This article first appeared in Financial Post Magazine
7 big questions all budding entrepreneurs need to ask themselves before launching a business
By Erin Pooley, Special to Financial Post
This article appears in the October edition of the Financial Post Magazine. Visit the iTunes store to download the iPad edition of this month’s issue.1
Think you might have what it takes to be an entrepreneur? Better ask yourself these questions before taking the plunge.
WHY AM I DOING THIS?
Maybe you want to be the next Mark Zuckerberg. Or perhaps you want to make the world a better place. Whatever your reason for becoming an entrepreneur – be it money, power, freedom or social change – it’s a good idea to define exactly why you want to launch a startup. “This ends up being an important compass for the person to go back to when they’re in the middle of chaos as an entrepreneur,” says Ajay Agrawal, Peter Munk Professor of Entrepreneurship at the Rotman School of Management in Toronto. “If you’re doing it for the money, and two years in you’re earning significantly less than you’d hoped for, maybe it’s time to reconsider.” But not everyone agrees that money or power should be a motivating force. “If you’re doing it to make a big pile of cash, that’s absolutely the wrong reason,” says Bob Dorf, the Stamford, Conn.-based co-author of The Startup Owner’s Manual: The Step-by-Step Guide for Building a Great Company and an adjunct professor at Columbia Business School. Instead, he advises wannabe entrepreneurs to “build something great” that they can be proud of, whether or not it reaches “big, blockbuster IPO” status. “What’s most important is that you go to work every day feeling challenged, satisfied and well-rewarded,” he says. The rest is just gravy.
WHEN SHOULD I TAKE THE LEAP?
There’s an optimal start time for every business. You don’t want to miss the boat by failing to execute on an idea once you’ve discovered it. But you don’t want to sink the boat either by pulling the trigger too quickly and committing resources and money that you can’t get back. “If I’m a restaurateur and I sign a five-year lease today, but I haven’t really thought it through or decided what’s going to be on the menu, my risk of failing is going to be incredibly high,” says Brent Mainprize, assistant professor of entrepreneurship at the University of Victoria’s Peter B. Gustavson School of Business in British Columbia. “The right time to pull the trigger is when the sink-the-boat risk is the lowest you can possibly make it before the miss-the-boat risk becomes too high.” Personal, and financial, considerations also play a role. Many debt-saddled MBA grads are tempted to spend a few years earning a steady paycheque as an employee before taking a risk and going out on their own. “But five years later they’re comfortable with a decent income and they likely have a spouse, a child and a mortgage,” says Agrawal, who also runs a technology ventures lab at Rotman. “It then becomes way harder for them to take the leap than if they had done it when they were stepping out the front door of the business school with a diploma in hand.” Seize the day – but do it wisely.
IS MY IDEA ANY GOOD?
Surprisingly, this may not matter as much as you think – at least in the beginning. “The difference between a really smart entrepreneur and a really dumb entrepreneur is that the smart entrepreneur’s initial business plan is only 90% wrong as opposed to 98% wrong,” Agrawal says. Most successful entrepreneurs he knows today aren’t doing anything remotely close to what they imagined. And that’s okay. Tweaking your idea as you go along is part of the process. “An idea is actually worth very little,” says Mainprize, who held several entrepreneurial management positions in the telecommunications and high-tech sector before becoming a prof. “It’s the execution that’s worth everything and putting the business model around the product or service idea.” When you do eventually hit on a winning scheme, it’s important to make sure you’re not the only one who is madly, crazily in love with the concept. “The only people whose vote for greatness counts are your customers,” says Dorf, a self-described serial entrepreneur who launched his first startup when he was 22 and has gone on to launch six more businesses. “You have to make a pact in blood with yourself to spend the first month or two basically beating the crap of out your idea until you’ve been told consistently by customers that this is really great.”
DO I KNOW WHAT I’M DOING? AND WHO DO I CALL IF I DON’T?
