©2004 The Caring Enterprise Coach
This article is a summary of
what everyone should know before starting their own business. It
assumes that you've done the following groundwork:
- You've decided what you want the business to be about
- You believe you have some core competency -- something you are exceptionally good at -- that will be valuable in such a business
- You have the key attributes of an entrepreneur: Common sense and self-confidence
- You have the basic skills needed to succeed in any business: Creativity, communication skills, information management skills and interpersonal skills
If you talk to your local accountant or small business advisory office,
they'll probably tell you about the importance of doing a business plan
to raise financing, the need to incorporate and register your business
name, how to advertise your product and service, and the importance of
administrivia like business cards and letterhead. They'll also probably
tell you that entrepreneurship takes courage, patience, an ability to
handle enormous stress, and a willingness to take risks and work long,
hard hours. And they'll tell you that growth is paramount.
Most of this is nonsense, and all of it is putting the cart before the
horse. Why do they tell you this? Because it's what they've been
taught, and because of the frightening failure rate of small
enterprise. But most entrepreneurial businesses don't fail because of
bad advertising, cowardice, owner laziness or inability to handle
stress. They fail because they are poorly thought out, poorly
researched, set up wrong, marketed wrong, badly managed, and given
terrible business advice. I base this immoderate assessment on my
experience working with over a hundred entrepreneurs, listening to
their stories, and seeing what works (and what doesn't) in small
enterprise, and why.
Let's take a step back and consider what an entrepreneurial business
is. It is a (usually small) number of people with a shared idea and a
willingness to work together to make that idea commercially viable.
That means, according to what they teach you in business school,
finding capital, developing your product and then going out looking for
customers for it.
This is a recipe for failure. The money you borrow (which in an
entrepreneurial business is always horrifically expensive) compromises
your control and immediately presents the possibility of the loan being
called, and the personal assets securing it being forfeited. And there
are a million possible reasons why there could be few, or no, customers
for your product. The #1 reason entrepreneurial businesses fold is
because they simply run out of cash. The #2 reason is because the
owners make one or more fatal decisions, and the most common fatal
decision is to produce a product that nobody wants to buy.
Here's an alternative model, based on what Charles Handy calls Existential Enterprise, and which I have called New Collaborative Enterprise. Its first two principles turn the business school formula upside down:
- Marketing: Don't sell or market anything -- identify and produce something for which there is a substantial unmet need.
- Financing: Don't borrow money or sell part ownership in your business -- only spend your own cash or cash you've earned.
This isn't rocket science. The first rule simply says do your research before you start, do it thoroughly,
and do it with potential customers. That way you have sales before you
have costs. Then rule number two becomes easy -- your customers finance
your business, and the debt is quickly extinguished when the product is
delivered. This is an oversimplification, of course. You can't always
finance operations this way. But if you have to borrow, the principle
is the same -- pay it off fast,
as part of the same transaction that gave rise to the debt in the first
place, and never give up equity -- it's like selling your soul. Most
women can confirm the insanity of spending cash you don't have -- which
is one reason women entrepreneurs tend to start their businesses more
slowly, and keep them going much longer.
Time for some more heresy. MBA graduates will tell you to select a
management team with a balance of skills -- operational, financial,
sales, management etc. But they don't know what your particular
business needs -- if the business is an R&D outsourcer it needs
people with deep knowledge about research, not accountants and sales
executives. An Existential Enterprise will follow these principles
instead:
- Association: Make a living only
with people you love and trust -- life's too short to spend so much of
it with people you don't care about, or worse. In most cases, don't
incorporate -- it adds paperwork, has no tax benefit and usually offers
no liability protection to the entrepreneur. A partnership requires
little or no bureaucracy and is infinitely flexible. Instead of a
shareholders' or partnership agreement, develop together a simple Statement of Objectives and Operating Principles, which affirms why you're making a living together, commits all members to live up to certain shared standards of behaviour, and affirms that each member is responsible for the well-being of all other members, as each member defines well-being, and responsible as well to the community in which it operates.
- Management:
Let the group that you make a living with select and manage itself (new
members and expulsions require unanimous approval of other members),
based on the 'mutually exclusive/collectively exhaustive' skills
principle (i.e. each member should bring unique and critical skills to
the enterprise, and between all the members you should have all the
skills that you collectively decide you need).
- Structure:
Have no titles, no reporting lines, and no hierarchy -- all members are
equal. No "employees". No "leaders". If ego-fulfilment is part of your
reason for starting a business (which wouldn't be surprising if you
were recently 'downsized'), you'll need to get that satisfaction from
making the business work and making yourself and your partners happy.
