Building a business is essentially taking assets and combining them in a way that they become more valuable.
Let us say you have some gold. You could simply sell it as a precious metal or combine labour with it to make jewellery. The jewellery will have more value than the cost of the gold and the labour. So you took existing assets, combined them and made something more valuable than the sum of the parts.
Let us take it a notch higher. You could take gold, combine labour and precision machining to make a high end watch. The value increases further.
But ask a founder what he is doing and you will hear answers like building in public, focusing on customers, selling etc. Never heard anyone say – combining assets to enhance value.
The reasons are several –
a) Failure to market reflects immediately in your sales numbers. But failure to manage finances may not be immediately evident. These numbers creep up on you.
Imagine this scenario: You were selling the above watches in high volumes, at a high margin and giving customers 60 days credit. Your suppliers expect payments in 30 days. You will run out of cash unless you set up a credit line!
Many would celebrate the sales without realizing what is coming. It is in fact the high sales volumes that drive you to zero cash in this case. While product build, market fit etc are explored thoroughly, finance is not as well understood.
It is the unglamorous part. And in this, lie good possibilities of driving a competitive advantage.
If you can tweak what others do not pay more than cursory attention to, you can win. Build the sales and product engines in public. Build the finance engine in private.
