Four years ago I posted A Short History of Business Plans including my experience plus data from a Google search of usage of phrases in books. The search is interesting because it transcends the web and online data by digging into books.
Usage in Books
I tried a similar search yesterday and was disappointed to discover that it hasn’t been updated past 2008, which was the same most recent date available in 2011. It turns out the Google book search I used then still runs only through 2008, as it did then. Bummer. That’s disappointing. So here’s that data:
I find it kind of cool – obviously meaningless, but still cool – how neatly that blue line parallels my personal experience with business planning. I first heard about it in the middle 1970s, started to really like it – and do a consulting business around it – in the middle 1980s, and then developed Palo Alto Software and business planning software for business plans in the middle 1990s. No wonder it seemed important to me. Look at the blue line.
However, still curious about how usage has fared since 2008, I decided to turn to web searches for a better update. So I did a a Google Trends search for “business plan” and “entrepreneurship.” The conclusion is that the searches for business plan and for entrepreneurship are stable, and seem to correlate very closely.
I’m not sure what to make of that visual correlation, and much less what to make of the appearance of both of these lines turning flat over the last four years. What do you think?
Last week, I posted a rant about the stupid meme that pits entrepreneurship against education, as if young people are supposed to choose one or the other, but not both. I called it Young Entrepreneurs: They are Lying to You.
But I like paradox, and I like uncertainty, and I also like to remember that you could argue that education—especially business education—teaches people how to do what their elders did. It teaches them to color inside the lines. It teaches them to think inside the box.
On the other hand, you have to know what you’re rejecting to reject it. People who learned the classics are better positioned to reinvent them with something new.
The Kauffman Foundation, based in Kansas City, is a very well endowed, thoughtful, and often very useful source of research and information on entrepreneurship in America. The video here is a compelling three-minute summary of problems and opportunities. The foundation titles it “Looking for the Magic Sauce.”
I love the video illustration methodology, and it makes some important points well. I have to admit, though, that I’m often troubled with the attempt to find formulas and recipes; I suspect that at the core, the process of starting companies is so intrinsically unique to every new business, and every individual, that generalizations don’t apply. Still, this video puts the questions very well.
If for any reason you don’t see the video here, you can click this link to go to the original at the source.
I say entrepreneurs should agree on full disclosure in their bios. We should list not just our successes, but also the failures. Nobody lists the failures.
For example, my bio would include not just co-founder of one software company that went public, but also co-founder of several software companies that failed completely. And not just founder of two successful businesses, but also of several that failed.
What would happen?
Maybe world would be less likely to swallow those rah rah lines about how you just have to be stubborn to make it. Too many successful entrepreneurs forget how it takes more than just passion and persistence. We have loser businesses that fail regardless.
Maybe we’d see that everybody makes a lot of mistakes, and sometimes they get through it okay.
Maybe we’d be less likely to offer general rules about what makes entrepreneurs, or, for that matter, what makes businesses successful. Which would be okay, because in truth it’s almost all case by case. There are no general rules that apply.
What’s the secret to success in entrepreneurship? Passion? Persistence? Doing what you like? Maybe it’s having a great business plan? I’ve written here that empathy might be the most important. But that’s a generalization too. What do you think?
Here’s the problem with that: there are no general rules. Scratch under the surface of entrepreneurship and you’ll find lots of people willing to put forth one characteristic or another. You can find examples for anything.
The people who strike off on their own are by definition people who split off from the group to do something different. So they don’t come in flocks, Generalizations don’t apply. I know people who fell in love with technology, a market, doing something they like to do, or even one or two who set out from the beginning with the specific goal of making millions of dollars. And I know people who started their own business mainly to be independent, set their own hours. I know people who did it just to prove that they were right when they said it could be done.
What reminded me of this was Susan Solivic’s What is Your Motivation? on Up and Running a few weeks ago. Writing about what makes people start companies, she suggests there are lots of different reasons.
I know a bright, ambitious guy who didn’t have the patience to stay in school and ended up stocking retail store shelves for a major consumer products company. He stuck with that company, moved up from shelf stocking to sales, and the up again from there to sales management, and eventually, up to country manager for a subsidiary in another country.
And when he started his own business, what was it? Restocking retail shelves for consumer manufacturers. Right where he started. Only in his case, he was the owner, not the employee. He made a service of doing well what needed to be done. In just five years of it he had several thousand employees, and several very important major consumer manufacturers as clients. Before he was 10 years into, he sold the company for $10 million. He now lives happily in Switzerland.
That’s kind of my own story with business planning software. I was doing business planning for clients, and that led to developing templates for clients, which became a software product. That’s essentially the same thing: building a business based on doing what you’re already doing, but on your terms.
So that’s a thought for today: do your own business, not by doing something completely different, but by doing what you’re already doing, just better.
Real entrepreneurs don’t make profits, and for good reasons. Huge oil companies make excess profits, sure. Smart entrepreneurs don’t.
And I don’t mean just the land-grab web companies like Facebook and Twitter don’t make profits. Growing companies don’t make profits. Can you be more successful than amazon.com and Jeff Bezos? Amazon didn’t make profits until relatively recently. No, I mean small business everywhere.
