Four Financial Lessons Learnt As A First-Time Founder
Founder Insights
Moving from being an employee to suddenly founding and running your own business in the UAE can be at once exhilarating and daunting in equal measure. Now, if you’ve taken this step, then it’s worth pausing to congratulate yourself; no doubt you’ve already been through the process of putting together your business plan, honing your concept, securing backing, and ultimately setting up your entity. But now, get ready, as the hard work is about to start.
Key Takeaways
- Understand your three cash flow buckets: operating activities, investing activities, and financing activities.
- Focus on acquiring loyal customers — not “fake” ones driven solely by discounts and incentives.
- The lifetime value of the customer divided by customer acquisition cost is the equation that determines survival.
- Stay agile — be ready to pivot and re-pivot as opportunities and challenges emerge.
The first 90 days will be a whirlwind of new business opportunities, and establishing yourself and your proposition. And while it’s incredibly exciting to become a first-time entrepreneur, there are a number of fundamental basics when it comes to managing the financial aspects that can ultimately make or break your success in the early days.
With the UAE being a hotbed for SMEs, accounting for 94% of the total companies operating in the country and contributing more than 52% to the country’s non-oil gross domestic product, there are boundless opportunities if you get your financial model right from the get-go. Here are a few of the lessons I’ve learnt as a first-time founder, when it comes to keeping how you spend your money in check, so as to set you up for success from the start:
1. Know Your Cash Flow Buckets
With respect to spending and cash flow, this can fall into three clearly defined buckets that need to be addressed. Firstly, it’s important to define your operating activities, i.e. the running of the day-to-day business. Second of all, you need to look at your investing activities, and this also includes investing in intellectual property. Finally, you also need to consider your financing activities when it comes to equity fundraising or debts.
What many startups do is to get the cash flow from financing activities, and then they spend this money on the operating and investing activities. They start to throw capital at the basics, with the view that to grow quickly, they need to get the talent and the people there to be able to deliver on the ambitions laid out in the business plan. But while you do need to “burn to grow,” you still need to keep a few things in mind.
Product spending is naturally important, but you need to build in the right manner based on research and data– only then comes action. Rather than deciding what the market wants, listen and do your research to ensure what you’re building caters to demand. Fundamentally, you need to deliver an agile product or service, that you can then continue to build on for long-term growth. And that future sustainability needs to be at the top of your mind; the more robust, well thought-out, and solutions-driven your product or service is, the more you will be able to cater to market needs.
| Cash Flow Bucket | What It Covers |
|---|---|
| Operating Activities | Running the day-to-day business — staff costs, customer acquisition, product delivery |
| Investing Activities | Investing in product development, intellectual property, and long-term assets |
| Financing Activities | Equity fundraising, debts, and capital inflows that fund operations and investments |
2. Aim to Secure Loyal Customers
There are a lot of things to think about when it comes to your operating activities. One of them is that you’re spending on people- your staff costs are a “heavy” element, especially at the beginning. In addition, if you have a product, you will also be spending on your customer acquisition costs, and this is where we need to take heed of potential “fake” customers.
This is a typical startup problem. A new business launches and builds its financial model, goes out to the market, and starts spending. The startup boosts its customer base by offering incentives, promotional codes, and discounts to attack the market. The customers then start to come, and every day, more and more are flowing in; life seems to be great.
But this is where you need to pause and take stock for the moment. Just how true or “real” are these customers? Many of these customers may be price-sensitive- so while you’ve brought them in through discounts or incentives, the moment you pull back on these, will you end up losing these customers? Are they loyal in that case, and, ultimately, do they have longevity? This is where it is vital to make sure you’re making the right moves to bring in the right customers.
The “Fake Customer” Trap
Customers acquired through heavy discounts may be price-sensitive. The moment you pull back on incentives, they leave. Focus on acquiring customers with real longevity and loyalty — not vanity metrics.
3. Remember to Do Reality Checks
Ultimately, all that you are building falls into a simple equation: the lifetime value of the customer, divided by the customer acquisition cost. If this basic human fundamental fails, your business will fail. So, when you’re calculating your total addressable market, you must be aware of these sensitivities.
This also plays back into the data- if you’ve done your research, you should have a good understanding of the market, and therefore by understanding your customer, you can build the right financial model to secure the right customers. Ultimately, it’s imperative that we are being realistic, and that we’re not creating illusions for ourselves. This then keeps us in check as a company of how we spend money.
4. Pivot (and Re-Pivot) Whenever Needed
Keeping the above in check should get your startup off to a good start. But what can sometimes happen when it comes to cash flow is that we get fixated on delivering on the pre-described plan. Yes, you need your focus and goals, but we have to play a nimble game. It’s important to remain agile and pivot -and re-pivot- when we need to.
We also need to know when to course-correct when we spot things going awry. There will be so many curveballs, new opportunities, and unforeseen challenges that come up at the beginning. It’s important to be able to be adept to adapt to these, as they may be the ticket to unlocking new opportunities and future growth.
The importance of this played out very clearly with my company, Hotdesk. When we started securing interest from enterprise, we knew that we had to quickly shift gears. This became an additional piece of the business that had very different fundraising requirements. We started getting traction and interest from corporate investors, for example, which was very different from what usually happens in the region.
So, the lesson here is that whilst you need to have a plan and have a strategy that you execute day-in and day-out, you also need to note that plans can and will change. Being nimble is the key to success here.
First-Time Founder Financial Checklist
Do This
- Define and manage your three cash flow buckets
- Build based on research and data, not assumptions
- Focus on loyal customers with real longevity
- Run regular reality checks on LTV ÷ CAC
- Stay agile and pivot when opportunities emerge
Avoid This
- Throwing capital at basics without a plan
- Deciding what the market wants without listening
- Chasing vanity metrics with discount-driven “fake” customers
- Creating illusions about your total addressable market
- Getting fixated on the original plan when things change
While running a startup is an exciting journey, when it comes to the financial lessons learnt, being savvy to your market and your customer, and understanding your buckets of spending will help keep you in check in the early days. There is no secret formula that guarantees success- but getting the fundamentals right when it comes to your finances will set you up with a sound proposition, based on solid foundations, that you can build on as you scale.
Frequently Asked Questions
What are the three cash flow buckets every startup founder should know?
The three cash flow buckets are operating activities (running the day-to-day business), investing activities (including investing in intellectual property), and financing activities (equity fundraising or debts). Understanding these buckets helps founders manage how they spend capital and maintain financial discipline from the start.
How can startups avoid acquiring fake customers?
Startups should be wary of customers acquired through heavy discounts and promotional codes who may be price-sensitive. The moment incentives are pulled back, these customers may leave. The key is to focus on acquiring loyal customers with longevity by ensuring the lifetime value of the customer divided by the customer acquisition cost remains healthy.
What is the most important financial equation for startups?
The most important equation is the lifetime value of the customer divided by the customer acquisition cost. If this fundamental ratio fails, the business will fail. Founders must be realistic about their total addressable market and ensure they are not creating illusions about their customer base.
Why is pivoting important for startup founders?
Pivoting is important because plans can and will change. There will be curveballs, new opportunities, and unforeseen challenges. Being nimble and able to course-correct when things go awry is key to unlocking new opportunities and future growth. At Hotdesk, securing enterprise interest required a quick shift in gears and different fundraising requirements.
What makes the UAE a good environment for first-time founders?
The UAE is a hotbed for SMEs, accounting for 94% of total companies operating in the country and contributing more than 52% to the country’s non-oil gross domestic product. This creates boundless opportunities for founders who get their financial model right from the start.
