Founders Must Focus on Profitability Rather than Burning Cash, says Ramani Iyer
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As start-up founders, one needs to shoulder responsibility when someone invests in their companies, according to Ramani Iyer, co-founder and managing director of local search service JustDial.
Iyer, a long-time entrepreneur and investor, stressed on how most start-ups these days chase wild valuations, without much care for returning the capital they have raised from investors.
After the recent debacle surrounding WeWork’s long-anticipated and eventually postponed initial public offering, the scrutiny and debate around start-up valuations and profitability has got plenty of traction.
“Your end focus should be not to burn money, your end focus should be how I can run the company more profitably,” Iyer told Entrepreneur India.
When Should A Business Stop Burning Cash?
The path to profitability varies from one business to another, said Iyer. “Some business, you get to see (profitability) in the very first year, some in three years, some in five years, some in seven years.”
In the manufacturing industry, it takes 5-7 years on average for a company to turn profitable, Iyer said.
JustDial took nearly six years to turn a profit, he added.
“If you are a trader...there are chances you might even see profits in the very first year,” said Iyer.
Value The Funding
“Anytime if you are thinking of raising a fund for your business, it is a responsibility,” Iyer said.
Founders must be committed to managing the money they get wisely and spending on building their business rather than splurging it.
“They feel like I have money today, I will burn it, I will get (a) second round of funding, I can burn even more,” he said, explaining the bloated valuations of many start-ups.