Ideally, you do want enough in profits to support an increase in working capital, which would be a single-digit percent of sales. But that’s rare in growing companies.
Where do profits come from? Money you take in as sales that you don’t spend in cost of sales or expenses. And if you want to grow, then money that might have been profits goes right back into expenses as more product development, more marketing, more smart people on payroll.
When Palo Alto Software was growing at double-digit rates during its teenage years, I made the order of priorities as clear as I could: cash flow break-even first (we didn’t have outside investors); growth second; profits third.
I was talking to a group of students recently and I was asked to comment on what makes an entrepreneur. The student who asked the question wrapped it in the mythology of the entrepreneur driven by the idea, stubbornly, tirelessly proving its value to the world. She wanted me to tell about me wanting to build something big.
But I had to admit that my case was different. I was running away from boredom, not building castles.
When I left a good job at Creative Strategies and started on my own, in truth it was not because of something I wanted to build, not because of a creative vision, but rather because I thought I could make enough money to keep my family whole and do what I wanted. I wanted interesting work, and I wanted to choose my work. I wanted to actually do the writing and research, not supervise others. It was important to me that what I spend hours doing was something fun — I always found writing and planning and working numbers fun — even though I didn’t have the idea that would create the empire.
Or maybe you like this shorter version: I was married, had kids, so we needed the money; and nobody else would pay me what I needed to make.
And the idea of a software product, that creative vision? Yes, that happened, but that came about 10 years later.
Over the weekend I got an email from a polling company with the startling headline “College Students Aren’t Getting Entrepreneurial Skills.” I’m not going to cite the source here, though, because I want to poke some fun at the poll and its conclusions, and I don’t want to make it personal.
But here’s an opening quote:
Americans also say that traditional teaching methods aren’t the way to teach entrepreneurial skills. Overall, 73 percent report the best way to teach a student to become an entrepreneur is to enable them to create businesses or intern in start-ups. And 76 percent said that students launching a business while still in college will make them more successful [SIC] in creating jobs and opportunities after graduation.
Do you see what’s wrong with this (aside from the grammar)? It says the survey asked 2,141 Americans. Have they started a business? Have they succeeded in business? Have they taken classes? Who are these people and what makes them authorities on entrepreneurship? It doesn’t say.
What if we pointed it at, say skiing instead of starting businesses. It would go something like this (with grammar corrected):
Americans also say that traditional teaching methods aren’t the way to teach skiing. Overall, 73 percent report the best way to teach students to ski is to strap them on to skis, take them to the top of a mountain, and push them off. And 76 percent said that students who ski off cliffs immediately will be successful in ski competitions and afterwards.
The press release goes on to list these amazing answers from “the critical 18-24 age group” (and who knows better about entrepreneurship, experience, or education than people 18-24)?
Sixty-two percent said the most effective way to teach someone to become an entrepreneur was by creating a small business or interning in a start-up. Only 2 percent said it was through class work and lectures.
Sixty-nine percent said that work experience is where most learn the skills to become an entrepreneur.
Fifty-seven percent said that launching companies in college would make them more successful in creating companies and jobs after graduation.
Ninety-three percent said that entrepreneurship is “very important” to the future competitiveness of the American economy.
So they were asking teenagers whether they’d rather do something or go to class? Hmmm.
Here’s what I believe:
The last thing this country needs is less education.
Both education and experience can teach, but they teach different things, and in different ways.
The ideal is both education and experience. Education accelerates learning. Sure, you can learn cash flow the hard way, but it’s easier, and way less expensive, in a classroom. Ideally you want both. Mix your education with experience, and vice-versa. In a pinch, if you can’t afford the education, you can still make it with pure raw entrepreneurship. But it’s harder.
I was talking to a group of determined entrepreneurs, a food business boot camp in Corvallis, Oregon, and finishing up on business plans when one of them asked me:
What do you recommend for getting angel investment?
I recommend that unless you have a good investment opportunity, you don’t waste your time.
What’s a good investment opportunity?
First, it has to be something scalable, defensible, that can grow. That means it’s either a product business, or one of those web services that scale easily. Can you add sales without adding employees? That’s a good clue to scalability.
Second, you need people on board with experience in startups. It’s tough if you’re just beginning, but investors worry about risk and nothing reduces risk like having some experience. If you haven’t been involved in a startup, it’s really almost impossible to get investors to take a chance on you. Look for partners or team members who’ve had some startup experience. Ironically, having failed with a startup isn’t always bad; failure is better than no experience at all.
Third, you need a believable exit strategy. And you need to be able to convince investors you really want that. Investors don’t want just a small piece of a healthy growing business; they don’t make money unless that business wants to be sold in a few years, meaning it gets acquired by a larger company, and investors get to convert their ownership back into money.
The hard part, as a speaker talking to entrepreneurs, is entrepreneurs want encouragement. But then when I think of how much time and effort some people spend trying to get investment that’s never going to happen, I try to just tell the truth.