Do you dream of business success?
The choice is yours. You can accept it or reject it. If you are brave enough to start a business one day, your business will likely fail.
There is a small percentage of successful entrepreneurs who figured it out. They know what most never understand.
They know how to be successful in a world of failed entrepreneurs.
According to the U.S. Bureau of Labor Statistics, about half of all businesses fail within five years.
There are many urban myths about entrepreneurship like:
- Entrepreneurs are born.
- You have to have a revolutionary idea to succeed.
- Rich people start most businesses.
- You can’t start a business without investors or bank loans.
- You have to be young to succeed as an entrepreneur.
- Entrepreneurs are risk seekers.
- They don’t take no for an answer.
- Entrepreneurs are unemployable.
- Entrepreneurs are larger than life characters.
You see, hear and read about all of the above everywhere there is talk of entrepreneurship. The following sets successful entrepreneurs apart from those who fail.
Terrified by the prospect of failure.
Nick Woodman, the billionaire founder of GoPro, has failed several times. He was terrified that GoPro will fail like his several previous businesses. His said that “I was so scared that I would fail again that I was totally committed to succeed.”
Every entrepreneur is afraid of failure. You know that the only way to succeed in business is by pushing yourself outside your comfort zone. You feel scared. It is natural.
It’s OK to be afraid of failure, but it is your job to get it under control.
The following strategies should help you get your fear of failure under control:
- Think of the unknowns of your business as experiments.
- Instead of expecting one possible outcome, expect to be surprised. For example, if you are thinking about developing a new product, expect that your customers will want you to modify it before you take it to market.
- Expect a variety of challenges but think positively about the challenges ahead. I am not telling you that positive thinking will solve all your problems. Research has shown that you get best results when you balance positive thinking with visualizing possible obstacles.
- Do not exaggerate a set back. Understand that you have failed at a task, but you are not a failure.
Failure doesn’t crush successful entrepreneurs.
- Sony’s first product was a rice cooker that instead of cooking burned rice.
- Colonel Sanders’ famous secret chicken recipe was rejected over 1000 times before a restaurant accepted it. He started Kentucky Fried Chicken (KFC) when he was 65.
- Before cofounding Twitter, Evan Williams founded a company called Odeo, a podcasting platform. Once Apple announced that iTunes would also offer a podcasting platform, it made Odeo obsolete.
- Before making billions, Mark Cuban had failed in many things. He says of his failures, “I’ve learned that it doesn’t matter how many times you failed. You only have to be right once”.
They solve real problems.
It is difficult to solve real problems. It is so much easier to solve problems you think people have. Failed entrepreneurs learn the hard way that is very difficult to build something people are willing to pay for. You need more than your friends tell you that you have a great product idea. To start a business that actually solves enough peoples’ problems to make your company viable is very hard.
This is true for almost every business. Most of the time your first product won’t meet the market need. If you are lucky, it will take a few revisions to create something people are willing to pay for. Many times you have to scrap your idea and start on something new from zero.
Take the following steps to develop a product customers are willing to pay for:
- Develop a clear understanding of who is your customer. You have to be able to describe your customer in measurable terms.
- Involve your customers from day one. Talk to them, meet, survey, and interview them to learn about pain points.
- Create mockups and present them to your customers. Ask for feedback. Listen instead of trying to sell.
- Make adjustments. Don’t be afraid to throw out your assumptions.
- Only build what’s necessary to get to the next step.
- Pre-sell. Most companies never do this and they fail because of it. It is not enough for people to tell you that they like what you have. If you can’t find
Successful entrepreneurs don’t live and die by investors.
It’s great to have a list of people who want to invest in your business. But, should you spend your time chasing potential investors? Investors can bring many new unwanted variables to your business. To get them you will have to give up part of your business. Some of them will also want to tell you how to run your business. The goals of investors are often different from founders goals. On top of it all, going after investors can be extremely time-consuming. Instead of growing your business you could be spending weeks and months chasing after investors.
There are several excellent reasons that you should bootstrap your business instead of chasing investors:
- You have to give up equity.
- When you are backed by angels or VCs you are expected to grow much faster than you would as a bootstrapped business. When you hurry you will make a lot more errors faster.
- Most angel and venture backed businesses end up wasting a lot of money on things they didn’t need to spend on.
- Many investors want an active role in running your business. Your investors might have very different short-term goals. While you are busy building your business they are more concerned with getting as big a return on their investment as quickly as possible.
Successful entrepreneurs understand that even venture backed business can fail.
If you think it’s difficult to fail if you get an investment think again. Failure is fairly common for startups with over $100 million invested.
Here is a list of companies with over $100 million funding that failed:
- Hailo, the taxi app rival to Uber and Lyft, pulled out of the US market, laying off 40 employees and citing the “astronomical marketing spend” required to pursue its mission.
- President Obama had invested $535 million tax payer dollars into Solyndra, the solar panel maker.
