The Entrepreneurial Mind
Accoridng to Cornwall, small business like Bike Works in Fredericksburg, Va., shown in this April 2012 file photo, need to have a strategy to standout amongst the crowd of other businesses vying for a customer's attention. (Suzanne Carr Rossi/The Free Lance-Star/AP/File)
Making your new business noticeable
“You are gnats! You are like annoying little gnats flying around in the face of consumers.”
This is a message that I consistently tell aspiring first-time entrepreneurs.
Why the harsh words? Most first-time entrepreneurs have so much enthusiasm that they can become blinded to the reality of the challenges that every new business faces.
I tell them to think about the last few hours. How many small businesses did you go past without even really noticing them? What about all of the products in the convenience store where you got gas this morning?
How many of the service businesses that had logos and advertisements on the sides of their trucks did you actually pay attention to?
Many of those products on the shelves are the result of someone’s entrepreneurial dreams. A small-business owner spent hours agonizing over the business name and a logo, and yet most passersby barely notice it.
New business owners need to adjust their expectations. While starting a new venture is one of the most important and exciting things you’ve ever done, to the market your product is just one more in an already overcrowded sea.
So, new business owners need to get a sense of urgency. They need to develop a plan to become more than just another annoying little gnat!
To successfully launch a new business the entrepreneur needs a clear entry strategy, which is a plan for how the business is going to gain the attention of the market and start attracting customers.
If your business is going to take existing market share away from established businesses, you are going to have to do something better, faster or cheaper than the competition. Give people a compelling reason to change their buying habits.
Start small: Consider a niche strategy. This simply means the entrepreneur finds a small part of a market that’s not being served or that has been significantly under-served. It gives the entrepreneur a safer market to conquer a bit hidden away from established businesses.
But establishing a niche requires that you find ways to let the customers in that niche market know that your new business is now open and is ready to fill their specific unmet need.
Getting the market’s attention for a completely new product that has the potential to impress the mass market is the most difficult and expensive market entry. It requires extensive investment in advertising and other forms of promotion to build awareness for your new product and to educate the public about the benefits it offers.
No matter which type of entry strategy you pursue — and as excited as you may be about your new business — remember this: If you build it they may, or they may not, come.
You will need to work hard to find the most effective means to attract those initial customers.
Brigham Young forward Brandon Davies (L) passes the ball as he is pressured by Iona guard Lamont Jones (2) during the second half of their NCAA men's college basketball tournament game in Dayton, Ohio, March 13, 2012. In business as in sports, surrounding yourself with a team you can trust to take on certain tasks is essential, while trying to do it all yourself will lead to failure. (Matt Sullivan/Reuters)
When starting a business, delegate, delegate, delegate
But delegating often turns out to be easier said than done. There are three common mistakes that entrepreneurs can make when delegating.
The first mistake is being hesitant to delegate.
When first beginning to delegate to employees, some entrepreneurs feel that no one can do what they do as well as they can do it.
Employees don't seem to care quite as much as the entrepreneur does. After all, this is your business, and your reputation is tied to its success. To employees it is simply a job.
To overcome this hesitancy to delegate, entrepreneurs should remind themselves that sometimes "good enough is good enough."
While employees may not carry out the tasks delegated to the level of perfection you would, they can learn to perform these tasks well enough for the business to run smoothly and for customers to stay satisfied.
The second mistake is rushed delegation.
Rather than being hesitant to delegate, entrepreneurs who make this mistake seem as if they can't wait to get tasks off their plates. We see this quite often with serial entrepreneurs who are so eager to get to their next new business idea that they don't take the time to get their current one running properly before moving on.
These entrepreneurs delegate without providing proper training and without giving clear expectations for performance.
In the rush to delegate, tasks and responsibilities can also end up being assigned to the wrong person or even to multiple people simultaneously. This can lead to chaos and frustration.
To overcome rushed delegation, develop a clear and detailed plan that includes what needs to be delegated, whom should be assigned the task and what needs to be done to prepare employees for their new responsibilities.
This plan should be reviewed by everyone to makes sure nothing is left out.
The third mistake is undermining the delegation process.
Even after the delegation of tasks and responsibilities, employees will still tend to want to go directly to the entrepreneur to get an answer to a question or to make a decision instead of the person now assigned to that area. If the entrepreneur answers that question or makes that decision, it will completely undermine the authority of the person it has been delegated to.
I developed my "seven-second delay" to avoid this mistake. When I was asked for an answer or a decision I would always pause for a few moments to ask myself, "Is this still my responsibility or have I delegated this to someone else."
