Startups have different business models, but all of them are in a situation where budgets are tight. In other words, accounting turns into a very important element.
Hopefully these tips will help you take better business decisions, as the flow of income and expenses are something all entrepreneurs should worry about.
To keep your startups accounting updated and well-organized at all times is a hard job, and that’s why there’s a lot of mistakes young companies often do.
Use a professional accountant
The first mistake startups often do because due to lack of experience, is to not hire a professional accountant.
A startup must know, at all times, its liquidity; How much money it owes to its suppliers, and the bills that haven’t been collected yet. It must also know the average of days that the customers take to pay, and detect those customers who are slow payers.
Being helped by a person with deep accounting knowledge will allow you to know the condition of the income statement, showing how the business is performing.
Many startups don’t see the value a professional accountant can add to the business. Apart from the actual accounting, it’s a person who can help them to develop their business, offering some advice about tax benefits, incentives and about corporate constitutions, etc.
We often encounter startups that doesn’t have records of their income nor of their expenses.
As soon as you get your first paying users or clients you will have to save a copy of each operation made between you and the customer.
To make it easier, a good way to organize it, is to order it chronologically (monthly), or in alphabetical order by the clients name.
As you’re organizing the payments, it’s just as necessary to organize all the expenses. You should divide them into categories, for example: offices expenses, stock acquisitions, supplies, insurance, taxes, etc.
Small expenses become big expenses
When every penny counts it’s easy to not register the tiny expenses, they seem so small, and everything would look better if you just kept them off the balance sheet.
This is a big mistake because you’ll lose the the right to deduct taxes from these expenses.
This means that each team-member in the company needs to write down all their expenses, including the teeny-tiny ones.
Just as your grandma tells you to save your cents as a child; “because enough cents will in the end make a dollar”, it’s the same with companies. There’s a lot of small expenses, and as the team grows, all people accumulated small expenses becomes significant.
However, remember that personal expenses never should be mixed with business expenses. This is one of the biggest reasons why companies get an unpleasant visit from the tax authorities.
This might seem obvious to most of you, but working closely with startups and their accounting, remembering to pay taxes is a bigger issue than you might think.
Any business activity is subjected to taxes, and startups and entrepreneurs, just like any other business needs to present different types of fiscal statements to the tax authorities, like VAT, PIT, corporation tax, etc.
Remember, that as an entrepreneurs you can deduct money from your personal taxes, when you every three months have to present the different tax models mentioned above.
It is also recommended to save a copy of your tax declaration (ordered by chronological order, every 3 months and every year), as well as a registry of the taxes that you have paid and what tax authorities has paid you back.
In every startup and company there is always a “first office” where everything began: this office is never planned and it can be whatever space that you get as cheap as possible.
You are just at the beginning, just trying things and there is no need to have expenses before the idea has been validated. As so many before us, itnig started in a small cubicle inside a parking-lot that belonged to the CEO’s family. It has no natural light nor ventilation.
Even though it’s all good memories, we quickly (and luckily) moved into a big desk that the young Teambox (now Redbooth) borrowed us in exchange of support. And then later to the first office we actually paid for, a weird space of 50/sqm with low ceilings in a passageway close to Sagrada Familia (huge cathedral in Barcelona). We were just jumping from one space to another looking for the cheapest place where we could fit all our members.
The reasons why I’m telling you about all of our weird offices, is to make the point that you don’t need a fancy place until you have regular income. Before that, you only need internet, enough desk and coffee.
So, how to design offices for startups in high growth?
The main requirement is to have flexibility. When looking for an office check that you have more space available in the same floor or building to keep fitting all the new employees. If you’re a startups your main goal is often to grow fast, and jumping from office to office creates unnecessary expenses.
Co-working spaces can be a good choice but check first that they have more free spaces where to fit your growing team. Also, when signing the rental contract, negotiate a 3 and 6 month rolling break so you have more flexibility to leave the office once it for some reason doesn’t fit your startup anymore.
Go for an open space, it’s everything. It makes it easier to be flexible, as we already talked about, but it also makes it easier for your team to interact, be social, share knowledge and be creativity.
Just as humans, rooms need air to breathe.
It can be hard to find an affordable office that also has a lot of space. A smart thing can be to look for an office with a lot of windows, or high ceiling, at least if you pay per square meter, and want the rent to remain as low as possible.
