What did we do when the investment ended

Start-up entrepreneurs are usually interested in how to get investment in your project, where to look for an investor. But all the fun begins after receiving investment, and especially after the investor’s money runs out. Three years ago we contacted LETA Capital venture fund and received $ 500,000 for the development of our online consultant . This money ended successfully a year ago, and it was not easy to survive this moment.

Oh lucky ones

Our investor Alexander Chachava in one of the columns for “The Secret of the Firm” once wrote that money should be enough for the next 18 months of life and that success in business is only the money of customers, and everything else is support, which should be treated carefully. We held out on investments longer than 18 months, but not to say that we were thrifty. We carelessly, though not mindlessly, spent money.

When we signed the term sheet and received investments, we felt like kings of entrepreneurship. My co-founders and I just graduated from the Physics Department of Moscow State University, engaged in the development of my own business in my free time, and then received $ 500,000 for my business. A good amount for recent students - they believed in us, we are building a serious business, we will soon be millionaires, we thought. It was really a victory. It was dizziness from success that let us down.
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We made the first mistake - “sat on the ass exactly” in the chair of the leaders and internally calmed down. The desire to be the best, to delve into each business process, to look for unique solutions, to analyze and predict the market has gone with the advent of money. We increased operating expenses, but did not plan for their return. Working with partners, they thought that they would create a business model for us. They hired specialists, sometimes quite expensive ones, but did not risk to entrust them with serious processes and did everything on their own. Efficiency has fallen, time has gone, money has flowed.

Investment funds discouraged us from a sense of business hunger, we did not have to survive, sell cars to pay salaries to developers. We could afford to run any project and close it immediately. We did not focus on anything concrete. Wanted and held a white label affiliate program. Then they took and organized seven variants of distribution of our product, which by that time had not yet been properly finished. When we had a task to improve the quality of service for a client of a certain segment, we rushed to solve it, attracting developers for one task and not thinking about improving the product as a whole.

Our main mistake is that we did not build a financial model. It seemed to us that there was no objective need for this - after all, we had free money, we had something to rent an office for and pay wages. The realization that it is time to work on business processes comes only when money runs out. Although at this difficult moment it sometimes seems that it is easier to re-enter the investment market and attract more and more.

The lack of a financial model led to misses in the motivation of the team. For example, we took a specialist with serious competencies, and used only one fifth of them. We did not calculate the real cost of specialists. And after a while, several developers left. People expected career growth and, consequently, wage growth, but did not receive it.

I did not read the books that would be useful for the company. I liked the inspirational success stories of "Losing Innocence" by Richard Branson. Such literature is uplifting and inspiring for business feats, but does not add knowledge. The base is important - the basics of microeconomics or ordinary logic.

When did the investment end

Investor money ended almost a year ago. This was not a surprise. But to say that we were fully armed, prepared for this, I can not. We earned less than we spent - we were in a crisis. This state is permanent for a startup, so, probably, it is easier to live through according to the formula “saving drowning people is the work of drowning people themselves”. What was our salvation?

We calculated the company's economy and built a financial model that allowed us to make a profit and survive. Gradually put in order the annual and monthly reports on financial activities, began to build forecasts relative to the reports on expenditures coming from the accounting department.

Next, we reorganized the development and sales departments. Sales were divided into several segments: prolonged (repeated purchases), “cold” and “warm” (working with registered clients independently). And for each of them, we considered an economic plan. In the development identified two departments - product redesign and investment development of new solutions. Thus, we have narrowed the focus, and the efficiency has doubled.

We looked at what we could save: contractors for telephony, electronic payments, etc. Some called and asked for a discount of up to 30–40%, referring to times of crisis. Someone worked. The crisis gives its positive moments, adequate people are ready to meet.

The next step was to work in the support department. In our business, prolongation is of great importance. After analyzing the work of the support department, we realized that it is possible to process a smaller number of customers with greater efficiency. We finally began to predict which customer would be profitable and which one would not.

And the last - I finished the course on microeconomics on Coursera. I learned a lot about the company's unit-economy. In addition, the book Essay on Investments, Corporate Finance and Company Management by Warren Buffett was very useful for me. In it, all business processes are set out in monetary terms, which means that you can estimate some of the cases on your company.

When the investor's money ended, it was really scary. We were left without support, there were powerful competitors all around, and this was added by the financial crisis. But today, having done important optimization steps, our company feels even better than at the start. There is no longer an investment cushion, but there is a profit that customers bring to us.



Anton Chernyatin, CEO of RedHelper.