If you are going to be an entrepreneur, be a smart one
I have worked with business owners for more than 27 years. There are three tried-and-true tenets that help startups become mature companies:
#1 Going completely solo is a myth
I’ve heard from many entrepreneurs who said they decided to venture off on their own like a lonely hunter — their skills and instincts against the world. They craved being their own boss and charting their own course. Owning a business is like that sometimes, but isolation doesn’t work very long.
Regardless of the industry, every business is like a three-legged stool. It needs 1) finance, 2) operations and 3) sales and marketing. It often happens that an entrepreneur is strong in one area of the business, but not the other two. Knowing which area is your specialty and realizing you will need help with the other two is a key decision early in business planning.
Entrepreneurs who try to juggle this three-legged stool too long alone get tired and wounded. They may be afraid to invest in outsourced help or to hire. Even if they do hire, they may struggle with finding the right people to fit the culture or vision of the company. The fact remains that they can’t cover these three areas alone forever. They need help to have a life and any hope for growth.
#2 Cash flow is king
Depending on your business model, it could take one year, two years or up to five years for a company to collect adequate revenue to pay off debt and build reserves. Until that time, entrepreneurs may be living hand to mouth and dealing with a lot of financial stress. Before you launch, you have to realistically figure out all expenses and the revenue necessary to cover them. Additionally, you need to understand your profit margin above and beyond those expenses to actually make a profit and grow.
To be honest, most startups fail to figure out this fundamental math. Lack of financing and cash flow — and lack of time to fix it —are the biggest reasons for business failure in the first five years.
#3 Passion is motivating
Some people might think this is the easy one. It’s important to choose a business you love. In my experience, the most successful companies have a vision greater than making money. Business ownership is a risky venture; you have to be passionate about it.
But think of passion as a verb. Passion means learning everything you can about your customers. It means attracting people who share your passion. It must lead to fresh ideas and processes that improve delivery of goods and services. Passion helps you stick with it and find solutions when things are tough.
The successful businesses I know have passionate leaders in finance, operations, and sales and marketing. These leaders get people in the organization excited about learning and supporting the vision — not just performing duties like drones. True leaders are also skilled at keeping talented people focused on why they come to work every day. You will know you are becoming a leader when you are more focused on other people than on yourself.
Whether you are a newly minted entrepreneur or one who has reached an anniversary milestone, my best piece of advice is this: Talk to other entrepreneurs. Look for good mentors. Don’t rest on your own skills and understanding. There is always more to learn…even after 30 years in business. Trust me.
Smart entrepreneurs do these things:
- Plan on more expenses than you think you will have.
- Realistically estimate how long it will take to turn a profit.
- Choose a service or product you are passionate about.
- Find experts with strengths you don’t have to manage and lead in finance, operations, and sales and marketing.
- Get a mentor and join a peer group.
- Read great management books like The E-Myth by Michael Gerber, Traction by Gino Wickman and One Minute Manager by Ken Blanchard and Spencer Johnson
John P. Palen is CEO of Allied Executives and works with CEOs, business owners and executive leaders on leadership development and business performance improvement through peer groups, coaching and educational workshops.