 It's
probably not a bad time to be thinking of setting up your own business.
The outlook for employment, thanks to Bush's insane debt levels and the
massive export of jobs by big business to third world countries, is
grim. And alternative investments in overpriced stocks and bonds, and
even real estate, look unusually risky. So why not make an investment
in your own enterprise, and your own future? It's hard to imagine
anyone doing a worse job of managing an organization than the current
Administration, or than Enron.
If you do decide to take the plunge, here are the ten tips that have
been most valuable to entrepreneurs I have worked with over the years.
They're in approximate order of importance. They're especially
applicable to New
Collaborative Enterprises, but they also work for more traditional
small businesses.
- Manage Your Cash Flow. The
commonest cause of business failure is simply running out of cash.
That's perhaps why women, who in most households manage the family
finances, generally outlast men as entrepreneurs. Even highly
profitable businesses can get buried by cash flow deficits. This is the
most important rule, and I'll write more about how to do it next week.
- Risk Capital Doesn't Exist.
People who loan money at fixed rates want zero risk. People who invest
in equities expect rates of return that compensate for risk, which
means in excess of 20%/year for most entrepreneurs. No small business
can afford that kind of payout. Only you, your family, and your
business partners will be willing to invest capital for low short-term
return when the risk is high (so-called 'patient equity'). If your
business can't fly on that, plus what you can generate from operations,
it won't fly, period.
- Offer Something Different.
Innovation is the key to entrepreneurial success. You can't just copy
another business' success formula and expect to do as well as your
model. You have to have something different, something unique, that
will bring business to you because no one else offers it. The
innovation that differentiates you can be your product, or your
service, or your operating process, or your market, or the way in which
you deliver your product or service. And a unique product or business
name ('brand') is not enough.
- Use Viral Marketing. You
can't afford to break into the market by advertising. Advertising is
used by already-established cash-rich businesses to entrench their
position, and keep newcomers like you at bay. To compete, you need to
create buzz for your product or
service by word of mouth. Once you've done that, the word will spread
effortlessly, and the media will be writing about your success. Free. There are lots of books and
success stories on how to do this. Study them.
- Ensure Your Team Has Appropriate Balanced
Talent. Identify what skills -- management, financial,
sales & marketing, production, distribution, service -- your
business needs. You need some of them -- whichever your core
competencies are -- in-house. The rest you need to line up from
reasonably-priced external advisors who really care about your success.
If there's a skill gap, it
will probably defeat your business. If there's too much skill overlap, those skills will be
underutilized and the talent will be fighting among themselves.
Ideally, everyone with critical talent should be an equal partner. And
you can't afford people who don't have critical talent, so don't let
them in, even if they're family.
- Have Experts Critique Your Plan.
I'll post an outline for a new business plan shortly. Your plan needn't
be overly long (6-10 pages is best) but needs to contain a dozen
critical components, and needs to pass scrutiny by people who know what
will work and what won't in the business world. You can usually get
that scrutiny for next to nothing if you ask the right people nicely.
- Know When to Fold. Just like
in poker, when you're losing big-time, if you hang in too long, on the
offchance of a miracle turning your fortunes around, you will almost
certainly throw good money after bad. Talk to your financial advisor
regularly and if s/he says you're toast, listen, and cash in what's
left of your chips. Most businesses wait too long, causing agony to
everyone concerned, and delaying the start of the next enterprise.
- Have an Exit Strategy. That
means deciding ahead of time how you will know when it's time to sell
or close the business. Failure to have one means you may jump at an
offer and give your business away too cheap. Or pass on an offer you
should have taken. Or make faulty assumptions about who's going to take
over your business. Or let the business go past its prime and into
decline.
- Listen
to Your Customers. Research and then do more research. Talk to
potential customers before you start, and ask them what they like and
don't like about your business, what they'd pay for what you offer. Pay
attention to their answers. Once you're up and running, keep asking and
keep paying attention. For most people this is obvious and common
sense, which is the only reason this critical tip is so far down this
list.
- Stay Agile and Alert.
Everything changes: customer preferences, markets and demographics, the
economy, prices and sources of supplies, delivery channels,
competition. Stay on top the changes and adapt to them. Don't get tied
into long term contracts and commitments no matter how attractive the
terms. You're going to make mistakes. Make them early and fix them
quickly.
And if all that fails, or if you've already failed as an entrepreneur, try again. Don't give up. Magazines
like Inc. and Fast Company have studied the
predictors of entrepreneurial success, and the number one predictor is previous business failure. If you
haven't failed at least once in starting a business, you probably
haven't learned enough to succeed.
Next in this series: More on
managing cash flow, and Outline for a new business plan.
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MADE IN CANADA
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