If I had delegated it, I'd answer by sending them to the employee to whom I had given that responsibility.
Delegation is a lot like raising teenagers. At some point you have to begin to let go so they can learn -- and grow up. With your business, if you don't learn to let go and delegate, it will never successfully "grow up" to the next stage of development.
In this file photo, a player puts a dollar coin in one of Resorts Atlantic City's dollar-coin slot machines in Atlantic City, N.J. Many business owners long to catch a lucky break. The trick is being prepared to capitalize on it, Dr. Cornwall argues. (Curt Hudson/AP/File)
When lightning strikes, proceed with caution
Most entrepreneurs dream of that one big break. For some businesses it is getting the one big customer. For others it may be betting that magical "shout out" from a national thought leader or big time media outlet.
Should you always walk through the door of opportunity that the big break opens for you? Sometimes yes, but sometimes no.
If the big break is what pushes your business forward to success. Business on Main has a video about a chocolate maker who got national attention for one particular recipe for beer infused chocolates. Orders went through the roof. And fortunately she was able to put in the twenty hour days it took to make her big break lead to success in her business.
But some big breaks end up becoming more nightmare than a dream come true. It can lead to demand that far exceeds your ability to deliver in terms of quantity and quality. Or it can fundamentally change your business in ways you never planned for.
One local coffee shop here it Nashville has had the opportunity to scale up in a big way through franchising. But the owner knew that it would compromise the quirkiness that has been the key to the success of his coffee shops. So he has said no to such proposals.
I have seen too many businesses actually ruined by what appeared to be the big break of their dreams.
Think hard to be certain that the break will allow you to scale the model and pursue the vision that you already had in mind. Some breaks require a fundamental change, not just a pivot, of the business model. If you pursue this type of opportunity make sure you do so with a clear understanding of what it means and how it will change your business.
A money changer shows some one-hundred U.S. dollar bills at an exchange booth in Tokyo in this file photo. Dr. Cornwall argues that a dynamic business model is key to profitability (Issei Kato/Reuters/File)
The best business model is a fluid one
Developing a sound business model is key to the successful launch of a business.
But you should never assume the business modeling is finished once the business begins to grow. Keeping a business model current is critical for long-term success.
A business model helps to ensure that all of the "moving parts" of the company are working together.
What is the value that is offered to the customers and what is it worth to them? Who is my target market? What do they expect out of me as my customer?
How do I get information to them, and how do they want to get the product? What are the key activities to make this all come together, and what will it cost? What are the resources I need to make this happen (money included)?
Developing a sound business model in a startup venture helps improve the chances that the business will survive the launch, begin to gain acceptance in the market and grow.
While a business plan may be important to secure financing, a business model is what will guide the entrepreneur through the inevitable trial and error of finding the best fit in the market.
Changes that result from forces such as technology advancement, demographic trends and new customer preferences can all require adjustments.
For example, a recent study by the Pew Research Center found that more than one third of all American adults now own a smartphone, which is changing customer preferences in how they want to communicate and engage in transactions with businesses.
These changes can have a profound impact and at the same time open many new opportunities.
Businesses expanding into new products or new markets should also give careful consideration to the business model.
I personally learned this lesson the hard way.
When we expanded our health-care business from Raleigh into Charlotte, N.C., we assumed that the business model we had developed in our first market would work equally well in the new market. However, we quickly found out that assumption was wrong.
There were significant differences in customer preferences and expectations in the new market. Unfortunately, we had made major commitments to space and staffing based on a flawed business model. As a result, our operation in Charlotte never reached profitability.
Even a more established business should revisit its business model, as every market experiences changes over time.
For most of its history, Best Buy had been a business that catered primarily to men, as they were the main purchasers of consumer electronics. However, a report in Harvard Business Review chronicles how over time more and more women became customers.
Best Buy found that these women were highly dissatisfied in their customer experience, as their approach to buying electronics was quite different from men's.
To remain competitive, Best Buy made significant modifications to its business model.
Don't assume just because you had your business model right when you opened your doors that it will always work smoothly. All businesses experience changes over time. Assessing and revising a business model is the best way to ensure that your entire business keeps pace.
Facebook CEO Mark Zuckerberg talks about the social network site's privacy settings in Palo Alto, Calif in this file photo. For every entrepreneur, Cornwall urges taking time to consider how to transition from working in the business to focusing on the big picture. (Marcio Jose Sanchez/AP/File)
Want your business to grow? Learn how to step away
Entrepreneurs face a difficult challenge in how they should be spending their time as a business grows.