If you feel the need to boss people around, find somewhere else to do
it. The only reason for the cult of leadership in big business is that
big business is basically unmanageable, and arrogant, overpaid bullies
can make it appear slightly less so to its investors.
This may sound idealistic, but it works. Partnerships are a very common
form of business organization, and those formed with family members and
others where there is a bond of love and trust are especially durable.
And many large businesses are learning the benefits of flat
organizational structure, decentralized decision-making, and the
abolition of titles.
Next, the business school grad will tell you you need systems that
provide each person with compensation and reward that is 'commensurate
with performance'. That means your partner who's independently wealthy
and who self-promotes like crazy will get money he doesn't need, and
the young, modest partner with a big mortgage will get less money than
he needs, and so will probably leave to get more. And the partner who
values and needs her spare time but who has critical and scarce skills
will be bribed to work long hours and so will probably leave to get less. Here's a more sensible approach:
- Goal-Setting: Have each member discuss with the others what (income, time off, travel, non-travel etc.) they want and reasonably need from the business. Define that,
not growth or profit, as 'success'. Measure your attainment of it.
Don't bother with more traditional measures -- they don't matter.
Together, plan and operate the business to achieve that success for
each individual.
- Defining Roles:
From that definition of success, collectively define the enterprise's
goals, and have each member create their own role statement to achieve
those goals. Refine these role statements together, to close any gaps
and remove overlap. You may have to add members to do this, and members
with redundant roles may have to self-select out.
Now everyone in your enterprise knows what you're trying to accomplish,
what it will take to achieve it, what's in it for them, and what their
individual role is. If each member has the key attributes and basic
skills listed at the start of this article, you have all the
ingredients in place for a successful (on your own terms) enterprise. All you need to do now is communicate well and avoid the landmines.
Think of it as a jazz combo versus a traditional symphony orchestra. In
the jazz combo, everyone knows their role, takes their cues from each
other, and communicates network-style with the other band members and
with the audience (customers). If the audience gets restless (customers are dissatisfied or their needs change)
you can improvise quickly. You don't need hierarchy. By contrast, the
symphony orchestra, like the traditional business, is hierarchical,
communicates only through the guy at the top, and is totally stuck to
the rehearsed script (the business plan). If the audience is unhappy, the symphony just ignores them and plays on. Which business model makes more sense to you?
Once you're up and running, here are three final principles to keep things going smoothly:
- Networks:
Networking is critical to every business. Business success correlates
highly with the amount and breadth of effective, face-to-face time
(telephone time is OK, but a very poor second) -- time you spend with
(a) customers and prospective customers, no matter what
your role is in the enterprise, (b) experts and coaches that can listen
to your problems and provide richly contextual insight to help you do
your role better (these will often be other entrepreneurs, who you can
help and coach reciprocally), and (c) allies -- strategic partners who
offer you access to markets and supplies and connections, knowledge you
wouldn't otherwise have, new ideas and emerging innovations and
technologies, and other mutual advantages.
- Managing Growth:
If the business needs so many people that it gets unwieldy, encourage
the members to break it into two or more small Existential Enterprises
with no members in common. Don't worry, it won't fall apart -- in fact
it may even be tighter and stronger, as long as each enterprise keeps
following these principles. We live in a World of Ends, and command-and-control is now not only unnecessary, it's an impediment to success, and it makes people unhappy.
- Stakeholders:
The needs and happiness of the members, you and your partners, come
first. Your customers come second. The interests and needs of the
community in which you operate come third. That's it. Remember this
priority when you make decisions. In Existential Enterprise, there are
no shareholders, absentee owners, creditors, Board of Directors or
Board of Management to usurp this critical priority, to interfere and
force you to do things you don't want to do, to make you a wage slave
in your own enterprise.
Most of the problems in traditional entrepreneurial business -- the
ones that lead to the stress, long hours, divorce, sacrifice,
unhappiness, and, often, failure -- are created by the MBA mythology of
how to start, build and operate a business -- a mythology that often
defies intuition and common sense. And that's all these ten principles
are: Common sense, that I've seen work in dozens of small, successful
enterprises, and the ignorance of which has been the undoing of dozens
of others I have worked with. That's why people with no formal business
training are sometimes the best entrepreneurs: They don't have to unlearn
all the nonsense, and guided by common sense they instinctively build
something closer to the Existential Enterprise model than the Business
School model.
I'm not saying that this is easy.
Adhering to these ten principles (especially the first two) requires a
lot of time and energy, and considerable intelligence. But they are
relatively fool-proof and stress-free. After all, what could be more
joyful than creating a successful enterprise with people you love and
trust, on your own terms -- a true labour of love?
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