If your startup is going to survive you need an estimate of the time you will be in the wilderness before you reach Canaan. Many businesses fold up simply because they underestimated the years of hard work with no pay which is what differentiates real entrepreneurs from employees.
The amount of time and money a business takes to succeed determines whether the owner will give up or stay through to the end. The knowledge of this question is therefore very important to any entrepreneur but only experience can give the answer. I will try to answer this using examples of successful companies that have managed to break resistance and become profitable.
Researchers have said time and again that most Kenyan startups die before or after their second birthday. Having been an entrepreneur myself for more than 5 years now, I can say that the reason this startups die is not because of bad ideas but because they underestimated the duration it would take to turn profitable. It should however be noted that it takes more time and money that you may think for a business to turn profitable.
The larger the impact of the company the longer it takes to become profitable. Companies selling tomatoes may turn profitable in a week, while a motor vehicle manufacturing firm may breakeven after 10 years. This knowledge is very important for any business to survive difficult years and the owners need this psychological preparedness in order to stay the course.
This cleaning company is currently the market leader in the country controlling major contracts ranging from the government to the United Nations offices. The founder of this company Alex says it took about 3 to 4 years for the company to stabilize. Mr Alex says many people gave up and left after years of struggle but those who stayed on are reaping big.
Me and others run a cleaning company in Nairobi and it has taken us more than 3 years to turn profitable. But this also depends on the experiences of the people in your company and the capital available. People with experience for instance in sales who have established customer relations may actually turn profitable in two years or less.
Kenya’s only business newspaper was launched in 2007 and has grown in circulation to about 10,000 copies in seven years but has not turned profitable for all that time even though it was continuing to grow. This tells you that certain types of businesses are not for everyone. For you to sustain some ventures, you need massive capital investments otherwise you will go broke before the venture breaks even. This newspaper has survived this long due to dependence on sister newspaper Daily Nation.
Am including blogs in this category because bloggers earn upto Sh2 million a month or more from these seemingly not so significant entities. Many young Kenyans move into blogging expecting to start making money in a month or five. But shock on many of them because more than 90 per cent of them die before their first birthday. It takes more than a year for most blogs to make money. Blogging is just like any other business since it takes long to stabilise. It takes at least 2 years for many bloggers to really start depending on their portals for a livelihood. It however must be stated that the duration it takes for a startup to break even is not an iron law. It depends on capital available, human talent and the business environment.
The case of Cyton is different, when you move a group of seasoned managers who have key customer contacts into a room to survive or die they will flourish much faster. It is much easier to consolidate a formidable entity that can sprout faster than peers who are still to trying to learn the ropes in the same market. Cyton has exhibited the vibrancy only established companies can match up.
Many people know that insurance can be a very profitable business but again few dare step into the waters because it takes years of tough work to start making real money. It takes at least 3 years for an insurance agency or sales person to truly learn the ropes of the business and start making good money.
The owner of Alibaba who just visited Nairobi a few weeks ago said that it took him more than 8 years for his company to turn profitable showing how determined he was to succeed.
Eight years is a long period of time if you are to survive. One also requires adequate capital especially coming from venture capitalists to pay employees and bills. The bigger the impact of the company the longer it takes to take off.
This US based electric car startup that started more than 10 years ago is not profitable as I write this article however its stock market valuation is more than Ford and General Motors. This perhaps is one of the longest durations a startup has ever taken given that we still don’t know when it will break-even. The grit or the nerves it takes for one to stay the course is what makes the difference between great men and average people.
It also must be noted that enterprises survive faster depending on the choices the owner has at their disposal, people with alternative options in difficult times will choose easier paths than those who have no other option. This is why part time startups may never grow large because their owners derive comfort elsewhere.