The dilemma is commonly referred to as needing to "work on the business rather than work in it."
Typically, entrepreneurs are heavily involved in working directly with their customers during the startup phase. They do much of the work necessary to generate revenues. Tasks such as sending out invoices, bookkeeping and developing marketing materials are squeezed into their days as they can find time.
And if there's no time during the day, these things may get put off until the end of the day or the weekend.
But with growth comes the need to add more employees, and with a growing staff comes the need to develop procedures and systems to make sure that all the necessary work of the business gets accomplished.
This is when entrepreneurs' own job description needs to begin to change, as it is up to them to "work on the business" and make sure it evolves and develops.
However, for many entrepreneurs this transition in roles is much easier said than done.
Often it's the "in the business" work that led someone to start the business in the first place. The owner may have started a cabinet company because he loves working with wood. Or someone may have started a Web development company because of her design skills and knack on the computer.
It can be hard to let go of work you really enjoy doing.
Another issue that can get in the way of this transition for the entrepreneur is being uneasy with delegating important tasks to others. Developing good training programs, clear procedures and effective systems can help make that process a successful one.
I hear from many entrepreneurs that the process of moving from a hands-on role to more of a management role can create anxiety. They tell me that they feel they're not busy enough. Or they say that they feel as if they're not really contributing.
From my own experience, I can say that these feelings will ease over time as the business grows and the entrepreneur becomes more comfortable in his new role.
Some entrepreneurs are not sure what success looks like when working "on the business." They are more accustomed to checking things off the to-do list by working with customers and doing more routine work.
But creating effective systems and building a strong culture will become a bigger part of the entrepreneur's job. Any outcomes from these tasks will evolve slowly. Therefore, it will take a long time to see the results of these efforts.
It's best to view the transition of the entrepreneur's role in the company as a one- to two-year project. As you begin to delegate parts of what you do, replace them with things that will improve the business and help it grow.
Moving from working in the business to working on the business is best accomplished if it's viewed as a gradual process rather than an abrupt event.
Wake Forest MBA student and case writer Robbie Shappley distributes the IBM case to students competing for a $50,000 cash prize at the Wake Forest Marketing Summit. Cornwall finds that many aspiring entrepreneurs start with a backwards business model. (PRNewFoto/Wake Forest University Schools of Business/File)
Avoid the backward start-up
"I've developed this really cool product and I have applied for a patent."
"I want to show you this awesome app that I helped design."
"We've got a great idea for a website."
Those of us who work with entrepreneurs hear these types of introductions all the time when people come to meet with us. Whether it is a result of years of development and research, or a sudden inspiration that leads to a "eureka moment," these aspiring entrepreneurs have come up with what they hope to be the next big thing.
The problem is that many of these entrepreneurs have gotten the design of their business models backwards.
Rather than look to the market to tell them where opportunities are, they have come up with an idea and are trying to run full speed into the market with it.
Starting a business by trying to find a market for an already developed product usually leads to a long and often futile launch of the new venture. It results in a very expensive start-up process, as revenues tend to be very slow to materialize. Expenses just keep piling up as the entrepreneur tries to find a target market with customers who need the product.
The approach to starting a business that has the best chance of success is to look to the markets for ideas.
Start by looking at markets you already are familiar with from your knowledge, skills, and experiences. The best business opportunities come from solving everyday problems that you have observed from your previous work experiences, your hobbies, or things you see in your everyday life.
Look for groups of customers who share a common dissatisfaction with how they are being treated or who cannot find what they really want. It may be something as simple as a market that has not been given good customer service.
Look for markets that are ready to try a new product to replace the old ones they now using. That is what has led to the success of the Nashville-based app company Aloompa. Much of their growth has come in the music festival market, where their apps replace outdated printed programs.
Look for markets where something that has worked in other similar markets has not been tried in your market. That is what inspired Bob Bernstein to open Bongo Java, a neighborhood coffee shop in Nashville, that was like the ones he loved in his home town of Chicago.
Look for markets with "pain" and then develop a product or service that takes care of that "pain."
My favorite meeting with an aspiring entrepreneur is when they come to my office and say, "I have found a market that needs...."
I know they are starting down the right path to develop a business model that has a good chance of success.
A money changer shows some one-hundred U.S. dollar bills at an exchange booth in Tokyo in this file photo. Dr. Cornwall argues that raising too much money from investors can be a problem. (Issei Kato/Reuters/File)
In business, more money is not always a good thing
One of the biggest mistakes I made during my days as an entrepreneur was raising too much money.
