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Entrepreneurial Recalibration: How to find happiness in Corporate America Or, Advice to Prospective Entrepreneurs

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Or, Advice to Prospective Entrepreneurs

unemployment_Oct2009

“…Out of such dreary statistics comes a new class of self-starter, the accidental entrepreneur–someone who never considered owning a business until there was no other option. These entrepreneurs are making tough choices for themselves and their families, living in reduced circumstances, doing without the corporate comforts and resources they once took for granted, sometimes succeeding, very often failing, invariably struggling. But at least they’re not waiting for the phone to ring.”

-Fortune Magazine

I wonder if it’s bad advice and a bad judgment to recommend to someone to start their own business.  There are a couple of scenarios.

Scenario one, you are long-term unemployed and you make the judgment to start your own business.  Scenario two, you leave your current  job due to your “Entrepreneurial Spirit” which can’t be satisfied at your current company and start your own business.  What could the future hold?

It’s easier to start your own business than find an employer

In the first case you are caught with few options.  But is starting you own business a good decision?  That depends on who you are (“mind-set”) and where you are (“what was your last position in the corporation”).  If we use  Gerber’s terms…  In your mind-set are you a technician, a manager, or an entrepreneur?  In your current or last job, do you hold a position of technician, manager, or entrepreneur?  Do you think you have the mind-set of an Entrepreneur stuck in the position of a technician?

The failure rate of small business start-up’s is staggering.  Dun & Bradstreet has nearly a century of experience in reporting on the health of businesses.  The story is the same over and over.  About 1/2 of the start-ups fail within the first 18 months and only 1 in 5 lives as long as 10 years.  Dun and Bradstreet categorize 92% of business failures as bad management.  Is that the real story?

Bad Management is not the reason for small business failure

Despite what Dun & Bradstreet says about business failure (Bad Management)  – it’s not the real reason – its the symptom – not the cause.

Here is someone that “gets it”

Why so high a death rate?  Perhaps, the chief  reason is the ease of entry.  In fact, it is often easier for people to go into business for themselves than to find an employer.  No law stops them from choosing themselves as boss.  And they may choose almost any line of business they like best.  They  may have twenty years of experience in that line or none at all.  They may do a text book job of researching their market or plunge in with no information at all.  They may be millionaires or penniless.  Yet, regardless of their qualifications, freedom of opportunity guarantees the right to launch their own business.

But as economists often point out, freedom of opportunity means not only freedom to succeed, but also the freedom to fail.

Failure to see this reality often causes untold stress, trauma, and tragedy.

Should we somehow screen the would-be small businesspersons before the market place does its own screening?  No.  The right to make the wrong choices lies at the heart of our economic system.  Without this right, initiative and incentive would soon dry up and our free enterprise system would then cease to be free.

What are the reasons that so many fledgling businesses die?  What do experts like Dun and Bradstreet identify as the cause of business failure?  Bad Management…   They have found that businesses fail for the very same reason year after year…

Impressive as these statistics may be, pointing the accusing finger at bad management, they merely camouflage the real reason so many businesses die young.

Ease of entry is the chief cause, and bad management is merely an affect.

And is failure really failure?  Many heroes of business failed at least once.  Henry Ford failed twice.  Maybe trying and failing is a better business education than going to a business school that has little concern with small business and entrepreneurship.

Prof. Micholas Siropolis

Ease of Entry

Now that is an excellent insight.

It’s ease of entry that is the cause of small business failure – no one will stop you – unless you stop yourself.

Calibration

In philosophy, its a problem of epistemology.  How do you know that you know, and how do you know that you don’t know?  If you think you know about business then how do you validate that assessment?

Should we somehow screen the would-be small businesspersons before the market place does its own screening?  No.  The right to make the wrong choices lies at the heart of our economic system.  Without this right, initiative and incentive would soon dry up and our free enterprise system would then cease to be free.

If your read our article from the Harvard Business Review on the evolution of a small business you will note that a characteristic of a successful mature business is the presence of formal systems.  A hallmark of less mature businesses is ad hoc decision making and few repeatable processes.