- Webvan spent a fortune on its infrastructure. They got big too fast for the small number of customers they acquired.
- Amp’s Mobile burned through $360 million. It has been reported that 80,000 of the company’s 175,000 customers were unable to pay their bills.
- Procket, a networking company that received $272 million in funding had a valuation of $1.55 billion. Procket was ultimately sold to Cisco for $89 million that many would consider a fire sale.
- Kozmo, a small goods delivery service, received $250 million in investments. The business model was crazy for Kozmo was a delivery service that didn’t charge for deliveries.
Successful entrepreneurs know that cash is king.
Startups valued at billions without revenue make for great headlines, but the reality for most businesses is that you won’t make it without cash. Having only 80% of capital necessary to keep your business running is not enough. You need a 100%. Just as a rocket heading into space needs to reach a certain speed to leave Earth’s atmosphere, you need a certain amount of cash to succeed.
There are several ways to improve your company’s cash situation:
- If you think that it will take your business 2-years to become profitable, double it. Everything takes longer in reality than on paper. Expect it.
- Hire slowly. It’s a great feeling to build your team, but it sucks when you can’t pay their salaries. Successful entrepreneurs stretch the capabilities of their employees to the point of pain. It’s a lot more painful to have to lay off your employees.
- Understand your financials. As an entrepreneur you are responsible to have a clear understanding of your cash situation. Even if accounting isn’t your top 25 things in life, you are responsible for developing a clear financial understanding of your business.
- Expect many rainy days. Successful entrepreneurs understand the need for cash reserves. Possible reserves are, preferably cash, but venture capital and lines of credit might help. It is tough to try to raise money when you are about to run out of money.
- Get paid in advance. Pre-sell. If you can’t pre-sell, get paid as fast as possible. Offer incentives for pre-sell customers and those who pay immediately.
- Secure loans, lines of credit, and investment when you don’t yet need them. It will be a lot more difficult to do all that when you are desperate for more cash.
Growing too fast and your business will fail.
Growing fast can be good for your business, but growing too fast will kill your business. Zynga, the online gaming company, had to cut 18% of its staff in 2013. When you grow too fast bad things happen to your business. What looks like a great idea for growth today could easily look reckless in the future. Zynga was too dependent on the Facebook platform where the network’s fees hurt the company’s profitability. In addition, they have spent hundreds of millions acquiring companies. None of the above is unique to Zynga. Unfortunately, companies make the mistake of growing too fast all the time.
How do you know if your business is growing too fast?
- Your business stopped growing proportional to all of its components. For example, if your team is growing much faster than your revenue your business is growing your fast. Your revenue will not be able to support your payroll. If your expenses grow disproportionately to your revenue, your business is growing too fast. There will never be a complete balance, but you must keep it as close to balance as possible.
- When entrepreneurs spend the majority of their time on managing the business instead of focusing on the big picure their business is growing too fast.
- If you are asking too much of your team for too long, your business is growing too fast. It is one thing to push your team to the limit at times, but every machine will melt down when you red line it for too long.
- If you stop focusing on quantity instead of quality when it comes to hiring people, you are growing too fast.
- When your investments no longer provide you with the necessary ROI you are growing your company too fast.
- If you focus more on getting more customers and less on servicing your existing customers, your startup is growing too fast.
Successful entrepreneurs avoid debt.
Most business debt is bad. One of the worst things about debt is that it presumes the future. Because of interest, the money you borrow today will become ever more expensive. It will hurt your profitability. Debt will force you to make decisions you don’t want to make. Worst of all, debt will make you less competitive.
You can avoid taking on business debt the following ways:
- Fire slow and non-paying customers. Often, companies develop bad debt to serve their worst customers. Cut your losses early and get rid of those who are not paying their bills.
- Only use credit as a last resort. It’s OK to use credit to fill orders, but it’s not OK to use it for payroll, paying rent, etc.
- Get paid in advance.
- Cut unnecessary expenses. You might be able to reduce your office space, or liquidate unused equipment, etc.
- Create realistic budgets. Base you budget on what is instead of what you hope it will be.
Those who succeed are strategic.
Entrepreneurs who fail would rather deal with what’s in front of them than to think strategically. They think that something is in front it is more urgent. When you are dealing with the right now you are missing greater opportunities.
Another reason entrepreneurs refuse to be strategic is that it is difficult to think about your business strategically.
The following will help entrepreneurs think strategically:
- Create your vision, purpose, and core values. Everything you do in business should be influenced by them.
- Develop your peripheral vision. Look for industry trends.
- Challenge current beliefs, including your own.
- Make your decisions based on multiple sources of information.
- Avoid perfect decisions. Perfect decisions don’t exist, but you could end up a lot of time trying to find them.
- Pivot once you realize that you are off track.
As you develop your strategy answer the following questions:
- Why are we in business?
- What future do we want for our business?
