The Start-Up Revolution: Empowering entrepreneurship like never before
10th July 2017 | Alnoor Bhimani
Alnoor Bhimani, author of Financial Management for Technology Start-Ups, discusses the growing opportunity for tech entrepreneurs and how they should approach financial management
We find ourselves today at the start of an industrial revolution. The first revolution happened 250 years ago with mechanization as its engine. Another about 100 years ago all about electrification and mass production. Then 50 years ago, electronics and automation started a third revolution. Right now, our physical and virtual worlds are converging, which is revolutionary because the ways we produce, consume, move, communicate and interact are fast altering.
As the first three revolutions evolved, not many people knew much about the scale of the changes taking place. But in the present day, signs are all around us that we are in a period of transformation that is truly epochal. As the fourth industrial revolution takes hold, the material and the digital will merge more and more, opening up huge possibilities for reconfiguring our activities and exchanges. If we choose to, we can influence the direction of the revolution that has begun. It’s the awareness that we can do so which makes now a good time to launch and grow a tech start-up.
A galaxy of opportunities exists for coupling new technologies with commerce – some start-ups doing this right now will become the tech titans of tomorrow. Attempting to create value out of tech ideas is no longer complex or resource-intensive, as anyone can now combine Google’s capacity to unleash information with accessing one fifth of the globe’s population via Facebook. This development, complemented with the ready availability of cheap web services and the many possibilities for developing ad content and getting it in front of readers via Google Adsense or Amazon affiliates, puts into position all that is required to create a tech business.
There’s little to stop anyone in the ongoing industrial revolution to launch a tech start-up idea. What is less visible is that to be effective, tech businesses need a particular approach to financial management.
To achieve some degree of financial success, any business has to ask certain questions:
- Is the business creating value?
- Is it creating as much value as it set out to?
- Is it using the fewest resources to generate the most value possible?
Of course, tech start-ups need to look at these questions, but their financial circuitry is different. Tech entrepreneurs need a lens that enables them to hone in on financial strategies that are in tandem with their cost structures and business objectives. They cannot rely on conventional accounting, and need a simpler and more direct way to answer these questions. Additionally, tech start-ups not only need financial and other metrics to manage the business, but also to satisfy investors’ requests for information. These needs lead to another uestion to address: Are investors convinced you have enough financial savvy to properly run a tech start-up?
It’s no surprise that tech start-ups need to be sure since, in the U.S., half of small businesses fail within a year, and almost 90 per cent of business failures are due to management mistakes (including a lack of financial responsibility and awareness). In the UK, studies have shown that more than one third of business failures are due to founders having a poor understanding of financial management. Inadequate financial understanding is also viewed as a key reason for start-up failure across Europe, the Middle East and North Africa.
Ultimately, recognising an entrepreneurial opportunity is not enough – you have to understand how to translate an idea into a viable business whose growth then has to be managed. In the tech innovation space, financial understanding of the right sort is crucial.
About the author: Alnoor Bhimani is Founding Director of LSE Entrepreneurship and Professor of Management Accounting at the London School of Economics. He is widely published and an established speaker to managers and business entrepreneurs, as well as scholars and accounting practitioners across the globe. He currently carries out research on the interface between business growth and digital technologies, including the Internet of Things, blockchain, AI and 3-D printing.
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