The diagram below is one framework that represents a mature process.  An adaption of the framework below is in use at a number of Fortune 500 companies.  Consultants will be happy to help companies tailor and implement this with all the detail process steps and templates at a hefty price.

PragmaticMarketingFramework

That’s not for me

Upon looking at this as a small business owner or as a person contemplating a start-up, you might say, “This is not for me.  I don’t need this”.  Well, yes you do.  And to the extent that you don’t understand the 37 boxes above, you will diminish your chances of business success.

At one time or another, as your business evolves through the stages of existence, survival, success, take-off, maturity (and decline) you will hit all of those boxes in one evolutionary phase or another.  It is best to see the whole process at the beginning – most do not.

Redux

So lets ask the question again.  Is it easier to find a new job or start a business?

Who are you?  Take a look at the diagram and find out where your current (or last, if unemployed) job position is located.  To the left is strategic; to the right is tactical.  To the left is innovation, creation, positioning, thinking and planning; to the right is doing.  To the far left is the corporate strategic plan to which everything should be aligned and traceable.

If you are one of Gerbers “Technicians” (a “doer”) then you may be to the right, and perhaps so far to the right (tactical) you may be off the chart.

If you are one of Gerber’s “Entrepreneurs (a “Innovator”) then you may be on the left, and perhaps so far left (strategic) you also may be off the chart.  If you are off the chart to the left you are a CEO, CFO, COO or otherwise primarily concerned with strategic planning and direction setting for the business at a whole.

Idea creation, product innovation, and development moves from left to right.

So you want to start your own business?  Then you need to understand what’s on the left.  If this is not “your cup of tea” – then you would be better off resolving your unemployment by finding a new employer in your current job position or role.

Entrepreneurial Recalibration

Some people leave their job to start a business out of that “Entrepreneurial desire” that can’t be met by an employer.  If your current job can be found near the center or to the left of the chart then maybe you have a good chance of growing a successful business.

But here is another option.  If you are employed and have the “entrepreneurial desire” then make a conscious effort to move to the left.  If you are tactical become strategic.  If you are in a Fortune 500 company then there is always a “left ” which may be available to you plus all the resources you need.

Need a market analysis?  Your company already has people that will provide that for you.  On your own – you would have to do that for yourself.  Need a sales force?  Your company already has that. On your own- you have to sell the product/service yourself or hire someone.  Need seed capital?  Your company can provide you with that if you can put together a compelling business case and financials.  On your own – you will need to raise seed capital yourself.  Need subject matter experts in just about any area?  Your company has that in its organization.  Don’t forget the new peer group you will find – the synergy of collaboration beats an independent entrepreneur any day.  Fortune 500 companies are already entrepreneurial factories.  You just need to get there.

I am not trying to discourage anyone from leaving an existing job to pursue an “Entrepreneurial Dream”.  But you might just test the alternatives to see what you might have right under your nose at your own company.

Conclusion

Here is the “take away”.  Business failure is not a result of bad management – its a result of ease of entry.  The barriers to entry in starting a business on your own are non-existent.  That is the reason for the high rate of business failure – “the market” will render the real and final decision on competency and ability.  You may fool yourself, but you can’t fool the market and business environment.

This can also be applied to organizations such as 501 C(3) charities or other well-meaning organizations.  The reason they under  perform is that there may be inadequate or non-existent criteria for leadership or management positions.  That is, there is no vetting process – there are no barriers to entry.

Research shows that less than 4% of new business start-ups have a formal written business plan.  How many organizations do you know that don’t have a strategic plan?  I would hazard a guess that the 4% of those businesses that have no written business plan the failure rate exceeds the 92% failure rate overall average.  For those organizations that don’t have a strategic plan, failure or under performance is most likely the highest among organizations in the same sector or category.

What’s the problem in general?  No barriers to entry.  When you let “anyone” in then high failure rate is predictable.  The problem is probably most pernicious in charity organizations.  How do you tun down a person who wants to volunteer their time when you know they are not qualified for the position?