Maybe you’re a marketing genius. Or a whiz at accounting. Most entrepreneurs are jack-of-all-trades sort of folks. But that doesn’t mean it’s a smart idea to go it alone. “The minimal team is a team of two – a hacker and a hustler,” Dorf says. “Facebook would have died before anyone had ever heard about it without Mark Zuckerberg’s less visible partner [Eduardo Saverin.]” Figure out what you’re good at and where you need some help. Build your own personal board of directors from an experienced group of people you trust – and call on them regularly for advice, networking and the occasional reality check. And don’t forget to invest in social capital, too, Mainprize adds. That means building relationships with everyone “up, down and across the value chain” including retailers, suppliers and even competitors. Most importantly, don’t worry if you feel like a bit of a fraud in the beginning. Everyone does. Most good entrepreneurs simply “hack their way” through the first couple of years, Dorf says. “Read the Nike manual,” he adds. “Just Do It.”
WHERE WILL THE MONEY COME FROM?
The dot-com glory days are over. “Nobody is going to give you a pile of money on a great smile and a terrific idea,” Dorf says. Whether you plan to hit up a bank, apply for a grant, finance your business on personal credit cards or launch a crowdfunding campaign, investors today want to see some sort of proof-of-concept before they’re willing to dole out the dough. That means proving – in the smallest increments you can – that your idea is a money-maker. “Let’s say for every 10 sales calls you make, you’re able to land one customer,” Dorf says. “When you take that to an investor, you’ve helped de-risk your business one customer at a time.” Another way to attract financing? Put your money where your mouth is when it comes to investing in relational capital. “One way to raise the odds of getting money is to try to surround yourself with people who have experience in the startup community,” says Eugene Bomba, the Canadian manager of PricewaterhouseCooper’s emerging company services practice in Toronto. “Anything you can do to add credibility to yourself, or the company you’re about to build, will go a long way.” Regardless of how you raise the cash, don’t forget there will be very little of it for the first couple of months. Can you survive on the bare minimum while continuing to invest in sweat equity for your business? That’s the million-dollar question.
CAN I HACK IT?
There’s a big difference between a “wantrepreneur” and an entrepreneur. “My guess is that one-third of today’s so-called entrepreneurs would give up being entrepreneurs in a second if you offered them a job with health insurance and a regular paycheque,” Dorf says. It’s a good idea to paint a picture of your life in six-month increments for the first two years – what Agrawal calls the “chaos” period – and perform an honest self-assessment of whether you’re cut out for the startup grind. If 80-hour work weeks, cancelled vacations and very little face time with family or friends aren’t your cup of tea, you might want to reconsider. But if you’re determined to stick it out no matter how ugly it gets, you’re more likely to succeed. “When we look at ventures, we put a huge premium on someone who conveys determination, even more so than whether we like their business idea,” Agrawal says. Perseverance, he adds, is the No. 1 personality trait of successful entrepreneurs. “It’s a demanding, exhausting and frustrating career choice,” Dorf says. “Virtually no one steps out on a road to success and goes straight up. It’s filled with tigers and quicksand and machine guns – things that are engineered to frustrate the hell out of you.”
CAN I HANDLE FAILURE?
If you’re afraid of the “f” word, you might want to think again. “Everyone forgets that 97% of startups or more die in an ugly pool of blood and sweat and tears,” Dorf says. Most entrepreneurs don’t achieve real success until the second or third go-round. And there’s more to lose than simply the shirt off your back. “Entrepreneurship is a shared experience. If your venture fails, your reputation could take a hit, too,” Mainprize says. Rather than reacting dysfunctionally to defeat, entrepreneurs should seize the opportunity to learn from their mistakes, says Ashley Good, founder and chief executive of Fail Forward, a Toronto-based consultancy that helps businesses, many of them not-for-profits, transform failure into innovation. “This means creating a space where failure is accepted and people feel safe trying new things.” Agrawal, however, isn’t so sure. “Failure has become a super fashionable term, but I think that mentality is very dangerous for an entrepreneur,” he says. “The ones who seem to be the most successful are the ones who don’t even view failure as an option.” Just like the battalion leader who burns the bridge after taking his men across it to fight the enemy, entrepreneurs need to take an all-or-nothing approach. “They have to fight to the death – because there’s no other way out,” Agrawal says. That, or get a real job.