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10 harsh entrepreneurial lessons
By Tom McKaskill
When you come up with an inspired idea for a new business while toiling away making money for someone else, it’s tempting to think that there’s little downside to going it alone.
After all, the freedom of being your own boss can be coupled with more-than generous financial rewards, as the media persistently reminds us in its portrayals of the likes of Sir Richard Branson and Mark Zuckerberg.
But there are plenty of harsh realities awaiting budding entrepreneurs. Countless problems, dangers and frustrations are hurled at new businesses, many of which are completely unexpected.
To help give you an idea of what you’re getting yourself into, serial entrepreneur, consultant and author Tom McKaskill has put together 101 tips on how to succeed as a start-up.
Here are McKaskill’s top 10 lessons that you will learn once you take the plunge into entrepreneurship.
1. Raising funds takes a long time
The last time I raised venture capital it took over nine months and over 70 presentations in most of the major cities along the eastern seaboard of the US.
Every fund I went to said that I had an outstanding proposition but even then, it still seemed to take forever. While they were all interested, in the end their decisions were made on whether the investment suited their industry preferences, stage of investing, location of our firm and size of the investment.
We did raise the funds eventually but it was a long haul.
I have seen many really good ventures struggle to raise funds. They end up doing endless presentations, attending many meetings and even enter into due diligence only to be rejected.
The problem lies not with the firm or the investment proposition but with the preferences of the investor.
Basically, until you find someone who has experience in your sector or who is comfortable investing in your sector, you won’t see the money.
That being the case, you really need to plan your business as if you won’t be successful in fund raising.
2. Empathy beats excuses
Far too often the response to a mistake is, “Oops, sorry!” which is actually not what the customer wants to hear.
They don’t want excuses, which only makes the situation worse. What they want is for you to understand the position you put them in and to understand the issues they are dealing with because of your mistake or failure.
So the correct response should have been “I can understand why you feel the way you do”. Basically, we have to put ourselves in the shoes of the customer to experience the pain or problems which they are dealing with.
We need to fully comprehend the magnitude of the impact of our mistake. Once we understand their position, we are in a much better position to offer a solution, correct a deficiency or compensate them for the trouble or expense they have been put through.
Not all customers want compensation, sometimes they just want the opportunity to be heard, to voice their complaint and to offer a suggestion.
Providing the response they receive is one of sympathy and empathy, most problems will not require any other action on the part of the supplier.
How we handle problems says a lot about our values and the importance we place on good customer relations.
In the end, our reputation will be greatly impacted by the way in which we handle mistakes.
3. Watch out for the large customer
Salespeople love to chase the large deal. They want the big commission, the status and the reputation.
But they don’t see the risk for the business. Far too often you hear of a small firm losing a major contract and getting into trouble.
If you end up committing a significant part of your business to one customer, you are dependent on them for your profitability, if not your survival.
If suddenly you lose the contract, you are left with all the fixed costs which you now have to cover from somewhere else.
Big businesses are not known for being kind. They can be entirely ruthless when it comes to suppliers.
For them, you are a transaction and the cheaper they can get the business the better. If someone else comes along with a cheaper deal, they will jump ship.
At other times, their decision to switch may have nothing to do with the quality of your work. They may be required to do so by a corporate preferred supplier deal.
The purchasing manager may have a separate personal agenda to use another supplier or it might be that they simply want to have a change.
The bottom line is that you can never guarantee they will be your customer in the future. You need to plan accordingly.
4. Pragmatic beats perfection
One of the biggest lessons I learnt in business was that you have to have something to sell if you are to survive.
What this means in practice is that you often release basic products without all the bells and whistles.
Getting a product out the door is far more important than producing the perfect product. Inventors, on the other hand, want the perfect product and will fight tooth and nail to add the extra bits of functionality.
This tussle between inventor and entrepreneur is a constant battle which goes on in entrepreneurial firms.
What you learn over time is that you can always add the extra features in later versions. What is critical is to get the first product into the market to begin establishing market presence and hopefully, a leadership position.
As others come into the market to copy you, the added features of your new releases keep you in the leadership position. You need to take a very hard position with R&D to ensure there is a cut-off for any version release.
Basically, you draw a line which says “that is enough”, don’t add anything more, leave it alone, get it out. This is very hard for the perfectionists to accept as they can always see how a product can be improved.
You have to hold the line if you are to survive and prosper.
5. Marketing is not just advertising
When your marketing department produces a plan which is all about how to spend their budget on advertising, you are in serious trouble.
What this says is that they believe marketing is about pushing your way into the market by throwing information at prospects.
Not only is this often a complete waste of money but it suggests they don’t actually understand the role of marketing.
Your marketing department should be planning the strategies for creating great customer experiences not simply creating an advertising message.
When you consider the buyer behaviour process, you can see that there are many steps which the buyer will go through even to get to the buying point.
How do they identify you as a potential solution to their needs? What information do they have to evaluate your solution? How do you reduce the perceived risk in the purchase?
You want marketing to provide strategies to assist you to engage with the customer, improve their customer experience before and after purchase and entice them to buy from you again or to refer you to others.
I want my marketing department to tell me how to create great customer experiences not just how to spend money on advertising.
We need to start our marketing strategy with what problem we solve and who has the problem. We need to know who our ideal customer is and how we can get our message in front of them.
