One of the hardest things about starting a company is that you are on your own. Who can you turn to for help and advice with challenges? You can’t talk to employees, who, upon hearing there is only a month’s worth of cash left in the bank, will immediately start sending out resumes. It’s hard to be totally upfront with investors, who you will probably ask for more money down the road. As great as mentors can be, most issues would take too long to get them fully up to speed. Unfortunately, there’s no easy solution. Isolation and complete responsibility are the burdens in the life of the CEO and entrepreneur. The best you can do is to minimize your isolation as much as possible. Surround yourself with highly capable and intelligent people who can help shoulder the load. Keep a journal that you use to organize your thoughts over time. Keep in close contact with your advisory board, which can help with key strategic decisions. Consider joining an organization like Vistage, which hosts roundtables with other CEOs that can act as a sounding board. Usually small things like this can go a long way to help reduce the pressure and keep you on track.
Broadly speaking, there are two kinds of businesses – lifestyle and scalable. A lifestyle business is meant to help the founder live a certain kind of life. These businesses won’t become big, and usually revolve around a passion or hobby of the founder. Scalable businesses, on the other hand, are created with the intention of becoming as big as possible – often $100 million in sales or greater. These are usually the high-flying tech companies that you read about in the paper.
Neither kind of business is inherently superior – entrepreneurs with small lifestyle businesses can be just as happy (if not happier) than large, scalable businesses. To know which is right for you, you have to know what you want out of life. What will be most fulfilling for you? Do you want the recognition, stress, and long work hours that go along with building a big business? Or would you rather spend your hours turning your hobby into your profession, making decent money along the way?
Then make sure that your business aligns with your desired outcomes. If you want to build a scalable business, don’t start a company with lifestyle potential, and vice versa.
It’s easy to get frustrated working for someone else. You probably do the work better than your employer, which begs the question – why not go out on your own? As tempting as this may be, know what you’re getting into before you jump ship. Regardless of the industry, there are three distinct hats that every business owner must wear: technician, manager, an entrepreneur. The technician is the person who does the work of the business. In an architecture firm, for example, the technician is the person who creates the blueprints. The second two hats are usually overlooked by aspiring business owners. The manager runs the business on a day-to-day basis. This is mostly mind-numbing busywork that everyone hates to do. The third hat is the entrepreneur who innovates and drives sales.
You have to wear all three hats when you run your own business. Ironically, there’s often so much work for the manager and entrepreneur that the technical work that you love to do gets pushed aside. Before you take the plunge, realize what’s required to build the business. When push comes to shove, you might be happier as a technician.
Think you’re too old to start a business? Think again – average age of an entrepreneur is 39 years old. The Kauffman Foundation study that documented this average age also found that entrepreneurial activity is consistent across all ages. Contrary to the 20-something entrepreneurs that the mass media glorifies, people of all ages, educations, and backgrounds start businesses. Look no further than Colonel Sanders who started Kentucky Fried Chicken at the age of 65 with an investment from the Social Security Administration – his first benefits check.
No, you don’t need to be young to start a business. You don’t need to be well-off, either. Think about the legions of immigrants who came to America, didn’t speak English, and didn’t have a penny, yet became wildly successful. While your physical age and resources don’t matter, your emotional age and resourcefulness do. You have to be young at heart to start a company because it takes boundless energy and dedication. If you can’t put in the effort, you’re better off starting a new hobby instead. As good as Colonel Sanders’ chicken was, he got rejected more than 1,000 times before he signed his first franchisee. Now that’s young at heart.
Entrepreneurs are the new rock stars. The press loves to write about high-profile entrepreneurs and the latest acquisitions or IPOs. Unfortunately, $100 million IPOs, private jets, and celebrity parties are not the life of the typical entrepreneur. To the contrary, startups are boring. 98% of the work done in a startup is monotonous and painstaking.
Part of the reason for this misconception is that the ideation phase is the most exciting time of a startup’s life. When you’re first starting out, the sky is the limit. Reality doesn’t matter because you’re just dreaming. Do you have customers? Who knows, and who cares? “Don’t bother me with details.” It’s after the the initial ideation phase that startups get boring. This is when the struggle begins. This is when it gets hard, and the real entrepreneurs come out.
