Entrepreneuring
Ain't for Sissies
Before the dotcom bust, big organizations were out, small ones were in. Be your own boss was the mantra. Get rich quick. Anybody and everybody can do it-and quite a few did, for a while. Then the tide turned and suddenly bigger seemed better once again untilWhoops. Enron imploded and sent a wave of economic dislocation in all directions. Bigger organizations downsized and ceased being the safe houses they once were thought to be. What's a person to do? Today owning your own business is enjoying a revival. Newspapers, magazines, and books are back with romantic success stories about new enterprises here and there. As most who have tried will attest, however, for every success story there is a pile of sad ones. It is easy to step onto the own-your-own-business playing field but difficult to score. In short, it is tough to build a successful enterprise of consequence.
A variety of things can go wrong. The outcome is that sales volume, which is always uncertain, turns out to be less than expenses, which are always certain. Said in simplest terms: There is negative cash flow-more money departing than arriving. If the drain continues longer than anticipated, the financial foundation of the business erodes. Happiness is Positive Cash Flow, should be the first play in the entrepreneur's playbook. Lots of plays are needed. In many respects, building a business is like playing football without a time clock. The bruising contest never ends. Entrepreneuring isn't for the faint of heart.
Still the call to entrepreneuring beckons. The Wall Street Journal reported some time back that over 37% of the 100 million households in the USA "include someone who has founded, tried to start, or helped fund a small business." The people in this groundswell include software designers, florists, biotechnologists, new farmers, B&B proprietors, niche retailers, and health care innovators. Some will prosper through a combination of inspiration, perspiration, skill, and perspective. Perspective is the subject of this newsletter. Understanding the rules of the game does improve the odds of putting some points on the scoreboard.
For our purposes, there are three levels of complexity in the game of entreprenuring: Self-employment; small-business ownership; and venture building. The three are similar in fundamental ways (sales, expenses), but the higher levels require more resources.
Self employment means you are your own boss. People at this level are very familiar to us; they include dentists, plumbers, CPAs, movie stars, beauticians and barbers, real estate brokers, and a variety of independent retailers. "Keep thy shoppe, and thy shoppe will keepe thee," is an ancient axiom. Entrepreneurs at this entry level typically sell a recognized skill or service; they may or may not face serious competition. For example, a singer attempting to break onto Broadway has an uphill battle regardless of his or her talent. But a physician might open an office in a remote town and be the only M.D. for miles. As this newsletter is being updated, movie star Arnold Schwarzenegger is self- employed, but he is seeking a position in a large organization, namely, the governorship in California! Often the self-employed don't require much start-up capital and employee matters are minimized because there are few, if any, employees. On the other hand, when the boss is ill, revenue suffers! The enterprise depends primarily on the owner.
Small-business ownership, the second level, blankets our nation. Entrepreneurs at this level are those who start or buy restaurants, local banks, larger retail stores, construction companies, manufacturing firms, and various kinds of distributorships, to name a few of the many possibilities. These people generally face a more complicated task than do the self-employed. Often a significant amount of money is required to initiate or purchase the business. The dollars come from personal sources or institutional lenders. The capital in a start-up is used for employees, inventory, equipment, fixtures, and facilities. Often money is also needed for a sustained effort to attract and hold customers, i.e., for sales and marketing. As far as a financial goal, small-business owners sometimes want to build a business that will be around after they are not. With proper planning and adequate performance, an owner or ownership group can create value in his or her enterprise, value that is independent of his or her personal skills. Doing so can give the owner the opportunity to sell a "going concern" at an acceptable price at some point in time, or to perhaps pass the business along to children or other family members. At the risk of over-generalization, it can be said that self-employed people seek to make a living; small business owners seek to make a living and, in addition, to consciously build their net worths, which is a somewhat bigger task. Different financial objectives require different plans and resources.
Venture builders are people who operate on the third level of complexity. People at this level of the entrepreneurship game set out to build a BIG company from Day One. A team of people plus external-other peoples'-capital is usually required. With such money comes attorneys, directors, and a myriad of complicating factors. Venture builders of the Bill Gates variety are national heroes these days. Venture building is the advanced level of entrepreneurship; participants are in the Olympics of capitalism.
What can an appreciation for
the levels of play do for a prospective or active entrepreneur?
When you are clear about your intentions, you can better avoid
the common mistakes that sink budding enterprises. Credit agencies
routinely leak the news that over sixty percent of all fresh
ventures fail. In an August 25, 2003 Business Week news
brief labeled, Keys To Failure, the top reasons most businesses
fail were listed as:
A. Too Much Debt (28%);
B. Inadequate Leadership (17%);
C. Poor Planning (14%);
D. Failure to Change (11%);
E. Inexperienced Management (9%);
F. Not Enough Revenue (8%).
Sobering.
Entrepreneurs at all three levels are wise to be thoroughly familiar with what it takes to win in the business they are undertaking. If you are a budding entrepreneur, look for models of others in similar businesses who have gone before. If you are short of required know- how, team up with someone who has it. If the proposed project is capital intensive, don't start without enough money in the bank or deep-pocket partners. If you will have to attract customers from H-P or Safeway to succeed, make sure you have a heavyweight marketer on your team or in your business plan and budget projection. If you are opening a barbershop in a new retirement community, check to see if the prospective residents have hair and can afford regular trims! Homework pays.
Seasoned venture capitalists seldom invest money in enterprises that do not include executives proven in doing precisely what needs to be done in the particular type of business at hand. Why should a self-employed entrepreneur or small-business person pour his or her available resources into a little-understood business if the pros won't? They shouldn't. Causes A. and F. above (too much debt, too little revenue) are the predictable results of shortfalls in leadership, planning, rigidity, and inexperience-the other four causes listed. You owe it to yourself to learn what you need to know before going out on the field. Otherwise it can be a long day.
Copyright © 1999, 2003 Steven C. Brandt.
|
|
| BUILDING A BUSINESS | NON- PROFITS |
NEWSLETTERS | CEO Q and A |
LIVING FULLY |
PHOTO GALLERY |