So rather than blast our message out to all and sundry, which is effectively the shotgun approach to marketing, we should be using a rifle to zero in on our target customer.
Instead of advertising we might be better off with telesales. Instead of putting up an exhibition stand, we might be better running seminars for invited audiences.
What we have to work out is the cost of customer acquisition. Anything we do which puts our marketing resources in front of the wrong prospect is money wasted.
We need to design our marketing programs so they focus on where our targets customers can be found.
Do they read a specific magazine, attend certain trade conferences, buy from specific retail outlets, belong to certain clubs or use specific credit cards? We need to go where they are and where we get the biggest bang for our buck.
6. What will go wrong probably will
It is probably overly pessimistic to think that what can go wrong will, but even so, it is a great way to manage risk exposure.
Basically, if you don’t have an approach to planning which considers risks, the chances are that you will be caught short and your business will suffer as a result, perhaps even fail.
Our planning process needs to consider the most likely risks and plan for those, that is only prudent.
Planning for unusual risks is probably taking it too far but what we do need to do is at least think the worst situations through and see if there are strategies which we could employ which take little effort but keep us on the main
We all willingly pay our burglary and fire insurance premiums and yet know the risks of such events are very small, but the loss we incur if they happen is very high.
The same logic applies in business, we need to assess the impact of possible delays, threats, accidents and so on, and consider which ones we need to cover for and which we take a risk on.
At least by going through the process we go into the future with an understanding of the risks rather than simply ignoring them. In practice, there are many risks which can be covered relatively easily but should be considered in case we miss something which needs attention.
7. Lowest price is fragile positioning
In every marketplace there are going to be a range of products which vary in quality, price and functionality.
One position which seems to attract more than its fair share of attention is the lowest price. This is often seen to be the largest part of the market and therefore the most attractive for the company which wants to grow.
However, lowest price is a hard position to build a sustainable business on. When you take on the lowest price, you are appealing to a customer group who are primarily interested in price.
That is, the features and functions which you believe are the things which excite you about your product and which you believe should attract business are actually not important to the customer.
They just want the basic features and functions for the lowest price they can find. In fact, less features and functions would probably appeal to them if they could have a lower price.
What this means is a dive to the bottom and the company which can achieve the lowest price wins.
However, as soon as a competitor finds a way of pushing their price lower than yours, they will take away your market share, leaving you nothing to compete with.
8. Loyalty is often only skin deep
One of the saddest things to recognise in business is that employees will leave you when the going gets tough no matter how well you have treated them.
It seems that the loyalty which you expected for providing them with a job doesn’t extend to helping out when the going gets a little hard.
Whether it is pressure on the business from success or setbacks, it doesn’t seem to take much to wobble some employees.
Security of employment is very high on the priorities of most employees and you can understand them being concerned about their livelihood if the business gets into trouble.
But when things are going well and the future looks bright, it is amazing that some will bail out at that point when they are asked to dig a little deeper and help the business cope with excess work.
We need to be very sensitive to what we ask of people. There are those who will step up and make an extra effort and bear additional stress when things are tough.
But there are others who can’t handle the extra workload or stress or are simply unwilling to do so.
Sad as it may seem, you can’t depend on their loyalty even if you feel you have done the right thing by them.
9. Beware of the tax department
It is very tempting to use supplier credit to fund the business but there are some suppliers you don’t play games with. One of those is the tax authority.
While they may be willing to give some concessions in times of national emergency or natural disasters, in normal times they can be ruthless.
You always have to remember that they have more power than you and they have very big sticks to use when they want to get their way.
You have to plan your tax liability very carefully and ensure you can meet your obligation at the time it is due.
Just because there is a delay between collecting the cash and paying the tax, this is no excuse for using the money and not being sure of having it on time to pay the tax bill.
They won’t take that kindly and have been known to shut businesses for non-payment.
Also be very careful you don’t spend your waking hours trying to find fancy ways to minimise your tax using overseas tax havens, offshore trusts and fancy corporate structures.
In the end, the key to success is generating more revenue and executing well on your customer commitments.
You will always be more successful in the long run concentrating on making your business more successful than trying to avoid your tax obligations.
10. The buck stops here
The bottom line for the entrepreneur is that they bear the fruits of their endeavour, whether that be rewards for success or losses for failure.
If you step out of your comfort zone and take the risk of undertaking a commercial venture, you should be recognised for the contribution you make.
You create employment, pay taxes, contribute to your community and take responsibility for the livelihoods of those you employ. There are few who are willing to do so.
Most people would rather have the security of a job (if that can be said to be secure) and allow someone else to look after them and take the risk.
If you are successful, you should be rewarded. Many fail along the way but that is the price for having a go.
Most entrepreneurs would rather have a go and take the risk than work for someone else. They want to create their own future not have one handed to them or imposed upon them.
The rewards for taking such risks should be non-trivial because we need people to step up, create new enterprises and enrich our economy. If this means we end up creating many more millionaires along the way, that is a worthwhile outcome.
Our entrepreneurs create jobs, contribute to our national wealth, enhance our export capacity and contribute generously to charities. It is a worthwhile pursuit for anyone who wants to make a difference.
If, along the way, you make yourself wealthy, then you will have certainly earned the rewards for your effort.
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