How do you know your hired the wrong people for your organization?  Under performance against similar organizations.

 

Resources –

Advice for Prospective Entrepreneurs
by Paul J. Magelli, Sr.

For individuals who want to be entrepreneurs, the most important element to learn is “industry analysis and competitive intelligence.” The very term sometimes terrifies the prospective entrepreneur—particularly if s/he has not had post-secondary courses in new business development.

While reviewing business plans, visiting new enterprises, or in speaking to organizations on the subject of becoming a successful entrepreneur, I am repeatedly reminded that prospective entrepreneurs have never heard of these concepts. Sure, they talk about marketing and competition, but their comprehension of the concepts is limited.

However, with the advent of the Internet and the availability of electronic databases, the quality and the depth of information is nothing short of incredible. Therefore, with minimal effort or training, it is possible to access information critical to the development of a creditable business plan. In my experience, the weakest part of most business plans is the marketing plan.

Those who do not agree with this assertion are those who maintain, “The firm failed because it had weak financials.” Weak financials are typically derived from inadequate market data. Poor market data is a result of feeble competitive intelligence, failing to accurately determine the firm’s real market share, not establishing a clear market niche, and improper product pricing–given all of the companion elements. Entrepreneurs, who are able to calculate and calibrate market share and price, can accurately project revenue.

Students continually ask, “What is the Golden Rule of Entrepreneurship?” This, for me, is the toughest, if not impossible, of all questions. There are occasions when I would ignore the question. Predictably, there is a host of answers. My consistent response is that there must be a demonstrable need for the product and/or service in the marketplace. And Jack Stack would add (and insist), “Does it have sizzle?” From this follows: Is the product and/or service distinctive? Is it potentially an industry-wide solution? Can it be sustained over time? What is the half-life of the initial product and/or service? Persistence and success in the marketplace must meet these criteria. If the product and/or service are unable to do so, then, it is very unlikely that the new firm is going to be a long-term success—at least in the minds of potential investors.

The second most important criterion (although many argue that this is the most important) is whether or not the company has the kind of leadership that can attract the resources – intellectual, financial, physical – it needs to produce a product or service that fulfills real marketplace demand.

Of all the entrepreneurial characteristics I most frequently hear about is “passion,” but passion can be a two-edged sword. I believe that you can have too much passion and become blinded or disillusioned when problems emerge. I have observed entrepreneurs, who, come hell or high water, moved forward with an idea just because it was a lifelong dream.

While unbridled enthusiasm is essential, I prefer entrepreneurs who demonstrate integrity, resilience, a strong assessment of the market, and the ability to motivate and collaborate within and outside of the firm. An important prerequisite skill is that the entrepreneur has the ability to wisely and dispassionately analyze ideas or technology – the ability to be harsh if necessary. The entrepreneur must have strong communication skills given the range of individuals that s/he interacts with, including the ability to accept both positive commentary as well as criticism.

Another important leadership characteristic is the ability to be comfortable with risk. I do not mean foolish, uncalculated risk taking but rather the ability to deal with ambiguity and anxiety in an unflappable manner. It is also important to adapt quickly under the pressure of a fickle and rapidly changing marketplace, and in the midst of others imbued with a sense of urgency.

To be successful, the entrepreneur must be adaptable, flexible and resilient. Entrepreneurs have a tendency to fall in love with their idea and are unwilling to read signals from the marketplace that urge them to adjust and modify. Another tenet is whether or not the firm is willing to make mid-course corrections and modifications – whether in product, personnel, price or location, among others. I have observed that the firm becomes so entrenched or enamored with the launch team, of agreements that have been struck with customers or employees, of product line and the like, that it as a minimum becomes entrenched and, as an extreme, paralyzed. Once this has occurred, the firm is unable to effect essential changes in its modus operandi. The most sensitive area of these, in my experience, has been with personnel.

