Many business founders tend to prioritize cash flow in the day-to-day operations of their businesses. The cash flow craze probably stems from a general belief 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 business?
According to a report by the Small Business Administration cited in Investopedia, 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. The most common reasons start-ups fail were identified as; lack of funding, inability to retain talents and build a strong management team, faulty business model, unsuccessful marketing initiatives, etc. Thus, from the foregoing, it is clear that cash flow is one 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, the Vice Chairman of Roche Holding Limited.
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In one of his digital execution for business growth lectures, Professor Ndubuisi Ekekwe, lead faculty at Tekedia Institute and Harvard Business Review contributor, notes that a business must develop because it aims to solve existing market friction (the demand-supply gap). According to the professor, ‘’in the quest to bridge a market friction, business owners need to build the capacity to do so by attracting investors and creating a formidable structure and team that will position the enterprise to solve the identified problems and thus contribute to the national wealth.’’
However, 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 have to take on accumulated debt as they are unable to push through 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.
In a diagnostic report of the early failure signals of agritech start-ups in Nigeria by FIDAS Africa, structural problems were identified as a major source of pain to agritech start-ups in Nigeria. In the analysis, 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 for 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.
The study further reveals that while companies believe in positioning people for creating and capturing value, they tend to pay less attention to how the people would generate profits through their portfolios. There is also an indication that companies are more interested in markets, products, and survival while there is least concern for employees, public image, technologies, and philosophy.
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 notes that for start-ups or businesses of any scale to build the necessary force to win over the market, they must ensure a balance in their weight (numbers of personnel) and acceleration (employees’ engagement and acquired competencies and skills).