Building a Business That Endures: Why Cash Flow is Overrated!
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).