Early in the morning yesterday I had a chance to catch up with a friend and entrepreneur who had started a company 2 years ago. I have known him and his cofounder for a year now and got an opportunity to learn about their business and employees very well. They are both very strong technical folks, and had raised a small seed round of funding from a few angels and a institutional investor.
Both the cofounders are among the nicest people I know. Patient, good humored and simple, they were both genuinely great bosses who attracted a cadre of folks who were loyal, intelligent and blue-collar in their attitude and expectations.
Yesterday was a more sober meeting though, since the business was not in the best of health. He was fighting the good fight, but it was very tough going. In the last 3 months, a very reputed institutional investor had pulled out of a verbal commitment to a term sheet, which caused the company to rethink their plans. Their bank balance was at about 10+ L (1,000,000) INR, salaries and gross burn (monthly expenses) were at 7 L INR (700,000) and net burn (after revenues) was at 2 L INR (200,000). Revenues was growing, and were at 5 L INR (500,000), but not as fast as they’d like.
The business was losing money month-on-month and they had about 5 months to survive.
The part that bothered me the most was that he knew the numbers well, but did not take any action, because he ran the company from his heart. He had known about the situation for 3 months now and still had not taken any corrective measures.
That to me is one of the biggest mistakes most non-business (technical or developer) entrepreneurs make.