Not a few business owners give precedence to cash flow in the day-to-day operations of their businesses. This is understandably so, especially given the popular notion that businesses are out to make money and keep an impressive financial record. But is cash flow all there is about building a sustainable and enduring brand?
A report by Small Business Administration cited in investopedia.com shows that 20 percent of small businesses fail in the first year, 50 percent fold up after five years and 67 percent find it difficult to persist further than the first 10 years. According to the report, the most common reasons start-ups fail are lack of funding, inability to retain talents and build a strong management team, a faulty business model, unsuccessful marketing initiatives, etc. From the foregoing, it is clear that cash flow is just one out of several reasons a business can survive the test of time.
It is not out of place to think that a business founded on a philosophy of making money rather than creating wealth is dead on arrival. ‘’…a company is not just a balance sheet. The successful company is no longer one that just makes money’’ argues Andre Hoffman, Vice Chairman of Roche Holding Limited. Ndubuisi Ekekwe, a professor of innovation, writer at Harvard Business Review, and lead faculty at Tekedia Institute, Boston USA, noted that businesses develop to solve existing market frictions (the gap between demand and supply). According to the professor, ‘’in the quest to bridge a market friction, a business owner needs to build the capacity to do so by attracting investors and creating a formidable structure and team that will help position the enterprise to solve the identified problems and contribute to the national wealth.’’
Experiences have shown how a number of start-ups are able to attract funding in their early years due to the ability of the founders to cash in on trends and communicate market problems and opportunities to investors but soon take on an accumulated debt and are unable to push through the market resistance due to weak internal structure. Having a strong management structure is predictive of a start-up’s ability to continue operations well into the future. Without a good structure, the likelihood of a business manifesting misplaced priorities, mismanagement of finances and human resources, and other symptoms of a failing business is high.
A diagnostic analysis of the early failure signals of agritech start-ups in Nigeria identified structural problem as a major source of pain to start-ups. Elements such as people, profit, portfolio, result-oriented, and organization-inclined were used to appraise ten agritech start-ups in Nigeria. It was found that there is a wide gap between the profit element and people, result-oriented and organizational-inclined elements of these organizations. It was also found that the start-ups have a very low potential of creating and delivering value to stakeholders due to a weak alignment between their vision and mission statements. The vision and the mission statements of the companies aligned by 28.5%; only 8.1% of the vision statements were found in the mission statements. While the companies believe in positioning people for creating and capturing value, they pay less attention to how the people would generate profits through their portfolios. There is also an indication that the companies are more interested in markets, products, and survival while there is least concern for employees, public image, technologies, and philosophy.
One start-up aiming to solve hunger problem through precision technology already had over 500 percent increase in staff by the second quarter (Q2) of the year 2020. An employee engagement survey conducted in this company in Q3 shows that more than 79 percent of the employees admit they are not adequately engaged, 68 percent lack the necessary tools and exposure to enable them to function efficiently at work, and 27 percent do not mind seeking elsewhere opportunities that would help them grow their careers. While the majority of the employees complain about an unchallenging work environment, the management laments over a killing overhead.
Referencing the law of physics that states that the force of a given object is determined by its mass and acceleration (F = ma), Professor Ekekwe noted that for start-ups or businesses of any scale to build the necessary force to penetrate the market, they must ensure a balance in their weight (numbers of personnel) and acceleration (employees’ engagement and acquired competencies and skills).