of agreements with all stakeholders – co-founders, employees, angels, and advisors. Not hiring legal help for this is like penny wise and pound foolish!
The next half is as important and sequentially can even come before the ones above or be a parallel activity.

Family support: Get an early buy-in from spouse or family as the case may be. The family’s moral support is required and sometimes so is their financial support. Effort to show your passion for the idea and get their support is important. Getting your spouse and kids to believe in you and your idea are so, so important. In tough times you will need their shoulder. You will also need them to help put a lid on family budgets!

Savings: The initial times are always tough, till some angel decides to fund your start-up. This takes time.(Sometimes forever). One should have a sufficient reserve of at least two year’s (more the better) expense to last you till this happens and you can draw some salary from the new venture. This helps retain focus on your core idea and keep you from straying into quick money making distractions. Depending on which part of your life cycle you are in, you will need living expenses, travelling expenses, and school fees for kids, insurance premium, and medical contingencies. And not to forget, enough capital for the business!
Plan for dependants: Insure yourself sufficiently with term insurance and health insurance. Give up expensive covers and reduce cash outflow.

Liabilities: You do not want to have the pressure of paying EMI in this stage. Repay your loans or ensure your savings are sufficient to cover this expense too. Else this kind of pressure could make you give up before time.

Budget: Bootstrap is a mindset – practice at work and at home. Like your design for a Minimum Viable Product at work, have a Minimum Viable Lifestyle. Give up luxuries, stay with parents and avoid rents, convert home to workplace, travel cheap. A rupee saved is a rupee for your business in times of need.

AUTHOR: Srikanth Bhagavat, Managing Director & Principal Advisor, Hexagon Wealth and also Co-Director, Founders Institute – Bangalore

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