Making Strong Partnerships

When starting a new business together, business partners are brimming with excitement about the possibilities that the new venture may bring.  There is a collective air of anticipation like a team in the locker room getting ready to head out for the “big game.”  The last thing new business partners think about as they launch their new venture is what will happen when the day comes when the partnership ends.

But the truth is that eventually every business partnership will come to an end.  It may come earlier than the partners expect, due to fundamental and irreconcilable business disagreements.  Or maybe because one of the partners simply has lost a passion for the business and decides it is time to pursue a new career direction.

Continue reading Making Strong Partnerships

Look for Veins of Gold in the Market

When first starting a new business, entrepreneurs are not well served when they view themselves as builders or architects.  That is the wrong frame of mind.

When entrepreneurs enter the market with a predetermined view of what they are going to build or design they run the risk of creating a business that does not really fit with what the market wants.

Steve Blank, successful entrepreneur and author, cautions entrepreneurs to learn the difference between the searching stage of launching a new business and the executing stage. Continue reading Look for Veins of Gold in the Market

When it is Time to Work in Your Business

Here is a sampling of quotes from first-time entrepreneurs that I hear in my office.

“I am trying to get my business card just right – does it look better with a horizontal layout or a vertical one? And do you think this font is OK?”

“We think that after working on it for the past six months that our business plan is just about finished.”

“I’ve been tweaking my logo for the past couple of weeks and I think it is getting close to what I want.”

“This is my latest mission statement – I moved a couple of words around so I hope it sounds better now.” Continue reading When it is Time to Work in Your Business

Intestinal Entrepreneurial Fortitude

Not everyone is prepared to be a successful entrepreneur.

In the new book Heart, Smarts, Guts and Luck, two successful venture capitalists and a management consultant surveyed a large number of successful entrepreneurs to uncover what traits they have in common.  One of the traits — guts — particularly hit home with my experience as an entrepreneur and as a teacher of entrepreneurs.

The authors argue, and I agree, that guts is not a trait that you are either born with or not.  Having the guts to be an entrepreneur is something that can be nurtured and developed.  They identify three key elements to developing and nurturing guts in entrepreneurs.

Eighty percent of the successful entrepreneurs in this study said that their entrepreneurial guts were developed through experiences early in their lives.

I can cite several experiences from working in our family businesses that helped to toughen my skin.  One in particular stands out.  When I was in grade school my father partnered in a cleaning products distributorship.

Although I was only eleven, I was eager to become a part of this new venture.  So I decided to sell the product door to door.  My first sales call was to our next door neighbor, who was a good friend of our family.

Rather than pat me on the head and buy some product to be nice, she looked me in the eyes and said, “Tell me why I should spend our hard earned money on this stuff?”

I did not make the sale.  I was left speechless and devastated.  It was a hard lesson that I have carried with me the rest of my life.  Nobody owes you anything in business – it is up to you to earn it.

The second key element for developing guts is training and education that prepares entrepreneurs how to make decisions in complex situations.  We urge every student who comes into our program to start a business while they are in school because this kind of training is so important.  It helps them to gain experience, confidence and learn from their mistakes in a safe environment.  However, I am not one who thinks we should require every student to start a business as many schools are moving toward.  I think that making starting a business an assignment misses a key aspect of developing true entrepreneurial guts – the courage to make the choice and cross the threshold to start a venture.

The final element of developing and nurturing guts is becoming part of a community of entrepreneurs.  By joining an ecosystem of fellow entrepreneurs you gain peer support, wise counsel, and a group who can hold you accountable.  We need to have our entrepreneurial guts reinforced, nurtured, and checked throughout our career.

Having guts to be an entrepreneur does not imply that you take careless risks – quite the contrary.  Having guts to be an entrepreneur means that you are ready through experience to carefully and prudently manage and mitigate the risks that lie ahead.

We are all gnats

“You are gnats! You are like annoying little gnats flying around in the face of consumers.”

This is a message that I consistently tell aspiring first-time entrepreneurs.

Why the harsh words? Most first-time entrepreneurs have so much enthusiasm that they can become blinded to the reality of the challenges that every new business faces.

I tell them to think about the last few hours. How many small businesses did you go past without even really noticing them? What about all of the products in the convenience store where you got gas this morning?

How many of the service businesses that had logos and advertisements on the sides of their trucks did you actually pay attention to?

Many of those products on the shelves are the result of someone’s entrepreneurial dreams. A small-business owner spent hours agonizing over the business name and a logo, and yet most passersby barely notice it.

New business owners need to adjust their expectations. While starting a new venture is one of the most important and exciting things you’ve ever done, to the market your product is just one more in an already overcrowded sea.

So, new business owners need to get a sense of urgency. They need to develop a plan to become more than just another annoying little gnat!

To successfully launch a new business the entrepreneur needs a clear entry strategy, which is a plan for how the business is going to gain the attention of the market and start attracting customers.