Because our business was successful, we had investors eager to offer us money. But by taking money when we really did not need it, we found that it created more problems than benefits.
When taking money from outside investors, you give up part of the control over your business.
"One of the reasons most people start a company is so they don't have a boss," says Jake Jorgovan, co-founder of Rabbit Hole Creative, a high-tech graphics and marketing firm. "If you take out funding, then you have an investor looking over your shoulder at every decision you make."
Taking outside money can also lead to building overhead and creating an infrastructure that can lock you into a specific business model as you attempt to make good on the things you have committed to in your business plan.
Michael Brody-Waite, CEO of InQuickER LLC, prefers to keep his company lean and adaptable even though it has grown to annual revenue of seven figures.
"We chose to stay agile and not lock ourselves into a rigid trajectory unnecessarily," Brody-Waite says. "The cost of taking money in terms of distraction and complexity is well-documented. Our company is built on maintaining less mass, agility and out-simplifying our competition."
Too much funding can also propel a company into a level of growth for which it is not prepared.
"Bootstrapping your growth allows you to grow at a pace that is comfortable for you," Jorgovan says. "Investors will want to see rapid returns on investment regardless of what that means for you. When you bootstrap a company, you can build it into the company that you want to work in. You can build it into a business that you enjoy going to work at every day."
Like many entrepreneurs, both Jorgovan and Brody-Waite have felt the pressure to consider taking funding from investors. It seems to be part of the entrepreneurial culture, especially in businesses that have the potential for significant growth. There seems to be an expectation that seeking investment capital is a standard part of starting such a venture.
Although both businesses have seen successful growth through bootstrapping rather than fundraising, there may come a time when bringing investment money into each company makes sense.
"I expect us to take money eventually," Brody-Waite says. "However, the cost in time, agility, complexity and mass would have to be significantly lower than the tangible benefit to our company."
When it comes to seeking investor money for an entrepreneurial business, the goal should never be to raise as much as you can.
Instead, your goal should be to raise money only if you truly need it. And even then only take as much funding as is absolutely necessary to reach the goals of the business.
Dr. Cornwall argues that moving on from a failed concept is its own success. (Mark Duncan/AP/File)
Turning a failed idea into a success
A student come up to me before class the week before their business plans were due this past semester looking very dejected.
"My concept just can't work," she said. The more she tried to pivot the business model, the more she uncovered evidence that convinced her that she had reached a dead end.
This is what is known as a teachable moment.
Aspiring entrepreneurs go through an arduous process between the initial spark of an idea to the eventual launch of a business.
They start by sifting through the various ideas they have to find the one that has the most promise. Many ideas may appear promising at a first glance, but careful assessment helps to sort out those that have little promise. Eventually, the entrepreneur selects a product or service they hope will be accepted by the market.
The next step is for the entrepreneur to take the idea and begin to build a business model.
The primary goal of business modeling is not to try and rationalize starting a business based on your idea. Instead, the objective is to discover all of the challenges, flaws, and gaps that need to be addressed if you have any hope of moving from a good idea to a successful business. Business modeling is a process of finding problems and fixing them by altering and expanding the operating framework needed to launch the business and, when necessary, pivoting the concept based on what is learned about your customers and what they really want.
When developing a business model, you may reach a point where you realize that no matter what you do, it just won't work. This realization can happen very late in the process even at the point when you are developing a written business plan based on the business model. If that happens, no matter how much time and effort you have put into the project, you need to be decisive and abandon it.
But this is much easier said than done. You have spent countless hours talking about the business with friends and family. You have shared your idea with advisors and mentors. You may have even pitched the idea in business plan competitions and to investor groups. It feels like your reputation is riding on getting the business launched. There is a sense of inevitability that launching the business is what you are going to do.
But do not ignore the evidence. Have the fortitude to walk away. The fact that you have spent countless hours getting your idea to this point is not a reason to keep moving ahead.
So back to that teachable moment....
As class started that morning I asked the student to share her story with her classmates. I then looked her in the eyes and emphatically said, "You did a great job! You stayed true to the process and had the courage to acknowledge that your concept just won't work. Congratulations!"
The end of this story is that while her initial idea did not work out, the process helped her discover several new ideas and gave her the opportunity to make several new connections with people to add to her network. She learned the lesson that while her idea may have failed, she was successful.
