It’s the biggest problem confronting any new commercial venture: How long before the business runs out of money?

NO matter if you are a speculative miner or a hi-tech start-up: the No. 1 problem you confront in starting any new commercial venture is “cash burn”.

Ross Greenwood talks at the Inner West Small Business Expo at West Ashfield.

NO matter if you are a speculative miner, a hi-tech start-up or a small business person with a great idea: the No. 1 problem you confront in starting any new commercial venture is “cash burn”.

The concept of cash burn is so important that most mining companies and small cap companies make it a key part of their annual and interim reports put out to the ASX. And it’s pretty simple to work it out.

Based on your current costs, and the amount of cash you have on hand, how long is it before the business runs out of money? The next question always goes: can you get the business to the position of being cash flow positive before it runs out of cash?

If the answer to that question is no, then another question is asked. Where will you get more cash to keep the business going? If you don’t have an answer to that question, you don’t have a business.

In the back of any entrepreneur’s mind is the law that states no organisation is allowed to exist if it cannot repay its debts if and when they fall due. It’s one reason many start-ups favour shareholders’ equity in preference to debt. It’s a little like holding a credit card (that can get you into real trouble) and a debit card where you can only spend what you have.

There is no doubt that many ideas are not instant winners. As our case study this week, Joe Viglione, discovered with his Oztent: it took several years — and about $300,000 — before his award-winning design became a commercial success. Without the persistence, the cash and the downright stubbornness — the world might never have known of his radical tent design.

If you cannot fund your venture personally, the stakes become more critical as your cash reserves get lower. The truth is that any equity partner becomes like gold, and you should not underestimate their ability to wrest control of your idea from you in exchange for your hard work. For many private equity players, this is their stock in trade. If they can find a smart venture that is cash poor, they can provide the capital in exchange for a massive slice of the business.

The businessperson who came up with the idea can be so desperate for the cash that they might work for little (with the promise of a payout if and when their idea works).

But as soon as control of cash and equity has moved to a big player, the concept of working for yourself evaporates instantly.

Many business people often talk about patient capital to nurture and support small business owners and entrepreneurs. In a perfect world there would be many such people.

Sadly the predatory types are more common in the small business space ... wolves feasting on the remains of once-great aspirations.

JOE DIGS UP HIS OWN LUCK

JOE Viglione left school at 14. His teacher told him that he was hopeless and would spend a life digging ditches.

It’s true Joe, 79, has probably dug himself out of a few holes in his life, but not because he’s a ditch digger. He has led the full and rich life of an entrepreneur who has backed his ideas and, generally, come up trumps.

He’s run taxi trucks, cleaned toilets as a contractor, sold groceries and goods to corner stores from the back of a truck, made aviaries, gazebos and garden sheds. He even ran a restaurant on the Central Coast for a while.

His lesson: “If someone offered me a $4 million restaurant for free tomorrow, I would knock them back. Of all the things I’ve done, that is too hard.”

. Joe Viglione in OzTent in Horsley Park / Picture: Peter Kelly

But Joe is the living lesson that when you sleep, and dream, you often come up with your best ideas. The big trick is to get up and write the idea down.

It started when Joe took his family camping on a block of land he bought at Callala Beach near Huskisson. He borrowed a tent from a neighbour. It was a disaster. Pieces were missing; it was impossible to put together. Joe forgot about the whole episode until a couple of years later ... when he sat bolt upright in bed.

“I was having a dream about a tent I could put up in 30 seconds. It was 3am and I knew I would forget about it if I went back to sleep, so I got up and made a sketch.”

The Oztent was born. It’s now in 10 countries and Joe estimates 40,000-50,000 have been sold. Annual turnover is said to be more than $7 million.

“We have 32 people working for us. My daughter-in-law runs the (Horsley Park) business. And two of the grandkids are working in it.

“The funny thing is that I’d spent $300,000 and didn’t know where I was going with it. If you come up with gold you have to know what to do with it.”

Those early days were tough. Shops wouldn’t stock the tent because it rolls up to 2m long.

But he kept at it.

Now more than 300 Australian retailers stock the Oztent — not bad for a bloke whose destiny was supposed to be digging ditches.