- What future do we want for our customers?
- What future do we want for our team?
- What are our goals?
- What are the paths to reaching our goals?
- What industry trends are important to us?
- What are we doing to differentiate from the competition?
Great entrepreneurs create systems.
Most businesses never mature. They either remain the same size or crash and burn. The main reason is that they fail to develop systems. As an entrepreneur you must create systems to enable your business to run without you. If you fail to create systems, you will become the bottle neck.
Systems are rules, policies, and procedures that people within your team can repeat with training.
You need systems in your business for the following:
- Customer service and support
- Employee training
- Project management
Businesses with systems are value higher, and are sold at higher multiples.
Find a way to market cost effectively.
Successful entrepreneurs look at marketing as an investment and those who fail look at marketing as an expense. Your challenge is to figure out cost effective ways to market your business.
The following will help you develop a cost effective marketing strategy:
- Understand exactly who is your customer.
- Determine the Customer Lifetime Value (CLV) of your customer. CLV is always a measurable dollar amount.
- Based on your profit margin and CLV, you can determine how much you can afford to spend on a new customer.
- Determine your Customer Acquisition Cost (CAC).
- Think small and test. You have an infinite options when it comes to marketing. Try a few tactics and continue the ones with the greatest ROI.
- Measure everything. Don’t accept silly urban myths like “50% of our advertising spend is ineffective”. Insist on measuring all of your marketing efforts.
- Study your competition. Where do they advertise? How do they advertise.
- Develop strong strategic partnerships.
Set measurable goals.
Successful entrepreneurs set goals. Without them your business will stagnate or fade. Goals are stepping stones to reach your big picture goals.
Set goals in the following areas:
- Financial – profitability, revenue, costs, margins, debt, cash flow
- Service – customer satisfaction, customer retention
- Growth – industries, verticals, market penetration
- Product – product development, R&D, product improvement
- Team – employee turnover, employee satisfaction, employee training and development
- Social – giving back, social responsibility, philanthropy, volunteer
It is really important to be able to express and measure your goals by numbers. The key is to measure how close you are to reaching your goals and make adjustments as necessary.
SMART goals are great.
- S – Simple – Is it simple to understand? (Who, What Where, Why)
- M – Measurable or Meaningful – How do you measure (in numbers instead of feelings) that you are reaching, exceeding, or failing to reach your goals?
- A – Actionable or Achievable – What will it take to complete this item? You can do X to make it happen. It is important to have challenging but realistic goals. For example, if you have no customers today, it is unrealistic to set a goal of a million customers in the next 30-days.
- R – Realistic or Relevant – Make sure your goals are consistent your other goals and overall objective.
- T – Trackable or Time-bound – Develop timelines to keep your goals on track.
ACES is another great way to reach your goals.
- Achieve – What do you want to achieve? (We are going to increase our revenue by 20% in the next 6-months. We are going to have our new website live within 90-days.)
- Conserve – What do you want to preserve? (We are going to retain 90% of our customers for 12-months.)
- Eliminate – What are we eliminating? (We are firing clients who are more than 90-days late paying us.)
- Steer clear – What do you want to avoid? (Keeps X amount of $ in our cash reserves. Never allow our cash reserves to be under X $ amount.)
Focus on great teams instead of superstars.
Individuals can do great things, but teams can change the world. Focus on building great teams. Failed entrepreneurs want superstars. They want to hire sales superstars and technical gurus. The reality is no one person should be an irreplaceable part of your business. Build a team that functions well together instead of nurturing a few stars. Superstars are also team destroyers. The key is to hire the right people.
Before you hire people ask them questions like:
- What are your goals?
- Tell me about your failures?
- What are you passionate about?
- What changes do you want to see in the world and what are you doing to make them happen?
- What are the 3 most difficult challenges you had to face?
There are many people out there with the hard skills for any job. There are too few with the right skills and personality who will fit into your team.
Know when it’s time to quit.
Successful entrepreneur that there are times when it’s time to cut your losses instead of digging a larger whole. Running a business is very difficult. Even if you work hard and do everything right no one can guarantee that you will be successful. The hours are long and new challenges are always around the corner.
There are two common reasons people quit a business:
- Entrepreneurship is not for you. This doesn’t make you a lesser person or a failure. Actually, you are far from being a failure. You have done what most don’t have the guts to do. You took action. Your tried. You failed. So, what? You had a unique life experience and you are a richer person for trying. Be proud of it.
- This is not the right business for you. There could be too many reasons why a business is not the right business for you. It could be a timing issue. You could have too many personal or health issues. You might have had an idea for a business and it turned out there are not enough people who are willing to pay for it. Some of the most successful entrepreneurs like, Mark Cuban, Henry Ford, Colonel Sanders, Richard Branson, Soichiro Honda, Thomas Edison, Walt Disney, and countless other entrepreneurs have failed many times before they have succeeded.
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