When you close your eyes and picture a startup office, you might think of ping pong tables, colorful walls, big comfy sofas and big kitchens with company breakfasts. If this is what you imagined, you saw the itnig office.
When you work in a startup, going against the stream, betting against the odds, it helps a lot if the office you’re working in support your hard work with elements of fun.
Don’t have a boring office. For almost three years we had a white and grey office, it looked like the inside of a bank. Sterile, serious, boring. We’re lucky that the office has a lot of light with huge windows showing beautiful Barcelona, but we didn’t add any value to it.
When you work with startups, one of the biggest goals is to attract talent. And when you’re able to hire the best people, you want to keep them. You want them to feel like home at the office. Investigate your employees, find out what they like and don’t like, and in the end make the office reflect the people that are working there.
According to the internet it’s thousands of startup accelerators programs & incubators out there, looking for the most talented startups to accelerate.
What started with Y-combinator back in 2005, was followed by Techstars, 500 startups and a couple of thousand other organizations which now all are competing for the same talent, according to Angel Garcia, director of Startupbootcamp IoT, Data & Cybersecurity in Barcelona.
It’s turning into a very crowded space, it’s much harder to find good startups for every round we do.
Online I’ve seen lists of thousands of so-called accelerators. Many of them provide mentors, a table to work at and other perks, but they don’t run sustainable businesses.
The business model
Just like venture capital investors, both accelerators and incubators are betting on a large volume of projects, and hope one out ten get’s a big exit.
That’s why it’s hard to say exactly what accelerators that are successful and which that are failing, says itnig president Bernat Farrero and points to the business model:
In practice, we’ve had virtually no time to see any of this models succeed just yet, even the few biggest ones have kept growing their expectations and none has yet consolidated and shown a real business success case.
Unlike most accelerators that are funded by VC’s, Startupbootcamp is funded by corporations that all get access to the products the different startups are creating, according to Garcia.
We’re different from most of the accelerators out there. It’s not only our business model, but 82 percent of our startups that have gone through our program is still going, and that’s a high number.
Evolving into venture builders?
Both Farrero and Hunt used to run accelerator programs, but later chose to leave the space to dedicate a deeper focus on fewer projects.
President Farrero explains that itnig didn’t find it sustainable to have a large number of startups go through a fixed program:
If we look at all of the accelerators today, both the ones we call successful, and all the others, I’ve never heard of anyone being profitable.
Startup studios or venture builders has been gaining more and more tractions lately, with studios like eFounders, Betaworks, Idealab & itnig pumping out new companies annually the last years.
Also Patricio Hunt, managing partner at Intelectium has been transitioning over to an approach of building talented teams, instead of accelerating already existing startups.
We have, as Farrero, evolved into more of a venture builder the last years. We study the markets, talk with corporations and possible future customers, and create products we know are needed.
Farrero says their approach has changed drastically the last years, they now focus on finding makers:
Instead of using valuable time on accelerating tons of projects, we are using that time to study the markets and current trends, as well as attracting the best talent to come work for us.
Even though Startupbootcamp is working with a different business model, also Garcia stresses the importance of knowing your markets.
As we work in industries where everything is changing very fast, we need to understand the markets better than most people do.
The amount of accelerators getting started is not decreasing, but as the amount of programs increases, the less credibility the accelerator gets.
All the three directors agree that the few accelerators with an established brand will survive, and so will the ones that have implemented sustainable business models, but the rest will have to pivot or innovate into something new, something startups actually need.
To get the full interview, go to the video in top of the article.
The first accelerator as we know it was Graham’s YC in 2005, followed by the franchise Techstars (2006), Seedcamp (2007), 500 Startups (2010), up to 1.600 currently in Crunchbase , along with incubators, seed funds, investment clubs, pitch forums, bootcamps, weekend hackathons, public and corporate incubators, … they are all different models that systematically look for winner teams and exchange a relatively low upfront investment, a set of services, a grid of mentors and other creative perks in exchange for equity stakes in their companies.
The profit of this model usually comes from returns on capital. One characteristic of equity based business models is that they yield results in the long term (generally 4–7 years). Thus, in practice, we’ve had virtually no time to see any of this models succeed just yet, even the few biggest ones have kept growing their expectations and none has yet consolidated and shown a real business success case (as accelerators, not as portfolio startups).
