The Myths and Realities of Entrepreneurship
I have spoken to and worked with thousands of small business owners. In doing so, I have found that there are a number of myths about entrepreneurship. Now is a good time to dispel these myths and discover the realities of starting and growing a small business.
Myth #1: Most small businesses are started by entrepreneurs.
Reality: Most small businesses (over 90%) are started by technicians. Michael Gerber in his best-selling book, The E Myth, describes technicians as individuals who have a particular technical skill who than start a business that utilizes or sells that skill. Examples of technicians include the chef who opens a restaurant, the auto mechanic that opens a repair garage, and the doctor that opens a health practice. The true entrepreneur is a builder, a visionary, and a creator. The entrepreneur enjoys working as much on the business as he/she does working in the business.
Myth #2: It gets easier.
Reality: My experience is that owning a business never gets easier. You may enjoy it more over time. The issues may evolve from more tactical to more strategic as the business grows. It’s not like riding a bike…If you do find it getting easier, you need to start finding challenges for yourself and your organization that will result in growth opportunities for each of you.
Myth #3: Market research is primarily for business start-ups and big companies.
Reality: Information is power. In some cases it is the small business’s competitive advantage. Information comes from market research. We should be gathering data on a continual basis on our product offering, competitors, and customers. The marketplace is changing so fast and is way too fluid to assume that these three critical cornerstones of our business are not changing as well. Make a commitment to ongoing market research. Make sure that your firm has an effective cost-effective means of collecting and interpreting the data and that you are prepared to take action on the information as needed.
Myth #4: Intelligence (IQ) is a primary indicator of entrepreneurial success.
Reality: It’s hard to downplay the value of being a smart business owner. However, there are two other qualities that I think are just if not more important. The first is your Emotional Intelligence as measured by your Emotional Quotient (EQ). This calculates how well you relate to other people including your employees, customers, and other organizational stakeholders. There has been a lot of study done in the past decade on this topic that clearly shows how important EQ is and the relative importance of this quality in terms of leadership. Maybe even more important is your Adversity Quotient (AQ). This measurement assesses your ability to overcome adversity in your business and personal life. The number of average daily adversities has doubled in the last five years. Successful entrepreneurs are able to overcome adversity on a daily basis and stay focused on the task(s) at hand. Their mindset often times is “…this too shall pass”.
Myth #5: The business owner’s job is to cut costs.
Reality: Many business owners seem to have bought into this myth. Today’s newspaper headlines are filled with stories of businesses announcing massive layoffs, closing manufacturing plants, and outsourcing internal work processes. Vistage Speaker Jack Harms suggests that the business owner has a far greater task instead: “raise prices”. In fact, he suggests that each month the question should be asked: “What have I done this month to raise prices?” Why raise prices? The only way we can raise prices in the long run is to provide greater value to our customers. So the question really is: “What have I done this month to provide greater value for my customers?”
Myth #6: A business plan is primarily for a business start-up or to raise capital for an existing business.
Reality: A good business plan should be your “road map” to success. It should clearly articulate the vision and direction of your business. The plan also insures that our business has a design and a purpose built into it. It is very easy to get lost in the course of our business. The business plan helps us find our way. The plan also can act as a set of speed bumps when our business vehicle exceeds our natural growth speed. About 80% of all small businesses fail in 3-5 years. Over 80% of all small businesses lack a business plan. Is there a direct correlation? Maybe not, but it is too hard to ignore the relative coincidence. Remember, the greatest value of a business plan is found in the actual development of the plan and not so much in the document itself.
Myth #7: Financial reporting is for accountants and the IRS.
Reality: Financial reporting allows the business owner to “keep score” of his/her business. Running a business is much like playing just about any sport. Improvement only comes by tracking our performance. Imagine playing nine innings of baseball without being able to see a scoreboard or know the score. How would you know when to switch pitchers or pinch-hit batters? The most successful professional sports managers and coaches keep track of many important statistics. Entrepreneurs need to do the same. Determine which financial numbers (key indicators) you need to follow and than commit to tracking them regularly.
Have I left out any entrepreneurial myths that you have experienced? Please let me know. In the meantime, stay focused on the “realities” and continue to enjoy the dream of entrepreneurship.
VIDEO OF THE MONTH
Bill Donius: Unlocking Your Brain’s Hidden App
BOOK OF THE MONTH
“The Automatic Customer”, by John Warrlow
I have almost finished reading this book and love it. The author previously wrote the business best-seller “Built To Sell”. Here is a recent review from Amazon:
A good primer into the emerging subscription economy
By Mahipal Lunia on March 11, 2015
Synopsis: Subscription Biz models are here to stay in everything from software, to content to household consumables.
The author has listed 9 specific models/approaches to take:
- Membership Website Model: Works best in a tightly defined niche with specialized knowledge is needed
- All you can eat library model: Evergreen content is an example. Think Netflix – even the most addicted watcher could not go through it all
- Private Club Model: Limited supply being sold to an affluent clientele. High prices, low numbers
- Front of the line model: Different prices for different levels of service/support. works best on complex products/services. Think salesforce.com’s model for how your complaints are dealt with
- The Consumables Model: Selling products that naturally run out as a service, where ordering things can be a chore. Food, blades, vitamins etc.
- Surprise Box Model: when you have a network that is willing to buy deeply discounted consumables from manufacturers at deep discount. The idea being some of the consumers will then order a subscription service at regular prices.
- Simplifier Model: Its a complex word, simply the buying process and choice. Works best with an affluent consumer needing a service on an ongoing basis
- Network Model: fixed price, and value of service grows as number of subscribers grow. Think phones
- Peace of Mind Model: this is the insurance sale, where you pay for a peace of mind in the event you may need the service.
He closes the book out with the new math of the subscription game with concepts such as Customer acquisition cost, Monthly renewal rate, Life time Value of customer, Margins and Churn.
The book is a good way to think about what models will work best in your industry.