A middle class tax increase countdown clock is seen behind White House Press Secretary Jay Carney as he briefs reporters after President Obama made a statement in the James Brady Press Briefing Room of the White House in Washington. Some politicians are suggesting a compromise to the payroll tax holiday debate that would exempt small businesses from having to pay for it. (Charles Dharapak/AP)
The lousy politics of the payroll tax cut
Politicians have been searching for a defining issue to crystallize the "us versus them" game that has been going on in Washington for the past several years.
The latest is the temporary $1,000 payroll tax cut that is set to expire at the end of this year. Both sides have their scheme to keep the cut in place. Those of the left want to "pay" for temporary renewal of the tax cut with a permanent tax increase on the wealthy.
"Don't be a Grinch," says President Obama. "Don't vote to raise taxes on working Americans during the holidays." If keeping taxes low is such a good thing, why did they make this payroll tax cut temporary? But I digress...
Those on the right want to renew the tax cut, but not tie it to any other tax increase. The right has raised concerns that many among the wealthy who would be paying higher taxes are actually the very entrepreneurs who everyone wants to get busier creating jobs and economic growth.
As always seems to happen, we now have a group of "moderates" suggesting a compromise. They are suggesting the we have a tax increase on the wealthy to "pay" for renewal of the temporary tax cut, but exempt small business owners. Sounds like a simple solution, and my guess is something like this compromise may actually pass. The problem is that such moderate compromises, while they can sound nice and reasonable, often make the waters even muddier.
This compromise is lousy policy.
Yes, tax cuts (or avoiding tax increases) help spur entrepreneurial activity according to most research on the topic. The problem with the compromise is that any exemption for small business owners is surely going to require more tax code and more regulation. We also know from research that increasing regulation and complexity of the tax code decreases entrepreneurial activity.
Let's start with what the Federal Government uses to define a small business. Under a certain number of employees? Under a certain level of revenues? Well, kind of, but years of lobbyists seeking favor for special interests for specific types of small businesses has resulted in an official definition of small business that is 45 pages long!!! You can see the entire document here.
Certifying that you are actually a small business owner eligible for exemption from the tax increase will probably end up costing you more in staff time and CPA bills than any savings in taxes.
But appearance seems to always trump substance and wisdom these days. Since in a sound bite the small business exemption will appear like a reasonable compromise it will likely play well in this never-ending election cycle.
But six months from now, when those who pass the laws have moved on to other issues, small business owners will be left scratching their heads, trying to sort out how they can avoid paying the latest "wealthy" tax.
This file photo shows a "closed" sign at the drive through of a Taco Bell store in Philadelphia. Cornwall argues that the closing of a business doesn't necessarily equal failure. (Matt Rourke/AP/File)
Closing a business doesn't have to mean failure
Sometimes an entrepreneur reaches a crossroad. While the business that they have started shows potential, they may come to the realization that the only chance it has of being sustainable will require raising money to grow it to the next level. Bootstrapping is always a good path to start a business, but sometimes a certain level of funding is still needed to get to a sustainable scale that can earn the owner an acceptable income.
The first thing to determine is if the business can absorb the cost of any additional funding after it grows to the next level. Run detailed budget projections based on the growth you are considering that include the cost of the outside money, be it interest and fees with any type of debt or expected returns if the money comes from an investor.
If the cash flow of the business looks like it will be able support the cost of the outside money, the entrepreneur needs to make sure they are ready to deal with the changes that come with the funding. Debt financing will probably require personal guarantees and may also come with certain restrictions that may limit decisions you can make about how you run your business. And investors will likely expect to become involved in major decision-making about the business.
The entrepreneur must carefully consider whether getting the business to the next level is worth the added hassle and risk that comes with outside money. If it isn't, it may be time to seriously consider working toward selling the business if they can, or possibly closing it down in an orderly way.
The decision of whether to continue operating a business can be one of the most painful experiences an entrepreneur can face.
As small business owners, we often consider the people who work for us to be more like family than employees. Closing the business that has been how they have made their living can make you feel like you are abandoning them.
As entrepreneur, our identity and our egos become tied to our businesses and its success.
Ending a venture that we have spent much of our waking lives working in and worrying about creates an emptiness and sense of real personal loss.
But there are times in the career of an entrepreneur when he or she has to find a way to set these feelings aside and make a rational, clear-headed decision about the future of the business.
Remind yourself that moving on from a venture that is not sustainable can be a new beginning. While some may tell you that closing a business is a mark of failure, experts would disagree with that. For example, venture capitalists will often favor funding entrepreneurs who have had failed businesses in the past, as they know they can take what they learned from that failure and avoid repeating past mistakes.
Don't think about a business that did not make it as a personal failure. If you learned from the experience and can take those lessons into your next business -- that is success.
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