Conversely, we’ve seen many accelerators rise and fall, and they’ve shown less rigor and validation in their plans and results than the startups they try to accelerate. Plus, most accelerators have required a lot of cash to sustain their team structures and the startup investments, no matter how low they are. And their ordinary income is usually limited or zero.
How can we industrialize the hunt for opportunities that have the statistical probability of finding a needle in a haystack?
I learned that opportunities show up while looking for something else. Most business success stories have a big part of that, they are based on a series of random events in time combined of course with commitment, vision and great effort. And yet, none of these stories are repeatable. Most stories require different learning paths, resources, timeframes, influences, etc. to reach success. To give real support to that, we would need to create a tailored suit for each company.
But accelerators keep promising their investors that they are better-off in finding opportunities systematically, and defining one-fits-all programs for N number of companies, with N number of office hours, N mentors, N resources per startup, and so on. But the question remains, are they really creating value or systematically praying to find a winner team in each batch?
We could argue that, if you are the best of the best, that is: you have rockstar partners full-time involved in the screenings, top-notch mentors such as Zuckerberg, Houston or Hoffman influencing the program, you are guaranteed future investment no matter what you do, you have a real network of first corporate clients, potential partners and suppliers.
You would be creating a closed economy capable of triggering self-fulfilling prophecies. But you should still cope with the intensity and the rhythm, digest applications from the best entrepreneurs in the world in very very big numbers, and keep doing that forever, if you are to maintain your program running. Very few accelerators fit in that description, maybe only Y-combinator. Even other popular ones like 500 Startups are moving up to more advanced stages of the investment lifecycle, and others are focusing on doing “innovation consultancy” to corporations (which is an entirely different business model).
For equity to be revalued and returned, the most usual case is selling or IPO. Other possibilities for selling stock are very hard, and usually out of control. So in the business plan of any accelerator, it is hard to add lines of income (from returns on equity) at any point in time. The only predictable cash-in is that paid by investors.
We should add up all the chaos from a startup lifetime: founder fights, many financial rounds, creative VC contracts, expensive executives, and other painful but unavoidable woes in each startup life. At some point the once shiny presence in the cap table has evolved to pure insignificance.
So there’s no step in this chain which I wouldn’t tag as HARD or highly unlikely:
Hard to attract great deal flow
Hard to choose good from mediocre from big crowds
Hard or expensive to invest in high number of startups
Hard to survive and scale
Hard to liquidate and sell…
The conclusion is that accelerators have even less chances of success than the startups they accelerate.
Screenings and mentors
Pitch screenings usually are the only way to digest all the deal flow of startups in a finite amount of time. But, if you pay attention to the process, you realize that it has more to do with theater playing and story telling than scientific business facts.
It is difficult to make good choices based on such short interactions, but at the same time it is the only way to fit 10, 20 or up to 80 candidates in a program (out of 100, 200 or 1000).
Another at least questionable thing are the mentor grids. Every accelerator has their own mentor grid, many of them are shared between different accelerators. In some cases, mentors are self-assigned, and usually they are paid in equity.
In the real world, a good entrepreneur will have to fight to search and gain his/her own allies. The best mentor is the one that has valuable knowledge for the particular sector or activity of the startup and creates a long term love relationship with the entrepreneur and the project. The best mentor is convinced to risk his/her own money to invest in the company. The best mentor has something to loose when he/she gives advise.
In some cases, mentors, or even accelerator managers don’t have direct experience scaling real world businesses, and seek to learn themselves from startups and not otherwise. This makes it even more difficult to create the right abstraction for the acceleration program to work, not to mention to plan for its industrialization.
We keep hearing the songs about “unicorn” startups that combined are worth more than most European countries GDP. Who can blame contenders who want to replicate that in their backyard? But often, the real risk involved is closer to pure gambling.
Don’t get me wrong, accelerators are great for society and economy. Most entrepreneurs don’t know where to start from, and any structured help can put them up on their feet. And they are not stupid, if they decide to be accelerated it’s because they are getting value from it… their business will be the sequence of their decisions after all. One different thing though is wether accelerators are capable of capturing value for themselves. At least most of them proved the opposite.
They combine so many highly unlikely and unpredictable success factors that in practice they are almost impossible to plan and execute.
Top ones aside, the future of accelerators will be more tied to the government (either directly or through public subsidies), as they do have a social benefit and it is fair to be so, or they will be tied to corporations as purely subsidized think tanks (hopefully entrepreneurs will understand the real implications of that), or they will become highly specialized by sectors.
