Turnover is vanity, profit is sanity, but cash is reality: Guy Rigby

Startups should focus on building a management team and reducing dependence on the founder, Rigby tells Ankita Rai

What are the key things to keep in mind before one starts a business of ones own?
Before starting a business, an entrepreneur should consider the following: suitability of the individual, the market opportunity, a realistic vision, an identifiable strategy and availability of finance. If any one of these is missing, the business is likely to fail or become one of the living dead but which often eke out a hard-earned living for the founder.

Should startups focus on profitability in the early years? Why is this trade-off between profit and growth?

It depends. Most businesses should focus on profitability to conserve cash ( for example, a traditional business like a restaurant business) as they are likely to gain access to only limited amounts of funding. However, certain businesses are predicated on high capital expenditure (for example infrastructure projects) or significant development and marketing costs (Twitter) to attract and build an audience. An unprofitable company with a large following or audience can be extremely valuable, but these are few and far between. Remember the phrase: Turnover is vanity, profit is sanity, but cash is reality.

In a startup, the loss of a key person can result in significant financial hardship. How should one reduce this dependence?

Building a management team and reducing the dependency on the founder should be a priority. Ultimately, every role should be capable of individual recruitment but this is hard to achieve in the early days where responsibilities are often mixed. Be aware of the most likely pressure points and take on a finance director (or CFO) early on, even if on a part-time basis, to manage financial risk.

The transition from an entrepreneurial role to a CEO is difficult...
Not all founders make good CEOs. Many are creative thinkers without the necessary skills to scale a successful business. Founders should consider this early on and recruit people who are better than them in an operational role. Where founders do have the necessary skills, building a management team is an incremental process. I always recommend getting a finance director (aka CFO) first and a non-executive director (wise/ grey hair/ been there/ seen it/ done it) second. This can be followed by line-management appointments, such as sales (often the primary function of the founder, so a difficult one to hand over), marketing and operations.