Diagram ©2004 The Caring Enterprise Coach
Today, the average North
American entrepreneurial business lasts just four years, the average
sole proprietorship even less. Yet entrepreneurship is not rocket
science; it's nothing more (or less) than making a living for yourself
with your business partners, instead of depending on some indifferent
corporation to provide you with a living wage. Running a business is
certainly no more difficult than raising a family, or landing a job and
building a career with a big company. The essentials of
entrepreneurship could easily be taught in every school, and there'd
still be plenty of time left for the rest of the school curriculum.
But, perhaps because big corporations and the governments they control
want the 'labour force' to be meek, subservient, fearful and insecure,
most people have come to perceive entrepreneurship as a complex and
difficult art, fraught with danger, unprofitable, emotionally scarring,
and demanding of enormous courage and energy. "It's certainly not for
everyone", I keep hearing.
Entrepreneurship requires self-knowledge of what you're happy doing, what you're especially good at,
how much you're willing to put into your enterprise and what you expect
to get out of it. Without this self-knowledge, you're likely to be as
miserable in your own business as working for some unappreciative boss,
and that unhappiness will bear directly on its success. Beyond that,
all you need are common sense, self-confidence, and a modicum of four
key, learnable skills:
- creativity (the ability to discover and apply new ideas),
- communication (written and oral),
- information processing (the ability to distil, analyze and interpret it), and
- interpersonal (listening, appreciation, connecting, persuading).
Then it's simply a matter of learning and following the process that
every entrepreneur has learned by trial and error, to set up and
operate your own business successfully, on your own terms, and actually
have fun doing it.
One of the 15 steps in the process of establishing and running an enterprise is avoiding the landmines.
In MBA school they now call this Risk Management. This article
identifies ten of the major landmines for entrepreneurs, using some
real-life examples. I don't believe any of the enterprises described
below is still in business (though some of the entrepreneurs have moved
on, learned their lesson, and succeeded in other businesses):
- Copycat businesses: Thirty years ago I did some financial consulting for a small start-up cruise
ship operation. They acquired and
completely renovated a ship, which was lovely, got the licenses,
hired the appropriate staff, set up the business systems, and then
waited for the customers to roll in. After all, the competing operations on the same run were all fully booked. But this operation
was an unknown quantity, and before they realized that just being
similar to a successful and busy business wasn't enough to succeed,
they sailed off into the sunset, empty. Franchisees beware.
- Over-estimating the market:
Consultants love to sell you spreadsheets that will 'forecast' your
income and cash flow. An inventor friend of mine used one of these to
persuade himself to produce and sell a new organic nutritional
supplement he had developed. His research showed that the annual sales
of this type of product North America-wide was $X billion. The
spreadsheet encouraged him to plug this number in, along with his
estimate of what share of this market he could capture over three
years. Needless to say, he never sold anywhere close to this amount of
product, because that's not how you go about forecasting sales.
- Being too far ahead of or behind the market: A
client of mine bought the North American rights to a new technology
that would extrude a rugged, colour-fast plastic that could be used in
decking, fencing, and other outdoor applications. He spent a fortune
setting up the manufacturing plant. Problem is, he did this in the
1980s, when plastics were distrusted as 'cheap', wood was
cheap, and creosote in pressure-treated lumber was not yet known to be
a carcinogen. Being 10-15 years ahead of the market cost him his life
savings.
- Biting off too much:
A company that I was brought in to help liquidate had been doubling its
sales and employee headcount every nine months. They were providing
turnkey computer networking equipment and installations to mid-size
companies, and had recently moved upscale to large corporations, school
boards and government departments. As its receivables and inventories
soared, it started paying more money for qualified talent, and its
suppliers and bank both put it on short leash. Finally, despite record
monthly sales, it simply ran out of cash. The owner turned down two
very opportunistic 'investors', who wanted control of the business in
return for working capital, and the bank pulled the plug.
- Not listening to the customer, or offering a solution in search of a problem:
A lot of entrepreneurs are inventors, scientists, artists, artisans,
administrators, teachers or managers. Sales is not their forte, and
they're more comfortable working with ideas, materials, plans or
systems than with those pesky people called customers.
If you're not at home spending a lot of face time with customers,
better partner with someone who is. If you want to see what happens if
you don't, just browse any of the free software sites on the Web and
see how many downloads most of them have. Some of them are quite
intriguing, but because they don't meet a customer need, they'll never
be more than that. Great prescription for a hobby, deadly for a
business.
- Not consulting with or listening to the right advisors:
A client of our firm in the early 1990s, a company which had been in
the commercial printing business for 80 years, brought us in for some
technology and corporate finance consulting. As we learned about the
business it became obvious, first, that they could not afford the new
equipment they proposed to buy, and secondly, that their profit margins
were going through the floor. They had built their reputation on high
quality printing work, but the market was no longer willing to pay for
it. The new equipment would allow them to automate and eliminate some
labour costs (and keep up with newer competitors with no sunk costs),
but the cost of the new equipment would exceed the savings. We advised
the company they needed to find some new markets, new higher-margin
products, and new customers who would pay more for their quality work,
or else drastically cut costs. They were convinced their customers
would stay loyal, and the market for quality printing would rebound.
They didn't, and the company shut its doors two years later.
