Dubai: Young entrepreneurs and those new to the business often deal with multiple hurdles of arranging and managing money compared to their more experienced peers.
There are several external and internal pressures to handle, which can be daunting and almost scare a newbie from becoming an entrepreneur.
Three entrepreneurs, who established their businesses online, talk about the challenges and steps they took to overcome them.
“Setting up a new business in this or any region is cost-prohibitive, time-consuming and labour-intensive,” said Anisha Oberoi, founder of Dubai-based Secret Skin, a Middle East-focused e-commerce platform for sustainable beauty products.
Entrepreneur Challenge #1: Scarcity of funds
“Entrepreneurs have to invest in marketing, technology, legal, accounting, etc., and hire wisely, optimising resources to reduce costs critical to early-stage startups," said Anisha Oberoi.
This is challenging in the beginning due to the paucity of unlimited funds, she added. "You need to be extremely frugal in your spending without impacting the growth of the business, especially when you're burning more than you're earning."
Oberoi started the beauty-tech startup with $40,000 (Dh146,928) investing funds from her savings.
“I was also fortunate to find an angel investor from my friends and family circle who put in the first $100,000 (Dh367,320) of pre-seed before we launched in October 2020. We opened up a new round in February 2021 to raise $500,000 (Dh1.8 million) as seed capital and brought in new investors, thus giving us the additional runway for growth."
Entrepreneur Strategy: Keep a razor-sharp eye on capital outflow at all times.
Oberoi said in 10 months, they have optimised the cost of operations, renegotiated commercials with early partners, locked in better terms with new brands, and strategically reduced marketing spend towards better ROI.
"As an e-commerce business, all our investment decisions are customer-backwards and data-centric. We analyse weekly data to find trends, mitigate future risks, experiment and innovate to ensure that customer acquisition costs reduce whilst conversion increases in line with business targets."
"We keep a close watch on the P and L (profit and loss statement) to ensure that we are spending frugally and have enough runway to sustain our journey. Lack of cash flow will risk the smooth functioning of the business and not allow you to scale, and hence it's critical for founders to not run out of cash.
"Have a financial plan, and model your P&L structure in line with your current reality and future projections keeping close track of how much you're spending and how much leeway you have with the cash on hand."
Mistakes to watch: Not performing mid-point checks on accounting books can cost you dearly
Oberoi pointed out that a common mistake is to let your financial accountant book expenses without mid-point checks on whether everything is being accounted for correctly. "Regular communication or reporting and reviews with your team should be as important as running the actual business, from an execution standpoint," she further added.
Entrepreneur Challenge #2: Not being clear on your business’ fundamentals
Elinor Davies-Farn, founder of ‘Olew Hair’, set up this hair oil business from her home in the UK in 2018. The e-commerce platform was launched for a mere £100 (Dh500) and now the hair oils are sold to wholesalers as well. The business, which now makes over Dh1 million in revenue, expanded to the UAE this year.
"I see lots of startups begin with thousands of pounds or dirhams of funding but do not have the fundamentals of the business down. How do you know it will work if you have never sold anything or done it in a lean way to see if there is an appetite for your products or services. Sales are fundamental to any business; without these, no matter if you have all the funding in the world, your business will not grow."
Entrepreneur Strategy: Give up the luxuries that a stable job provides and get out of your financial comfort zone.
Davies-Farn had no funding, loans or help but had decided not to take a wage for the first 18 months. Every penny the business made, she had put back into the business to help it grow organically.
She pointed out that people assume that you need a huge capital to begin anything, but for starting a business, you need to be willing to give up the luxuries that a full-time nine- or 12-hoiur job has given to you.
"For example, stable income every month, going out with friends whenever you want - when I first started, I had to get out of my financial comfort zone and sacrifice going out or spending on clothes. Also, you have to be willing to work long hours with little pay, this was hard, but it helped me be where I am today.
"Now that I have proven and confident that my business is a success, I may now look into capital, but only if it is right for the business. My business turnover was over Dh1 million with just me, so I am very excited to see what I can do, hiring a few more people. I have now begun to outsource a lot of what I have been doing to free my time to focus on increasing sales and giving me time to network with other entrepreneurs and people within my field."
Mistakes to watch: Trying to replicate business conduct as big corporations do when launching a new brand.
Davies-Farn said thinking you are a corporation is a mistake. "You don't need to replicate what corporations do and hire lots of people and have large budgets, to begin. Stick to the basics, like getting your brand out there and the revenue coming in from sales.
"Every month, I look at what is coming in and what is going out. Ideally, what is coming in should be more, and that is my easy way of managing my cash flow," she added.
Entrepreneur Challenge #3: Under-estimating or not anticipating some expenses.
"Before we commenced operations, there were many cost overruns as some expenses were under-estimated and some unanticipated," said Ahmed Mobasher, co-founder of ‘Koala Picks’, which offers a healthy snacks for children and families across its e-commerce platform and specific retail partners.
"As founders, we kept injecting new capital into the business until it was running and started to generate cash. At that point, the funding from us kept gradually decreasing.
"The business was funded entirely by the partners in its first two years. Currently, to invest in growing the business, we have just raised our first round of external capital from family and friends.
"The capital has been deployed to, among others, relocate our operations and increase production, automate a lot of labour-intensive work we used to do before and revamp our website."
Entrepreneur Strategy: Closely monitor direct and indirect expenses.
"We closely monitor direct and indirect expenses, the margins of each item we sell and always look for ways to optimise our costs. In addition, we develop detailed monthly revenues and costs forecasts across each sales channel and run different performance scenarios to analyse our future cash position.
"We develop strategies to grow our company and are very focused on execution. We have the advantage of being a small company that can act fast, and therefore we don't over analyse outcomes and can execute and learn from each experience. Furthermore, we allocate and delegate work across the entire team, so decisions aren't centralised with one person. We support each member of our team but give flexibility with making decisions."
Mistakes to watch: Managing a startup without a team member that understands finance.
Mobasher said not having a solid grasp of the finances of a company is the main mistake new entrepreneurs make. "When you are not fully aware of the profit margins of the products or services you are selling and not developing financial forecasts to anticipate the cash position and funding requirements of the company. Or when you are overspending on things with little impact on the consumer experience and growth of the business and under-investing on things with potentially high impact, all can impact the success of the business."
Therefore, he said it is essential for an entrepreneur or any of their partners to have a solid grasp of the company's finances and the overall financial performance of their business. "Even if the entrepreneur is very passionate about their concept and the business idea has huge upside, mismanagement of the company's finances or ignorance about its financial position will expose the entire company to the risk of failing at an early stage."
