In recent years, we have witnessed a true "boom" of companies called startups, which promise to revolutionize the market and grow rapidly. However, many of these companies end up failing to deliver on that promise and do exactly the opposite, shutting down their operations prematurely and leaving a trail of failure and frustration for investors and employees.
One of the most decisive factors behind this situation is the disregard for governance and the lack of control that is commonly found in these businesses.
Perhaps the biggest problem that has been observed is the lack of cash management in these companies. While the expression "Cash is King" has been widely used in the business world to highlight the importance of financial management, many startups have ignored this fundamental lesson and end up in a tight financial situation. With money running out, many of these companies are forced to seek new funding rounds, dilute investor stakes, and make drastic cuts to their expansion plans, or even close their doors when they fail to secure new investment rounds.
In this scenario of poor management, the term shutdown emerges as far more appropriate to describe the situation of these companies than the term startup. While the term startup suggests a promising beginning, the term shutdown highlights the premature and failed end of these companies.
Many startups focus on spending money to grow rapidly, without considering the importance of maintaining a financial reserve and ensuring that cash flow is under control. As a result, these companies often find themselves in a cash-strapped situation and are more likely to become shutdowns than startups.
Another factor that contributes to the shutdown of these companies is the lack of experience among executives. Often, these entrepreneurs have innovative ideas but do not know how to execute them effectively. They may be skilled in marketing and sales, but they lack experience in financial management or general business administration. This can lead to management errors and an inability to keep the company running long enough to achieve success.
While many creative entrepreneurs continue to pursue the dream of building the next unicorn (companies valued at more than US$ 1 Billion), it is important to remember that long-term success depends on a careful and deliberate approach to financial management and general business administration.
If this does not change, we will see more and more shutdown companies and fewer and fewer startups. The market needs to pay attention to this, and regulate investments based on clear and efficient business plans, led by qualified and experienced professionals. It is no longer acceptable to bet on innovative ideas that lack the human capital and well-established processes required for innovation to happen.
If you are an investor, or have a great idea that you think can become a successful business, remember this expression: "Cash is King", because it can prevent your startup from being born already as a shutdown.
Article also published on LinkedIn.