Many existing ones will evolve to either venture funds (post-traction investment funds) or venture builders (responsible for the entire execution of the business).
Why itnig is a venture builder
At itnig we start one or two companies each year from scratch with teams who have previously worked with us in some way, so we know how they think and execute. We don’t do screenings, instead we analyze markets.
We don’t have a fixed program, instead we accept direct responsibility to scale each business as any other founder. We don’t have a short-term exit plan, but we keep involved and working in the business for as long as it requires.
Our goal is to grow the business as much as possible and execute its vision, it is not to solely to raise new financial rounds. Our services are not based on equity, they are paid by startups at their cost, according to the needs of each startup. We strive to keep always a very lean and flexible common structure (outsourced if necessarily), making sure it never becomes a yoke to anyone, and we are 100% transparent about our ordinary P&L with the rest of the founders, so there is no room for conflicts of interest.
Of course a venture builder has many cons too, as it is less diversified and it involves much bigger risk per investment, but that would be the subject of another post.
At itnig we put all our focus in finding the right talent to work in our startups, part of this talent will be our cofounders in our future ventures.
Four or five moments, that’s all it takes. To be a hero. Everyone thinks it’s a full-time job. Wake up a hero. Brush your teeth a hero. Go to work a hero. Not true. Over a lifetime, there are only four or five moments that really matter.
— Colossus, Deadpool
I love that quote, so much that I’m starting this post with it. You, as we all do, might think “I’m not that quick to judge someone. I weigh both the good and the bad.” — but that’s not how humans work.
Big groups of people tend to judge quickly. As a group we come to conclusions in the blink of an eye without taking into consideration all the factors, no hesitation whatsoever. Consider Twelve Angry Men. Consider Steve Bartman. We do it to people, and we do it to our tools, innocent inanimate objects.
And if you think you are different, think if this has ever happened to you before: “Sorry, I meant far not fat! F***ing autocorrect”.
Once again, your phone’s software has embarrassed you by incorrectly predicting the word you meant to type. What a betrayal! Yet after accurately correcting thousands of words, that mistake is the one we focus on, the one we remember.
When that happens in your daily life to things that are under your control, you have two choices: complain or fix them. But for some reason I see more people “hating” than doing something to change what’s broken — even if it’s not actually broken, only broken according to their standards.
Personally, I don’t even look at the keyboard when I write on my phone, I trust that any mistyped letters would be magically ok when I look at the message. And it works most of the times. So in reality it’s an amazing feature. But a couple of moments, screw that up completely and we consider autocorrect to be rubbish.
Four or five moments are all it takes to perceive an overall good, great, or amazing tool as a piece of crap.
Not even ten years ago most mobile phones had only twelve keys to type with. Mobile phones, not smartphones, because we hadn’t invented that word yet. And we typed. Often. And fast. It was amazing just the fact that you could message someone. That you didn’t have to call them at home. We used to have to call somewhere, not someone.
But now you don’t have reception at your favorite restaurant and everything is b***shit.
We get spoiled really fast.
Last month I flew from San Francisco to Dublin in eleven hours. Direct flight. Unimaginable only fifty years ago. But if my flight was thirty minutes delayed that would have been unacceptable. If you could afford to sail to America from Europe back in the day, it would take you weeks. On a boat. And you’d dock on the East Coast. Add the train west to the trip and then call your LA–NYC leg painful. A single moment marks and defines the whole experience. We decide to focus on the bad ones more often than not.
Because, hey! My smartphone — a computer a hundred times more powerful than the ones that we used to send people to the moon — just made me look stupid when it couldn’t correctly predict the word that I was thinking of.
I do confess, I have that feeling often. Although I build interfaces, sometimes I find myself disappointed by technology because it’s not doing what I want it to do. But I am lucky enough to work in an industry where people invent new technologies, and I help fix those little mistakes. Working in the shadows. Improving things for the idle minded. All so you can order your venti caramel Frappuccino, with whip, while checking your tasks for today as you receive a lovely picture from your mom of her Dachshund dressed as a cowboy and a notification that your next meeting has been cancelled.
What’s the angle? Where’s the benefit in here? When something is bad, we try to improve it. As long as somebody experiences moments of crappiness in the tools they use, we will have roads for improvement and will keep pushing forward what technology can do for us.
Pessimists will see bad experiences. Optimists will see opportunities.