So now you’re cash flow positive for your first year and the sky is the limit for your business, congratulations! Here are some tips, most learned the hard way, to help you navigate the shark-infested waters of turning a profitable micro business into a sustainable long term business.
I wanted to hit last week’s Startup Month topic, “Turning an Idea into a Business” and this week’s “Building the Team, Building the Business” in this posting of 10 rules for entrepreneurs. These are rules that I’ve heard, learned, or adapted over the years as I’ve started various companies, and they are definitely aimed at the owner/founder of a small to mid-sized company. If you’ve grown your company into a Fortune 1000 behemoth, very well done, but you might find these less applicable to your daily challenges.
10 rules for entrepreneurs
- Do what you love, Life is Short. This is so obvious as to be trite, correct? Not so much. How many people do you know who really dislike their job and dream of being a zoologist, entrepreneur, bakery owner, etc. but “can’t” do it because of cash flow, lack of spousal support, kids, etc? You have chosen to be an entrepreneur, do something that you enjoy doing. If you own a restaurant but can’t stand the employee turnover and dream of running an IT company, do it! I met a guy while scuba diving in Mexico who told me that he despised his job and lived for the 3 weeks of vacation he had per year to go scuba diving. He said he made too much money to switch jobs or careers. 48 weeks a year of misery is not worth any amount of money, particularly when you’re planning to do it the rest of your life.
- Know what makes people “tick” and allow them to do it within your company. What people are good at is not necessarily what they aspire to do or want to do. Take the time to know your employees and train your managers to understand what your employees want, and, assuming it’s compatible and practicable within your business goals, help them do it. They’ll be happier, more motivated and loyal to a fault. If you take the attitude that your employees “are lucky to have jobs”….watch out. You’ll attract people that truly are lucky to have jobs, rather than valuable team members.
- Never make a bad hire and never fire anyone too late. The “never” in this rule is definitely a reach goal. I have made this mistake a number of times, and it’s cost me time and money every time, distracting myself and the management team from the real work of building and growing the business. Keeping sub par performers on the team brings down the morale of your best people as well. I have had several senior people I have kept on because of misplaced loyalty on my part or because a client loved them, and they were such negative influences on the team that other good people quit because of them.
- Associate with other entrepreneurs. In my last blog I talked about an associate who tried to deter me from starting my own company. Don’t associate with folks who will continually tell you that you can’t be successful as an entrepreneur because they can never understand what it is to be one. Join and frequent associations where you can meet other entrepreneurs. You’ll be amazed at the similar personality traits, across industries, that entrepreneurs have and will likely make many new friends and find mentors. There are national groups like Vistage, and most metropolitan areas have smaller groups as well. In San Diego there is a group called the San Diego Boardroom, formed by entrepreneurs to have a group of like-minded people with whom to meet and discuss the issues they don’t want to bring up with their Board of Directors or business partners.
- Find and cultivate good mentors. Mentors are key to success as an entrepreneur. You became an entrepreneur because you wanted to make it on your own, but that doesn’t mean you don’t need advice. If it’s your first business, you’re learning something new every day. Having someone who has been there before and can tell you the mistakes they made is critical. It can be as informal as a friend you meet for lunch once a month, or an advisory board you compensate with cash or equity – you decide how much advice you need and when. Entrepreneurs want to help other entrepreneurs, more often than not. American Express OPEN and the San Diego Contracting Opportunities Center held a fantastic session for entrepreneurs to allow them to meet others like them as well as potential mentors.
- Know your weaknesses and hire great people to compensate for them. An old adage is that “A players hire A players, B players hire C players, C players hire D players….” you get the picture. Hire people smarter than you, particularly in the areas in which you are weak. If you are a technical guru on your company’s software product but turn into a stuttering mess in a sales call, hire a good sales person. If you can sell snow to Eskimos but can’t balance your checkbook, hire (internally or externally) a great and trustworthy bookkeeper. Be honest about your weaknesses, don’t put up a front of being Salesperson Supreme when your close ratio is 3%. At the end of the day if your business thrives you’ll have all the ego bolstering that you need.
- Be prepared to go deep into issues when required. Ask questions to a “vacuum”. There will be many issues along the way that you will not be the expert on, including litigation, trademarking, technical issues, accounting issues, export compliance, etc. You’re a smart person or you wouldn’t have started your business, so ask smart questions until you can’t think of more questions if an issue is going to be important for your company. Be humble. Pretending to be knowledgeable about an issue when you are not will open you up to making a wrong decision or allow others to take advantage of your ignorance.
- Know your cash flow. Sign your own checks. This one came from Oprah, I believe. You should know how much money comes into your business and goes out, every month if not every week. This is the lifeblood of your business and if you lose track of it you risk losing the entire business. Sign every check so you can see where the money is going. This is both a deterrent to embezzlement and good situational awareness.
- Make someone a partner in the business when you cannot achieve your business goals without them, otherwise make them an employee. Particularly early on in your business you will have the opportunity to work with friends and acquaintances. Early in the business many folks will want to come in as “equal partners”, even though they don’t bring anything to the table to qualify them as such. (I’m defining “partner” in this rule as somebody that would own 10% or more of a business). Friendship alone doesn’t qualify someone as a business partner, unless you feel it’s your role to provide a lifestyle for everyone that you know. If you cannot achieve your business goals without that person, consider providing them significant equity if they require it. If they are very good but you can achieve your goals without them, they should be a well compensated employee, with or without some lesser amount of equity depending upon how you structure your compensation packages.
- Every day there’s a choice between the ethical high road and low road. Stay on the high road, it goes to a better place. Again, this one sounds trite, but it’s not. Or maybe it is but it’s true either way. Every day you’ll have the opportunity to make more money by doing the wrong thing (consistently underpaying employees because they don’t complain about it, hiding cash revenues, not providing work you promised to business partners, etc.). Do the right thing, every time. If you do the wrong thing, admit and correct it. There’s no point in getting to the end goal if you had to screw over a lot of people to do it. Take that high road and you’ll get there anyway, You’ll be able to hold your head high and be known for being a “stand up” guy or gal.