If your business is going to take existing market share away from established businesses, you are going to have to do something better, faster or cheaper than the competition. Give people a compelling reason to change their buying habits.

Start small: Consider a niche strategy. This simply means the entrepreneur finds a small part of a market that’s not being served or that has been significantly under-served. It gives the entrepreneur a safer market to conquer a bit hidden away from established businesses.

But establishing a niche requires that you find ways to let the customers in that niche market know that your new business is now open and is ready to fill their specific unmet need.

Getting the market’s attention for a completely new product that has the potential to impress the mass market is the most difficult and expensive market entry. It requires extensive investment in advertising and other forms of promotion to build awareness for your new product and to educate the public about the benefits it offers.

No matter which type of entry strategy you pursue — and as excited as you may be about your new business — remember this: If you build it they may, or they may not, come.

You will need to work hard to find the most effective means to attract those initial customers.

Elements of Successful Growth for Start-ups

Those who have had me for class know about the 3M’s for assessing an opportunity — market, margin, and me.  For a business idea to be worth pursuing there needs to be a big enough market with enough “pain”, enough margin to make the business viable and to cover all of the surprise costs that inevitably pop up,  and it needs to be something you know about and have a passion for.

John Bradberry takes a similar approach in his post at OPEN Forum when assessing the roadblocks, or what he calls bottlenecks, that get in the way of successful growth for start-ups.  His three factors are the market, the math and you the entrepreneur.  He correctly argues that these same three critical elements remain important even after the venture has been launched:

If these limiting factors seem basic, it’s because they are. They are just as basic as picking up a twisted hose and straightening it out, so that the water can surge instead of drip. These are a few of the fundamentals that govern the healthy growth of any venture.

Bootstrapping a Franchise

Franchising continues to be a popular pathway to entrepreneurship, particularly for many unemployed professionals who are looking to join the ranks of accidental entrepreneurs created by the great recession.

Rieva Lesonsky looks at home-based franchises as a low cost way to bootstrap your way into business ownership in an article on Business on Main.

Approach a franchise just as you would any new business.  Develop a sound business model, and if financing will be required, a business plan.  Make sure that you temper any projections to the current economic conditions. Also, look for franchise opportunities that create value for the customer.

Franchising is tightly regulated and there can be some sticky contracting issues with buying any franchise. Make sure to work with an attorney who has experience with franchising.

But, beyond the contractual issues that arise in franchising, there are some fundamental business and personal concerns that many franchisees experience after it is too late.

One of the biggest sources of frustration among franchisees is that they perceive that the value added from association with their franchisor diminishes over time. A franchise will charge a significant monthly percentage fee (this can average about 7% of sales) associated with all that they offer, including systems, marketing support, purchasing power, and so forth. Over time, many franchisors realize that they can be just, if not more effective on their own without paying the monthly percentage of sales to the franchisor.

This on-going monthly fee is often glossed over by franchisees during start-up planning, as they tend to think only about the initial fees and capital expenditures in their planning.  So while a home-based franchise can reduce the start-up cost, the on-going monthly fee to the franchisor will still be something to consider when thinking about investing in a franchise.

Another concern expressed by franchisees is that with all of the rules and standardized procedures, they tend to feel more like an employee than a business owner. Those who try to break away from the predetermined model and processes can face the wrath of the franchisor.  Larger franchisors have entire staff dedicated to franchisee compliance.

So as you consider franchising, even a home-based option, approach it as if you are starting a business from scratch and make sure you understand the costs and constraints that come with owning a franchise.

Avoid the Backward Start-up

“I’ve developed this really cool product and I have applied for a patent.”

“I want to show you this awesome app that I helped design.”

“We’ve got a great idea for a website.”

Those of us who work with entrepreneurs hear these types of introductions all the time when people come to meet with us.  Whether it is a result of years of development and research, or a sudden inspiration that leads to a “eureka moment,” these aspiring entrepreneurs have come up with what they hope to be the next big thing.

The problem is that many of these entrepreneurs have gotten the design of their business models backwards.  

Rather than look to the market to tell them where opportunities are, they have come up with an idea and are trying to run full speed into the market with it.  

Starting a business by trying to find a market for an already developed product usually leads to a long and often futile launch of the new venture.  It results in a very expensive start-up process, as revenues tend to be very slow to materialize.  Expenses just keep piling up as the entrepreneur tries to find a target market with customers who need the product.

The approach to starting a business that has the best chance of success is to look to the markets for ideas.  

Start by looking at markets you already are familiar with from your knowledge, skills, and experiences.  The best business opportunities come from solving everyday problems that you have observed from your previous work experiences, your hobbies, or things you see in your everyday life.   

Look for groups of customers who share a common dissatisfaction with how they are being treated or who cannot find what they really want.  It may be something as simple as a market that has not been given good customer service.

