I received this question: Is succeeding as an entrepreneur a matter of luck or do only the talented ones make it?
And this is my answer:
Luck isn’t enough, and talent isn’t enough either. You can have either one, or even both, and still fail. What you’re missing, with your question, is the work. Business success takes work. You can succeed without luck, and also without talent; but not without work.
Interested in other answers to this question? They are on Quora, my favorite question-and-answer site.
In business schools, in popular blogs, in business publications, and in general discussion of starting a business, we undervalue bootstrapping. We teach starting a business as if every new business requires sophisticated venture capital. I understand how this can be educational. It means teaching business planning, which is the ultimate business teaching tool, and investment analysis, ROI, IRR etc. Still, of the 700,000 or so new businesses launched every year, about 5,000 had VC money, and maybe 30,000 had angel investment. The rest were bootstrapped.
Outside investment is overrated
I think the investment option is overrated. It’s better to own your own than to land investment, at least if you can pull it off. As the old song says, “God bless the child that’s got its own.” The opportunity itself should determine whether investment is required. lf it takes more resources than the founders can muster, then it needs investment.
The cliché asks which is better, a piece of a watermelon or a whole grape. But what if that comparison is skewed wrong? Which would you rather have, a slice of an orange or a whole tangerine?
I have good associations with bootstrapping. I was on the board as Philippe Kahn took $20K from his father, plus one $90k bundling deal from a PC manufacturer, and levered up Borland International without outside investment until he didn’t need it. He did it with a great product, strong demand, smart management, and cash-only sales instead of the mainstream, working-capital-hungry channels. Borland went public less than three years after it started. Palo Alto Software grew slowly without outside capital. We had to slipstream a larger vendor whose advertising budget was 10x ours. We ended up with 70% share in our niche and owning the company outright.
The luxury of owning it yourself
Bootstrapping isn’t just about owning the whole pie. It’s also about the luxury of being able to experiment and, at times, making mistakes. Philippe was unconventional. Could he have had that freedom if he’d had conventional VC financing?
A few years ago I was judging a major intercollegiate venture competition in which one team looked especially strong, it’s $5 million 3-year forecast seemed as likely as any of the others, but it didn’t need any outside investment. It was the best plan (IMHO) but it didn’t win. The judges, mostly investors, couldn’t figure out how to deal with that plan. It didn’t win the competition. It should have.
(Image: copyright Timothy J. Berry. All rights reserved.
They teach decision sciences in business schools. Those of us doing business, either as entrepreneurs, business owners, or careerists, talk a lot, and think a lot, about business decisions. We all want better business decisions. I’ve taken some of those courses and heard a lot of the talk, and I’ve survived running my own business for a lot of years. Here are five tips I’ve come up with.
1. Know when time isn’t money … it’s information.
Don’t get pressured into fast decisions. Decisiveness is not just deciding fast; it’s deciding well.
Step back and think. If there is more information coming, and no penalty for waiting, then wait. More information is better. You may have little penalty for waiting, and more information available to you. For example, wait until you land the contract before you change the website. Wait for more sales to clear the pipeline before changing the messaging.
2. Live comfortably with uncertainty
No amount of data and research can completely eliminate the doubt about what’s going to happen. Don’t expect to know for sure, ever, when it’s about what will happen, as opposed to what did happen. Almost all of forecasting is using the past, or sample data, to predict the future. Get used to it.
Work for the educated guess. Make your guesses as educated as you possibly can. Yes, do the research; but don’t just believe the conclusion. Don’t just go by the proverbial seat of your pants or gut, without tempering that with information. But don’t ignore your gut either. Consider alternatives.
3. The crucial difference between wishy-washy and insightful
Smart people change their minds. Thoughtful people change their minds. What’s supposed to happen is that new information prompts new thinking, and what you had thought before might be revised by what you know now.
Never assume that what has always been true is still true. Never assume that what has never worked in the past won’t work now.
4. Use your whole brain
The whole left brain vs. right brain theme is probably a myth, according to the research that turns up with a simple web search. We all use both kinds of process, the gut (or heart, or intuition) and the rational (or logical, or mathematical). But some of us purposely try to block one or the other side as we look at decision making for business. For every go-with-the-gut” suggestion there’s somebody else saying let’s go with the data, or the research.
Use both. Respect both. Let the data temper your gut. Use the “let’s sleep on it” method sometimes. Let the decision percolate, or simmer. Write it out, think, dream, meditate, and see what your brain says.