Startups aren’t all sunshine and rainbows, so don’t get fooled by the media. Reporters are great at selling fantasies, but real entrepreneurs don’t live in fantasyland. Be ready to do the grunge work before you turn your life upside down and try to become the next rock star entrepreneur.
Without a doubt, perseverance is a core characteristic of every successful entrepreneur. You’ll never make it in the startup racket if you can’t push through some adversity. But there’s a difference between intelligent and insane perseverance. Not every business is long for this world. If you’ve got a loser on your hands, there’s no point in dying a slow, painful death. If you find yourself in a hole, stop digging! Cut it loose and move on.
How do you know when to fold ‘em? There’s no easy answer to this question. The only practical advice, that you probably won’t follow because it’s the hardest thing for a passionate entrepreneur to do, is to make sure that you don’t dig yourself into such a deep hole that you can’t get out. In other words, don’t invest all of your retirement savings and home equity into your business. Make sure that you have a safety net. It’s intelligent to be financially committed, but insane to have your entire net worth on the line. It’s better to lose the battle and still have a shot at winning the war.
Another important piece of advice – if you do have to shut down, realize that there’s no shame in it. Serial entrepreneurs invariably say they learned a lot more from their failures than their successes. Take the lessons you learned and use them to make your next company even better.
When building your company, you will inevitably have a number of “it’s over” moments. A moment like this happens when things have become so dire and hopeless that closing up shop seems like it’s your only viable option. Every entrepreneur goes through this. In startups, WIFOs are so commonplace that surviving one is a rite of passage. After a while, you will become hardened to these kinds of shocks. People you work with will wonder how you hold it together when the world seems to be crumbling around you. There’s only one thing that matters, and that’s not what happens to you. All that matters is how you respond. So get mad for a few minutes if you want to. Then, after the initial shock of the third “catastrophe” this week wears off, regroup and figure out next steps. You’ve got work to do.
Cash is always tight in a startup, so you have to watch every penny that goes out the door. But there comes a point when frugal turns into cheap, and you end up doing more harm than good. By skimping on certain expenses you could seriously hinder your business’s ability to perform or to expand.
Entrepreneurs are notorious for trying to do everything themselves. Taxes are a great example of being too cheap. Rather than paying a bookkeeper $50 a month, founders often try to do their taxes themselves. Not only does it take them forever to learn Quickbooks and add the necessary entries, but they’re usually wrong.
There are two things you should do to be frugal and not cheap. First, make a monthly or quarterly budget of projected expenses. By doing this in advance, as part of a larger strategy session, you take the out of the decisions, and do what’s best for the business. Second, especially when it comes to larger capital investments, do a back of the envelope payback period calculation. Figure out how long it will take to “earn back” your initial investment. This payback period should give you an idea as to whether the proposed expense will be worthwhile.
Be careful not to be too cheap. Otherwise, as Henry Ford said, “If you need a machine then don’t buy it, you’ll eventually find you paid for but don’t own it.”
Even if you have no intention of selling your business down the line, it is always smart to begin with the end and build it as if you are going to sell it. On the winding road of life, you never know what lies around the next curve. Your situation could change drastically in the future, so it’s always better to have the option to sell. What does “build it like you’re going to sell it” mean? First and foremost, this means taking yourself out of the picture. The less dependent the business is on you, the more valuable will be to someone else. Businesses that depend on the founder are usually not sellable. You may be the rainmaker now, but reduce your burden by hiring other rainmakers. Get yourself out of the picture and build an organization that can sustain itself. This way, even if you never end up selling the business, it can provide the lifestyle you hoped for when you first started out.
Your reputation is one of the few things that will stick with you forever. It’s a small world, even in big cities like Los Angeles or New York City. You will end up working with and running into the same people over and over again. How you handle yourself and your business will quickly solidify your reputation in the business community. Your reputation is very sticky, and once set, it’s hard to unstick. As Warren Buffett said, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” It only takes one or two events for your reputation to be set. As a result, make it a top priority to protect your reputation and that of your company. Protect and nurture it with the business community in the same way you handle it with your customers. Be transparent, direct, and honest. There is little adversity in the good times, so you will be judged most by how you handle yourself in the bad times. Therefore, when times get tough, dig deep and do the right thing. When in doubt, take the moral high ground. It’s longer and harder, but worth the extra effort. Even if the right decision means you have to shut down your business, an untarnished reputation will allow you to bounce back quickly.