I have started seven businesses, so I have some entrepreneurial form.
One I sold, one delivered profits over a 5-year period, but circumstances led to its closure, several did the dead cat bounce, and a few more struggled a bit before common sense cut in, and one, StrategyAudit has been going for 30 years. On top of my own gigs, I have been involved, engaged, and accountable for many, many more as a consultant, interim manager, and contractor.
After all that effort, sweat, broken dreams, conflict, disillusionment, and frustration, mixed in with some ‘I told you so’s’ what have I learnt?
Timing is crucial. Two of my dead cats were just timing: I was too early, and others since have done similar stuff and made a killing, proving that a good idea is rarely yours alone. Connected to this, but not in a causal way, is that it always takes longer than you think. Take your worst case time-frame, the one that cannot happen, then double it. If successful, that impossibly long time frame might be close. We never hear of this from the start-up porn inhabiting the web.
You are never too old. Ray Kroc was a 52 year old appliance salesman when he had the brainwave that led to McDonalds. In Australia, the age group most likely to start a business is 35-39 years old, comprising 19% of start-ups. The likelihood of extreme success keeps rising until the mid to late 50’s, so Ray Kroc is not an outlier. This is contrary to the common perception of the hoodie wearing entrepreneur who only needs to shave once a week. In my case, all my efforts except StrategyAudit were born before I was 40, the earliest, not counting my efforts to make a bob while still at school and University, was when I was 22. StrategyAudit was born from necessity when I was 44.
Focus and commitment are mandatory. Entrepreneurs by their nature are curious, perceptive, and usually see things from an uncommon perspective. As a result, they are easily distracted by the new shiny thing, or great idea to bolt onto their baby. Sometimes these great bolt-on ideas come from early users, whose opinions carry considerable weight because they are so important to you. The internal struggle with this fragmented attention and less than absolute commitment is often a real problem. In my case, it probably cost me at least two potentially extremely successful businesses. I have often wondered at the role of ‘necessity’ in the game of unicorn chasing.
Boot-strap or take equity partners. Every start-up is short of two things: cash and capability. It is enormously tempting to address one of both or these by taking in partners by one of the many avenues open. Often this is the right thing to do, it usually makes scaling quicker and easier. The downside is the loss of control. Most entrepreneurs have some level of ‘control-freak’ in their DNA, and struggle when they go from having the final word, and having to take on board the views of others.
Capability shortfall. No entrepreneur can cover all the capability bases required for a successful business. That leave the choice of how, when, and sometimes if, you fill the gaps. Getting this wrong causes all sorts of terminal events. Often these are around cash flow shortages, particularly when the enterprise appears to be rapidly gaining ground and being successful. However, all the other functions that must be executed by a growing business are equally vulnerable. These days it is sometimes little more than finding and keeping the right people who operate at whatever ‘coalface’ you service.
Solve a problem felt by others. Solving a problem only you have will not lead to a business unless others have the same one. Equally solving a problem you think others have, when they do not feel the impact of it, or your solution costs more than the problem costs them, is not useful.
Round pegs and square holes. In most SMEs seeking to scale, or even just survive, the choice of personnel, and the jobs they do is critical. Make a mistake and it can be terminal, as SME’s do not have the cushion of scale to absorb those mistakes. The adage of ‘hire slowly, fire fast’ is especially important for SME’s.
Too little marketing. Marketing is an investment in future cash flow. Often this is really, really hard when current cash flow is in the toilet. It is profoundly different to the conversion to a transaction, usually called sales, which is just the end point of the process. When you just have the end point, with too little or misdirected effort at the wider functions of ‘marketing’ in the revenue generation process, you will have a mix of productivity suck-holes and opportunity costs that will not show up in any standard set of accounts.
Too little attention to the numbers. The ‘numbers’ critically include the financial numbers, but they are not the only ones that should be monitored, managed, and leveraged. While I obsess about cash with those I work with, cash in the bank is an outcome of a wide range of other things that have gone as anticipated, or if the bank is empty, not as expected. The most critical ones fall into two categories:
- Internal numbers. These are the numbers over which you have direct management control. They range from the costs of manufacturing and service input, to the overheads resulting from the costs associated with keeping the doors open every day. Inventories, cash conversion cycle time, capex and the timing and quantum of expected returns, personnel productivity, and many more consume cash and importantly for an SME, time.
- External numbers. Critically, these are the numbers around the behaviour of customers. They will vary depending on the product you are selling, but customer acquisition costs, referral rates, lifetime value, and repeat purchase rates will all directly impact on the cash in your bank account. They also should include some consideration of the market context, trends, competitor assessments, and regulatory considerations.
Importantly, and often overlooked until too late is the most fundamental number of all: Sales revenue. None of the above is the slightest bit relevant un the absence of revenue. Go after it early and hard!!
There you go, 50 years of hard-won wisdom in a 5 minute read. Call me when you need more.