Look for markets that are ready to try a new product to replace the old ones they now using.  That is what has led to the success of the Nashville-based app company Aloompa.  Much of their growth has come in the music festival market, where their apps replace outdated printed programs.

Look for markets where something that has worked in other similar markets has not been tried in your market.  That is what inspired Bob Bernstein to open Bongo Java, a neighborhood coffee shop in Nashville, that was like the ones he loved in his home town of Chicago.  

Look for markets with “pain” and then develop a product or service that takes care of that “pain.”  

My favorite meeting with an aspiring entrepreneur is when they come to my office and say, “I have found a market that needs….”  

I know they are starting down the right path to develop a business model that has a good chance of success.

Luck and Serendipity

While entrepreneurial success is tied to careful feasibility assessment, business modeling and planning, never underestimate the role that luck plays in an entrepreneurial journey.

I am not suggesting that aspiring entrepreneurs just sit and wait for an opportunity to come to them like a bolt of lightning out of the blue. As the Roman philosopher Seneca pointed out long ago, luck is the crossroad of preparation and opportunity.

Preparation comes from the development of what I call the process skills.

Entrepreneurs have a better chance of success if they learn fundamental business skills, such as accounting, marketing and managing people.

They also benefit from learning specific process skills tied to starting and growing a business, such as how to assess opportunities and translate them into business models.

Opportunities come from the development of content skills that come from our experiences in life. The best ideas for possible businesses most often come from jobs we have held, from our hobbies and interests and from our social network.

If we pay close attention, it is out of these experiences that we’ll notice customers who aren’t getting what they want or who are missing the service they expect. This is what creates the gaps and pain in the market that entrepreneurs can capitalize on with a new business.

There is one important caution regarding the opportunities that come from our experiences, though. Don’t become a slave to the status quo. Be ready to be surprised.

Luck is not the only element that leads to entrepreneurship. We also need to be ready for serendipity, which is when we find opportunity not by plan, but by accident.

The examples of the role of serendipity in entrepreneurial success are many.

For instance, the original plan for PayPal was to build a payment platform for the old hand-held Palm Pilot devices.

And 3M sticky notes came from an adhesive that did not work as well as it should have.

The key was that in both of these examples, while the original plan did not work, an entrepreneur was willing to pursue a surprising new direction that did work very well.

Entrepreneurial success can be the result of a path we did not expect.

While our experiences are important, we have to be careful not to get stuck in the old, traditional ways of thinking. And we must never become a slave to our original ideas.

So, the formula for success is quite often a combination of hard work and preparation, of the experiences we have in life and more than a few surprises.

Never underestimate the role of luck and serendipity in entrepreneurship.

When is a Failed Concept a Success?

A student come up to me before class the week before their business plans were due this past semester looking very dejected.  

“My concept just can’t work,” she said.  The more she tried to pivot the business model, the more she uncovered evidence that convinced her that she had reached a dead end.

This is what is known as a teachable moment.

Aspiring entrepreneurs go through an arduous process between the initial spark of an idea to the eventual launch of a business.  

They start by sifting through the various ideas they have to find the one that has the most promise.  Many ideas may appear promising at a first glance, but careful assessment helps to sort out those that have little promise. Eventually, the entrepreneur selects a product or service they hope will be accepted by the market.

The next step is for the entrepreneur to take the idea and begin to build a business model.   

The primary goal of business modeling is not to try and rationalize starting a business based on your idea.  Instead, the objective is to discover all of the challenges, flaws, and gaps that need to be addressed if you have any hope of moving from a good idea to a successful business.  Business modeling is a process of finding problems and fixing them by altering and expanding the operating framework needed to launch the business and, when necessary, pivoting the concept based on what is learned about your customers and what they really want.   

When developing a business model, you may reach a point where you realize that no matter what you do, it just won’t work.  This realization can happen very late in the process even at the point when you are developing a written business plan based on the business model.  If that happens, no matter how much time and effort you have put into the project, you need to be decisive and abandon it.  

But this is much easier said than done.  You have spent countless hours talking about the business with friends and family.  You have shared your idea with advisors and mentors.  You may have even pitched the idea in business plan competitions and to investor groups.  It feels like your reputation is riding on getting the business launched.  There is a sense of inevitability that launching the business is what you are going to do.

But do not ignore the evidence.  Have the fortitude to walk away.  The fact that you have spent countless hours getting your idea to this point is not a reason to keep moving ahead.  

So back to that teachable moment….  

As class started that morning I asked the student to share her story with her classmates. I then looked her in the eyes and emphatically said, “You did a great job!  You stayed true to the process and had the courage to acknowledge that your concept just won’t work.  Congratulations!”

The end of this story is that while her initial idea did not work out, the process helped her discover several new ideas and gave her the opportunity to make several new connections with people to add to her network.  She learned the lesson that while her idea may have failed, she was successful.