- Blowing the budget:
As most women will tell you (but many men seem unable to fathom),
budgeting is simply a matter of ensuring that the cash going out
doesn't exceed the cash coming in. The problem is, every start up costs
more -- sometimes two or three times more -- than initially expected.
It takes enormous self-discipline, patience, pacing, and sometimes
financial creativity, to mete out dollars at a rate that will ensure
there is enough cash to launch the business under the worst case scenario. I
know of a dozen businesses that closed before they opened because they
failed to do so, and others that lost control of their business
unwillingly because that was the price for a late cash infusion. 'Risk
Capital' might be more accurately called 'Heartbreak Capital' -- it is
obscenely expensive.
- Groupthink:
Back in the 1970s I was appointed Deputy Receiver for a computer and
peripherals distributor. They had been put on 'close watch' by the
bank, and I had to get authorization for, and sign, every cheque. While
I was there I attended and took notes at management meetings. I was
assailed at each meeting when I presented my factual reports on profit
and cash flow. I was nicknamed The Undertaker for my 'relentless
pessimism', and almost physically ejected when I questioned the
validity of some unsupported fees that had been paid by the much-loved
CFO, who was on leave of absence looking after a very sick relative.
The six-man management team, intact since the start of the company and
each heavily personally invested in the company, used to come out of
their meetings with cheers and high fives, confident, contrary to all
logic, that the company was poised for turnaround and sales 'in the
pipeline' would soon bring a return to happy days. They would feed off each others' boundless optimism. They just needed to work harder. Happier
days never came, and the CFO, it turns out, had defrauded the company
to pay for his relative's substantial medical bills.
- Litigation:
A small biotech company whose CEO I met at a conference a few years ago
was bemoaning the huge cost of registering and defending patents. He
said they had been forced to sell off one promising product to a
competitor in order to pay their legal bills to defend their other
intellectual capital. That had slowed them down to the point they now
feared that another competitor would beat them to market, rendering the
results of the litigation largely moot. Big companies can afford armies
of expensive lawyers. For small companies, significant litigation can
spell disaster. The competitive advantage of the entrepreneur is
agility -- when products get mired in legal wrangles, it may be better
to cut bait and move on to other ventures than to fight adversaries
with much deeper pockets in court.
- Buying the MBA hype:
Graduates of business school are taught how to be middle managers of
large enterprises. Unfortunately, that knowledge often don't translate
well to entrepreneurial businesses. A client of mine brought in a
young, very successful MBA grad (he had his own daily spot on one of
the local radio stations), who had, it appeared, no experience at all
with entrepreneurial business. The company, which was modestly
profitable, bought the young man's well-delivered 'grow or die' message
and decided to 'go upscale'. They spent a small fortune on advertising,
and set up a sales office and warehouse in another country.
Unfortunately, the media in which the ads appeared were not the ones
used by the company's customers, and there was not enough money to
properly penetrate the foreign market. The expenses produced almost no
growth and almost sank the company. They salvaged the situation, and
their business, by finding an enterprising competitor in the foreign
country who took over the hemorrhaging 'branch plant', and then
striking a reciprocal marketing alliance with them.
Many entrepreneurs I know feel very lonely, exposed, and helpless. The
big consulting firms aren't interested in them until they grow bigger
or go public. The smaller firms are selling one or two specific
products, and rarely have entrepreneurial skills to share. And these
suppliers are expensive. The government is cheaper, but with a few
notable exceptions they aren't very helpful either. As a result, many
entrepreneurs have formed their own 'support groups', helping each other
to avoid the landmines, and learning from each other's experiences and
failures. Retired entrepreneurs are another good source of advice, and
a quarterly business breakfast with a trusted entrepreneur or advisor
with some experience in the trenches can be an excellent investment.
These breakfasts don't need an agenda -- they're run as an informal
'interview', with the advisor asking pertinent, open-ended questions
and listening and offering counsel and options and ideas. They are a
critical element of what my new business, The Caring Enterprise Coach, offers.
Another technique entrepreneurs can employ to alert themselves to
potential landmines is establishing an Advisory Board made up of people
who have well-rounded business experience, knowledge of markets, and
skills the entrepreneur and his partners lack. Such Advisory Boards are
often reciprocal, offering mutual support and advice in lieu of fees. I
am constantly surprised how few entrepreneurs use such 'support
groups', relying instead on their own instincts, the counsel of
inexperienced and costly 'professional advisors', and others (bankers,
customers, franchisors, and various 'agencies') who have only a
nominal, and purely financial, interest in the entrepreneur's success.
Some 'support groups' and networks have been set up as money-making
ventures, but these tend to be unwieldy and their members terribly
needy -- ten people looking for advice and new customers for every one
capable of offering useful information or counsel in return. It's best
to create your own.
The problem, of course, is that most entrepreneurs are paradoxically
too busy fighting fires and avoiding landmines, to be able to invest
time finding and networking with support groups and other valuable
advisors who can help them avoid the next round of fires and landmines. But, despite the failings of the first generation Social Networking tools, such tools hold enormous promise. Although Shoshana Zuboff coined the term The Support Economy
to refer to federations of businesses working together to support their
shared customers, the first true Support Economy may well be
entrepreneurs supporting each other.
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MADE IN CANADA
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