From my perspective, if there are personnel issues, then, a fair amount of dispassionate analysis and action is appropriate, particularly as it relates to the firm’s leadership team. Too frequently, the founder is over-managing and is unable to delegate responsibility and authority and unwilling to consider turning the reins to new leadership who is able to move the firm to its next level of growth.

Entrepreneurs, to use a term, are like gnats. They are relatively hard to keep track of – they consistently flit about. And when the flitting begins, their attention is diverted, their energy is diffused, and effectiveness is diminished. This, to me, accounts for an observation that they tire of the venture and want to move on to the next idea, the next venture. In my experience, one of two situations typically existed. The former – the entrepreneur is anxious to move on to the next venture but has not planned for management transition and the other – it is time for the founder to move on but no one in the firm or among the investors wants to deliver the message.

The latter is especially true in the case of technology start-ups. Good technologists do not necessarily make good CEOs. However, the intellectual property that underpins the new firm is the property of the technologist and s/he will not hand the IP over to someone else’s leadership. One of the golden rules, then, emerges – determine precisely when it is essential to sever the relationship and to move on, so that second stage leadership can be brought to the firm.

Another rule is for the entrepreneur not to fall in love with his/her own idea. I have never met a technologist or an entrepreneur who did not think that his/her technology or ideas was the end-all of end-alls. I believe the assessor must be harsh about it. It is almost a certainty that one will run the risk of offending someone because they are embryonically connected to the technology or to the idea. However, the wise adviser will be dispassionate and will advise them to fall out of love with whatever it is they are proposing or doing because the marketplace will not absorb it.

With all of these demands, the entrepreneur having opted for this lifestyle, nonetheless, must maintain a sense of balance and style – balance to provide time for private reflection and contemplation and time for personal needs like friends, family and fantasy. I disagree with those who insist it must be either/or. It is possible to partake, manage and experience all of life’s opportunities.

The entrepreneur who can contemplate, consider, embrace and adapt most assuredly will optimize the possibilities of success and achieve a soul-feeding life experience, especially, if s/he does so while ensuring the financial, moral and intellectual integrity of the firm.

Does this appear to be overwhelming, hardly achievable or realistic? I don’t think so. It’s the very least that we should expect of those who conduct America’s business.

Paul J. Magelli, Sr., is the director of the Office for Strategic Business Initiatives, MBA Program University of Illinois at Urbana-Champaign and has held the post since 1996. He has held several positions as a Dean, including, Assistant Dean of Students, University of Illinois at Urbana-Champaign, 1958-1965, Assistant Dean, College of Liberal Arts & Sciences, University of Illinois at Urbana-Champaign, 1966-1968, Associate Dean, College of Liberal Arts & Sciences, University of Illinois at Urbana-Champaign and Associate Director, Midwest Universities Consortium for International Activities (MUCIA), 1966-1969, and Fairmount College of Liberal Arts & Sciences, Wichita State University, Wichita, KS 1969-1983.

Other

From Tuck School of Business at Dartmouth
Learning From Corporate Mistakes: The Rise and Fall of Iridium

An article from Fortune magazine
Mel Karmazin fights to rescue Sirius
(cached PDF version)

A couple (among thousands) of articles recounting  the story of Webvan and why it failed

Success and Failure of Pure-Play Organizations: Webvan versus Peapod, a Comparative Analysis


A Tangled Webvan

Key Reasons Why Small Businesses Fail by Titus – IIB Business Support Americas
Planning Against Business Failure – U of Tennessee
Small Business Success – A review of the Literature – Athens State College

From FORTUNE Magazine 1993 –
THE DAY THE MONEY RAN OUT Consumed with his business, Michael Gerber awoke one morning to a financial crisis — and five years of nightmarish struggle. By CHARLES BURCK September 6, 1993 (FORTUNE Magazine) – Read it

Small Business Administration – Office of Advocacy Reports
http://www.sba.gov/advo/research/chron.html

Startup Business Characteristics and Dynamics

 

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Written by frrl

October 4, 2009 at 1:50 am

Posted in Uncategorized

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