Be careful not to let the data or the research do the decision on its own, when it doesn’t check with your intuition. It takes people to make good decisions, incorporating both research and experience.
I’ve encountered several times the delightful phenomenon of people mapping decisions with spreadsheets, trying to make it all math and logic … and then skewing the results with intuitive inputs to the spreadsheet variables.
5. Give up on democracy
Remember the old adage that when committees choose colors, every wall ends up beige. In the early days of a startup, everybody shares decisions. As a business grows, it develops functional expertise. Good decisions aren’t made by committee. Let the marketing people decide the colors for the packaging, and the finance people decide how to fund working capital. And the owner, ultimately, has to decide strategy. Consensus is comfortable in the beginning, but doesn’t work on the long term.
Ah yes, software product release. When do you let that product go? When is it good enough? What if there are more problems? This is publishing at its best.
The joy of easy updates
I will say that what we do with software today is sheer joy compared to the stress of releasing a product in the middle 1990s. Back then we had to finish the software, test it, test it again, and then duplicate physical disks and assemble packages and send them out in pallets to the stores. Some undiscovered mistake could be a disaster. It could literally kill companies. The disks were out there, thousands of them.
Today, in contrast, we can change the masters of downloadable software whenever we want. We can post updates on the web. New versions happen as soon as we add features. We update LivePlan caref when we packaged them up and duplicated disks and sent them out to the world with the assumption that we wouldn’t discover problems soon after. Those disks had a life of their own. Nowadays we can update a web app constantly, let people download the software, change the latest version overnight.
Adequate is good enough? Maybe.
What I do want to write about is the late Adam Osborne, founder of Osborne Computers, writer, columnist, and inspiration to a generation of computer writers turned entrepreneurs.
I had the privilege of dealing with Adam Osborne a few times during the early Silicon Valley days. Two of his sayings come to mind:
“Adequate is good enough,” he said, more than once. He was talking about product development and technology business. “Ship it.”
He also espoused what he liked to call the Adam Osborne Trade Show Theory of Productivity, which was, in detail: “80% of the GDP is finished the night before the trade show opens.”
I have to admit, looking back, that I’m glad now that we have a different system.
Are you a business owner? Do you have a business plan? Is your answer to that question: “Business plan? but I’m not a start-up. Why would I want a business plan?”
My answer is that you do want business planning. You want business planning as a way to set strategic focus, priorities, effective tactics, measurement, and task assignments. Make those clear and record them so you can revisit monthly. Then track progress and performance as you do a monthly review. Add in plan vs. actual accounting to compare projected sales and spending and use that process to kep a close eye on cash flow. Anticipate problems. Accommodate rapid change. Give yourself a process to optimize your management.
Maybe you don’t want a traditional business plan
The disconnect is the problem of what is a business plan. I agree that you don’t want a business plan if you think of that as a formal traditional business plan document. The traditional static document, that you do once and then forget, is not useful to real businesses.
The shame, though, is what gets lost in the shuffle. The real business planning process is such a great tool for growing a business, but so many people dismiss it as a one-time plan used only to start a company or raise financing. That myth of the business plan for start-ups only gets in the way far too often. If you own or run a company, you probably want to grow it. And if you want to grow a company, then you want to plan that growth. And the planning is only the beginning; you want to use the full planning process to manage growth.
The real benefits of business planning
Think for just a minute about how many different reasons there are for an existing company to plan (and manage) it’s growth. There’s the need first of all to control your company’s destiny, to set long-term vision and objectives and calculate steps to take to achieve vision. Without planning the company is reacting to events, following reality as it emerges. With planning, there’s the chance to pro actively lead the company towards its future.
For an existing company that wants to grow, planning process is essential. Everybody wants to control their own destiny. The planning process is the best way to review and refresh the market and marketing, to prioritize and channel growth into the optimal areas, to allocate resources, to set priorities and manage tasks. Bring a team of managers together and develop strategy that the team can implement. Work on dealing with reality, the possible instead of just the desirable, and make strategic choices. Then follow up with regular plan review that becomes, in the end, management.
This normally starts with a plan. The plan, however, is just the beginning. It takes the full cycle to make a plan into a planning process.
This is a great look at one example of a successful restaurant business. Jonathan Fields calls it “bootstrapping with a bit of divine intervention.” That story is about four minutes in. The whole interview is interesting, and a good background look for anybody curious about the restaurant business, particularly one successful restaurant business, not stylized for cable TV.
