Entrepreneurs need professional advice for starting a business because the start-up phase is a critical time in the life of any business. Researchers have put a great deal of effort and energy into understanding what sort of perspective and behaviour enables an entrepreneur to succeed in launching a business.
The behaviours and perspectives described below highlight what successful entrepreneurs tend to think about and do in the very early stages of creating a business.
Advice for starting a business: Leverage what you have
In the early stages of starting a business things are usually chaotic. You will seldom find an early stage start-up that is ordered and organised. In this stage it is very useful to focus on what you have and to use the means at your disposal to build some momentum in your business.
Because much of the writing about entrepreneurship focuses on the importance of having an explicit goal – of knowing exactly what outcome you want and going after it – many novice entrepreneurs create elaborate goals of where they want to be in three or five years but they don’t think about what they have at their disposal now and how they can use that to get the business off the ground.
Professor Saras Sarasvathy, a researcher at the University of Virginia, did an experiment in which she gave a group of experienced entrepreneurs, people who had started multiple successful businesses, a challenge of working with a new product to create a new business. She asked them to think aloud as they addressed the challenge. She then gave the same challenge to a group of business students who had never started a successful business.
The main difference between the thought patterns of the experienced entrepreneurs and those of the inexperienced students was that the students focused on where the business would be a few years into the future whereas the experienced entrepreneurs focused on what they had at their disposal now and how they could use that to get the business off the ground. The experiment showed that experienced entrepreneurs learn to leverage what they have.
They do that by asking: “Who am I, what have I got, and who do I know?” as they attempt to launch a business. They focus more on their means than their ends. Therefore, if you want to get your business off the ground, focus on your means: who you are, what you have and who you know as you launch your business. Don’t be too obsessed with the future, operate in the present and utilise the knowledge, skills, opportunities and relationships at your disposal.
Orientate towards action when starting a business
Successful entrepreneurs tend to be action orientated. If you want to spend long hours doing extensive analysis and in-depth budgets and plans, you should join a large corporation. Having a basic plan for your start-up is important but it is even more important to actually get going, to make things happen, to take action.
One can become so obsessed with the business plan that you forget to build the business. After interviewing over 100 founders of companies that made it onto the Inc 500 list, the list of the 500 fastest growing private companies in the USA, Amar Bhide, then a Professor at Harvard Business School concluded that one of the things that distinguished successful entrepreneurs during the early stages of business development was their inclination to act.
Compared to their corporate counterparts, successful entrepreneurs tend to focus more on doing and less on analysis and planning. As the business grows, develops and gets more structure, so planning and budgeting may become more important but very early on it is action that makes the difference. You need to take action and make things happen if you want your business to build momentum.
Understand what you are willing to lose
Starting a business is a notoriously uncertain endeavour. There are just so many things that can influence your success or failure and operating in such an uncertain environment can be crippling. To deal with this uncertainty, successful entrepreneurs have been shown to work with the concept of affordable loss.
They decide what they can afford to lose and limit their spending to this amount in building the new venture. This is liberating as it allows them to operate freely within predefined boundaries. If you make a deal with yourself that you are willing to put in R100 000 and six months of hard work to see if you can get your idea off the ground, you know exactly where you stand and you have a clear idea of what you will spend to get the business going.
If you focus on expected return (instead of affordable loss), you may just keep on pouring money into the business, becoming more anxious and concerned about whether this investment is ever going to pay off. You have no idea how deep you may need to dig to make it work and the stress linked with this uncertainty will eat you alive.
Decide what you are willing to lose and therefore what you are willing to put into giving your idea a chance and you will be able to operate with a newfound freedom and confidence.
Partner rather than compete
In the very early stages of a business, paying too much attention to competitors can distract you and cause you to become reactive and unfocused on what is really important. What’s important is building momentum in your business, not worrying about what your competitors may or may not be doing.
As a brand new start-up you are not yet in the competitive fray, you need to be trading to be able to compete. Focus on customers and cash flow rather than worrying about competitors. As the business grows and establishes itself, so an understanding of competitors and competitive advantage becomes important. Experienced entrepreneurs often consider competitors as possible partners.
They spend more time seeking opportunities with competitors than trying to defeat them. Established competitors have access to the market, they may have insufficient capacity, and they may have customers they wish to off-load or capital they wish to invest. If you shift your focus from compete to partner, you may see a myriad of new opportunities open up early on.
I recently did a study of 20 of the most successful start-up internet businesses founded after 2000. This was the year when the dot.com bubble burst, so the successful businesses founded post-2000 are genuine, value adding businesses created in a fairly tough environment. One of the most interesting features of the businesses I examined was that 65% (13 out of 20) ended up doing something completely different from what they originally intended to do.
Flickr, the online photo sharing business that was sold to Yahoo for about $30 million, started out as company developing an online game. Pyra labs, the company that created Blogger, the blogging tool acquired by Google, originally set out to make project management software and ended up creating software for bloggers. The lesson from this statistic is that it pays to be adaptable as an early stage entrepreneur.
Amar Bhide called this concept “opportunistic adaptation.” He pointed out that successful entrepreneurs “start with a sketchy idea of how they want to do business which they refine and alter as they encounter unforeseen problems and opportunities”. The key as an entrepreneur is to be open and adaptable to what comes across your path. You cannot be too fickle, changing tack every day, but you also cannot be too rigid. You need to be able to recognise new opportunities and chances for what they are, evaluate them effectively and seize the ones that are going to give you a better chance of survival and success.
Andy Warhol the famous painter, avant-garde filmmaker, record producer, author, and public figure once said “starting a business is the most fascinating kind of art”. Seeing the business start-up process as a form of art is very apt. Art is the output of a creative endeavour undertaken by an individual or group of individuals. As they engage in creating a work of art, they don’t know exactly what the output will look like and whether it will be successful. The same can be said of starting a new business, it is a creative endeavour with an uncertain outcome, which can create much joy and pleasure for the people involved if they attack the challenge with the right attitude and philosophy.