Start-ups: ignore figures at your peril

• Published date: 05 April 2024
• Publication title: Irish Times (Dublin, Ireland)

Buying a ticket to self-determination has its attractions. Hours worked and rewards reaped are yours with no corporate overlord creaming off the fruits of your labour. And while the start-up process may be a steep learning curve full of glitches and long days, it’s also hugely exciting and free-flowing adrenaline does a good job of propping people up when pitstops for food and sleep are in short supply

Turning an idea into a tangible business is a potent driving force but it’s also a potential Achilles’ heel if the drive becomes all consuming. It can be easy to lose the clear line of sight and two of the biggest mistakes wannabe entrepreneurs make is having a solution in search of a problem instead of the other way around and ignoring financial red flags.

Surprising as it may seem, entrepreneurs can be very good at brushing money issues aside and focusing their attention elsewhere within the business.

New research from Emlyon and ESC Clermont business schools in France shows that entrepreneurs are often so blinded by their dreams that they believe a strong fighting spirit will be enough to get them out of most difficult situations. But the researchers say that common myths about starting a business, such as not making a profit early on, poor financial results and enduring personal hardship, mean entrepreneurs often ignore the early warning signs of failure.

Their findings are based on an eight-month study of entrepreneurs in a business incubator during which the researchers sat in on their financial forecasting meetings in order to assess their reactions to the figures and find out what actions they took on foot of what they’d heard.

Financial problems clearly raised anxiety levels among the entrepreneurs yet, more often than not, they continued to plough ahead even though the chances of turning things around were slim.

Successful entrepreneurs love to tell stories about their gladiator-like struggles early on and there are plenty of colourful tales about Silicon Valley start-ups where the promoters launched businesses from dorm rooms (Facebook) or slept in their offices and showered at the YMCA as Elon Musk did when he was starting Zip 2. However, colourful anecdotes are not the same as the black-and-white stories told by the money.

“Financial reporting gives a good insight into the performance of a company and should not be ignored,” says François-Regis Puyou, professor of accounting and corporate finance at Emlyon business school. “Entrepreneurs should...