If for any reason you don’t see the video, click here to get to the original on YouTube.
This is a really good interview, with a lot of good stories, about real life in the restaurant business.
And while I’m on the subject, this is part of a series Jonathan is doing called the “Good Life Project.” It’s a great collection. You can find that here on YouTube, on Jonathan’s Career Renegade channel.
Last Tuesday I had the privilege of taking 10 half-hour appointments with student entrepreneurs developing business plans. The idea was listening, talking, suggesting, and maybe helping with a thought or two. What a kick that is. No wonder I love what I do for a living.
I started each of these sessions with a warning about one-size-fits-all business advice:
would-be mentors and advice givers contradict each other all the time. Half the time the advice you get today is directly opposite the advice you got last week. And last week’s contradicted what you were told the month before.
Everybody who’s been down a path to entrepreneurship thinks theirs was the right path to take. And everybody else should do it exactly like they did. Get angel investment, or don’t. Have passion, or a big market. Build a team, or lever up. Grow quickly in several markets at once, or focus on a beachhead. Do it like I did. That’s what we all say.
But you have to have the strength to do it your way, not my way. Listen to me, absorb, digest, take some of what I said into your plan, or not. But it’s still your plan. And your business.
Aside: My Tuesday last week was at the University of Notre Dame’s Gigot Center for Entrepreneurial Studies, which is one of the best such programs around. The Gigot Center makes me proud to be a Notre Dame grad (bias alert!), even though my time there was studying literature, not business. What they’re doing at the Gigot Center is all about good business sense combined with a uniquely Notre Dame vision. It begins with fundamentally sound business, but opens up to social business and family business as well.
I’m troubled. The problem, in a nutshell, is that saying jerks and idiots are bad bosses is a bit too easy. It implies that not being a jerk or worse makes you a good boss. And that’s not always true. Nice people can be bad bosses.
Still, there’s this problem: By focusing so much attention on what not to do, and who not to be, we tend to undervalue the hard side of being in charge. Being a good boss also means following up on unmet expectations and disappointing performance with leadership, advice, teaching, and demanding better.
I think I did this wrong myself. I think I let being a supposed nice guy interfere with my managing a company. You can’t be liked by all and also optimize performance. Sure, some people work best when left alone and encouraged, but – hard, ugly truth – others lose interest and grow entitled. Good bosses deliver both positive and negative feedback. Good bosses make the company better. Whether they’re liked or not.
This is not Bob Sutton’s fault, not the fault of his work. But he tells great stories of jerks and idiots, and stories are powerful, so stories gather. So we unconsciously think being a boss is about being nice. We forget the hard part.
I like beachhead strategies. The term comes from military strategy, meaning that as you invade enemy territory, you need to focus your strength and concentrate on winning a small border area (the beachhead) that becomes the stronghold from which you’ll advance into the rest of the territory.
That’s what the allies did, successfully, in the D-Day invasion of Normandy in 1944. That military success was planned and led by Dwight D. Eisenhower, author of my favorite business planning quote (“The plan is useless, but planning is essential.”) It’s what you see in the opening scenes of Saving Private Ryan. It’s also something I learned mostly by playing war strategy games (although not specifically the one shown here; that’s just a good illustration).
And it’s good business. In business, particularly startups, the beachhead strategy is about focusing your resources on one key area, usually a smaller market segment or product category, and winning that market first, even dominating that market, before moving into larger markets.
Beachhead strategies are often critical for bootstrapping new businesses. And franchisor businesses should think of the beachhead strategy as making sure the initial locations are strong and successful and good models for future locations.
Sadly, people don’t always communicate beachhead strategies well. As an angel investor, and judge of business plan contests, I often see what should be beachhead strategies looking instead like they are focusing too narrowly and missing the larger markets that the beachhead will lead to.
It’s ironic. In business pitches, for startups, the beachhead strategies tend to generate criticism from judges, experts, and other assorted experts for being too narrow, too focused. They want the big picture. But, on the other hand, the big picture, do-everything strategies will often be criticized for being unrealistically ambitious, and unrealistic.
The answer to this seeming paradox is: If you are doing a beachhead strategy, make sure that you include the follow-up idea of broadening your approach later on, after establishing yourself in that first core market.
(Image credit: hoping the game publishers don’t mind seeing their cover shot here; I got it from images.google.com)
— Late addition
My friend John Reddish added one of the comments, mentioning the pictures of Normandy he sent along to add to this post. Here they are belong. Image credit, John Reddish: