Growing your own economy is dependent, solely, on the health of your financials. For leading sustainable businesses won’t be possible without setting the underground, deep and invisible foundation of rightly managing your resources. Business disciplines such as marketing, accounting, and human resources are fundamentals in running a business. Still, managing these resources efficiently is tied to grasping the financials. It is the deep, underground, and invisible fundamental upon which the fundamentals of business disciplines themselves are built.
Failing to work on building this invisible foundation is the root cause behind the failure rate of most of yesterdays and today’s startup ventures. One of the major findings that the venture-capital research agency CB Insights has come up with after tracking 1,000 startups that raised seed rounds in 2009 and 2010, is that running out of cash is the main reason behind the failure rate of startups. Afterwards, more extensive research was done by CB Insights on more than 11,000 startups who failed. CB Insights pinpoints 20 reasons for failures. Running out of cash was the second reason for the failing startups by a percentage of 29%.
Running out of cash for most startups in their early journey is just a symptom not a root cause for failure. CB Insights didn’t dig deep enough to find out the root cause. The reason it came up with; that is, running out of cash, was just a direct response from the failing startups when they were asked: why you failed? My feedback on this is that even the failing ones didn’t know exactly what failed them. A subsequent question was supposed to be: why you ran out of money? My intuitive feel that comes from my experience of more than 20 years of coaching and mentoring startups is that they lack the skill of financial intelligence. Period.
Managing and growing your own economy must be grounded by the financials. The prime indicator of proceeding in the right direction is to monitor the degree of health your business is undergoing. Therefore, your responsibility is to work on three fronts simultaneously and passionately. The first front is developing your financial intelligence skills. The second front is to think vertically and consistently. The third front is to ditch the big picture and embrace the big story instead.
As for the first front of developing your financial intelligence skills, it is a challenge worth undertaking in order for any aspiring entrepreneur to succeed in his business venture. The challenge here is how to make the best use of his limited resources to get a better deal. That is the very essence of economics. For “Economics” comes from Oikonomia, an ancient Greek word for household management. In modern economics, it is associated with business management. Your economic success will be possible and maintained through achieving a profit.
You can build your personal economy no matter what any disastrous economic event befalls you. Developing your career skills, especially, the financial intelligence skills prevent the external factors from harming you. Financial intelligence comprises a skill-set of competencies. The most important of which is having a firm grasp of the financial statements. These statements include the income statement, the balance sheet statement and the cash flow statement. These three statements, combined, pinpoint the present and future problems your business is encountering.
To get started, I propose having a crash course in both accounting and Finance. Accounting is the scorecard of business; Finance involves the interpretation of these accounting numbers for assessing performance and planning future actions. From my 20+ years of coaching and mentoring startup entrepreneurs, the single most important thing to start with is to have a grasp of the financials, before delving into the other disciplines of your business. Make this a priority and urgency. You can have free materials and online crash courses for learning this indispensable skill for the viability of your business. You will be surprised that understanding the basics of finance, is just a matter of three weeks. This will radically change the way you look at your business.
The second front is to think and act vertically. To achieve great results, you don’t need a tremendous effort – only daily and consistent habits in the right direction. Such consistency multiplies and compounds over time. A small start and a solid base of financial intelligence can lead to astounding results. The great investor, Warren Buffett, is a manifestation of the power of the compounding effect. His financial success is attributed to the financial base that he built at a very early age of his life.
It is curious to know that in the year 2018, Buffett’s net worth was $84.5 billion; $81.5 billion out of this $84.5 billion comes to him after his 65th birthday. It is evident that his mounting fortune isn’t due to being a good investor but by being a lifetime investor since he was 10 years of age. Always think big but act in small doses and by time the baby steps compounds and help you grow. Luckily, this opportunity is available for aspiring entrepreneurs who are dreaming of building their empires even when they reach seventies and eighties of age.
The third front is ditching the big picture. The big picture is a static and abstract term in a movable and changeable times. Forget about the big picture and embrace the big story – your story. That’s, in my view, the only avenue possible for evolving and being the next and timely version of who you are. The big picture tells you to look at your present stance as a startup entrepreneur with your limited resources. The big story tells you that your story is unending and is meant to get you to the best that you can be.
The big story shows you how today’s giants who were yesterday’s ambitious startups have made it out of the quagmire simply because their story won’t be done until their life is. The list is endless, but unmistakably with Apple, Google, and Facebook founders in mind.
What does this big story have to do with financials? Well, everything. Having a grasp of your financial intelligence helps you make the corrections needed in your business and prompts you to adapt quickly. It helps you know where does your money go? It even reveals your true character - a clown who tends to look rich to impress investors and partners; a crook who puts off paying his employees as he waits out his next round of funding; or, an honest and serious entrepreneur who admits his incompetence in certain areas and seeks corrections.
Strangely enough, financial statements reveal, besides, the meaning of numbers themselves, the kind of entrepreneur you really are. It’s a snapshot of who you are – real time. The good news is that when you believe in the evolving nature of your big story, you can change the present unpromising snapshot that is reflected in your balance sheet, and work out a new, updated and unfolding story of your next and best version of YOU.
To manage and grow a sustainable business it must be deeply grounded by understanding the financials. Having the key skill of grasping the financial statements and what’s beyond numbers help you formulate the best strategy. Your patience in reading these statements sets the stage for having a vision for your business for years to come. Above all, the financial statements have a revealing story to tell about the status of your business and to what extent it is a reflection of you.