Entrepreneurs: Optimists or Realists?

There’s no doubt that you’ve heard that most businesses fail.  When you look at the statistics, it’s very easy to believe that entrepreneurs are dreamers that either ignore the statistics or are just plain naïve.  If you knew 96% of companies fail within ten years, would you still do it?  We know entrepreneurs are smart and willing to take calculated risks, despite these overwhelming odds.  Do they even consider the realities of the entrepreneurial journey?

The first thing to realize about the odds of failure is that they are directly related to the amount of cash in the company.  Bill Camody stated in his article “Why 96 Percent of Businesses Fail Within 10 Years” that “cash is a fact.”  Once you don’t have any more cash, you can’t pay your bills.  This is a reality and certainly hits home very hard.  Now consider that the most significant source of funding for all business startups is the founder’s personal savings, which is roughly four times greater than any other source, according to the Kaufman Institute.  Venture capitalists and angel investors don’t engage heavily in startups.  If you’ve seen ABC’s TV show, Shark Tank, you know the sharks don’t like to invest in an unknown.  They want to see a cash flow before risking their money.  So, if you’re going to get money from others, either do it very early in the launch or you’ll have to grow the business before you can get a cash injection.

Most startups fail.  Most founders use their own money.  What can they be thinking? Do entrepreneurs overlook the realities of startups?  In a survey by Kauffman, many founders shared their thoughts on the factors that prevent others from creating their own startup.  These factors just might be the realities that one needs to consider (and constantly measure) when engaging in their own startup.

  • Risk – over 98% of respondents ranked an inability or lack of willingness to take risk as an important barrier to entrepreneurship.
  • Time and effort – 93% feel that entrepreneurs often underestimate the time and effort requirement to get their startup off the ground.
  • Capital – 91% identify the difficulty in obtaining capital as a major inhibitor, which may explain why most use their own money to start their new company.
  • Management skills – 89% cite management skills and the ability to start a company as critical to success.
  • Family pressure – 83% believe that family pressures to get a steady job and paycheck are real and challenging.

Other challenges mentioned in the survey include stress, maintaining a work-life balance, developing products and services for changing markets, government regulations, taxes, and the costs of employee benefits.

While it’s very hard to identify the right combination of the aforementioned factors that will lead to business success, there are some factors that will certainly lead to failure.  In a study by the University College London, it was found that businesses with entrepreneurs who held no real business experience did not increase profits.  The premise here is that nascent entrepreneurs don’t apply the appropriate weight to opportunities and threats.  In other words, their alertness to identifying threats and use of cognitive skills to recognize opportunities are not in balance.

Optimism has been shown to have a positive impact on entrepreneurial success, in terms of both actual firm growth and financial performance.    Realism, which also affects financial performance positively, is defined as the consistency between growth expectations and actual growth.  As with most entrepreneurs, and as verified by this study, optimism dominates over the impact of realism.

With regards to a balance of both optimism and realism, a dose of realism has the effect of modifying the overconfident cognitive bias of optimism.  For example, watching more cash flow out of your company than in for a long period of time has a propensity to dampen high expectations of future success, forcing one to reevaluate the current situation and cognitive strategy.  A lack of business experience can lead to a late recognition of this imbalance, resulting in failure.

In my experience, most entrepreneurs do a fairly good job of identifying threats and opportunities.  The things they incorrectly assess about them are the magnitude and timing, such as running out of money.   An important thing to remember is that most businesses are not creating something that hasn’t been done before.  There is a lot of literature, experience and information in the world.  Entrepreneurs should always seek it out and ensure they are correctly and constantly assessing their expectations, measuring performance factors (for a dose of reality) and maintaining just enough optimism to keep striving for their aspirations.  Additionally, before you begin to establish any expectations for your business, ensure you have fully applied your cognitive abilities to the factors mentioned above; that is, risk taking, funding, time and effort, management skills and family.

I’ve Got An MBA – Where Are the Management Jobs?

You’ve finally earned your ticket (the MBA) to the executive ranks. Graduation is over, you have a diploma and now you need to figure out how and, most importantly, where to put your skills to work.  The job market for managers is fairly hot right now.  If you haven’t found your opportunity yet, here are some places you might not have thought to look.

New business.  Many companies tout their successes to the world, mostly in the hopes of winning favor with potential customers but you can use these press releases to identify potential employers.  Small to medium companies often win big contracts from the private sector and government sector for which they are not totally prepared to manage.  While they may have established some preliminary management strategy to win the business, they may get changes to what they were awarded that is outside of their proposed plan.  Change always creates opportunity for establishing vision and direction.

Your action:  Monitor websites in your industry to identify companies that have announced big wins.  Learn as much as you can about their new business and determine where you can help out.  Then, contact someone in their Business Development department to see if you can get connected with the person responsible for that new business (e.g. department manager).  You go to Business Development people because they like to talk and negotiate.  Pitch your knowledge, skills and abilities in a way that clearly articulates how you can help them manage that new business.

Mergers & Acquisitions.  Companies are always trying to find ways to make money.  One of these ways is through the acquisition of other companies.  Big companies buy smaller companies to expand into new markets, increase their intellectual property or simply to show growth to investors.  Usually these transitions are challenging and difficult to manage as larger companies are not adept at adapting small companies into their fold.  Often, they will select new management for the smaller companies to help them make the transition, and this is where you can help.  A word of caution: Most of these acquisitions only last a few years before they are spun off or shut down.  If you’re not afraid of change, this is the type of business to follow.  M&A is always happening.  Read about 2015 M&A activity here.

Your action: M&A activity is not a highly publicized activity, at least not until the deal has been made.  The best way to learn about these activities is to tap into the industry grapevine and listen for rumors.  Talk with Business Development people to learn about rumors of mergers and acquisitions in your industry.  Go to trade shows and industry association meetings and conferences to gather information.  Companies love to talk about these rumors, which often have a strong element of truth.  Get your information and strategy ready for how you can make that acquisition more successful. Then, maintain contact with your connections to identify when it will occur.  Send your resume and cover letter that explains how you are the solution to the success of the new acquisition.

Venture capitalists (VC).  Another great source of management changeover is companies owned by venture capitalists.  Typically, VCs provide funding to companies and try to grow the companies as quickly as possible in an effort to sell them in a few years for a large profit.  This process of buying and selling companies creates a need for exceptional leaders who can manage each transition.  Often, VCs will identify organizational leaders they like and will seek to work with them many times during their career.  But there are also opportunities to introduce yourself and how you can help make them more successful.

Your action: Search the web for venture capitalists in your industry.  It’s as easy as doing a Google search on the name of your industry and the words “venture capitalists.”  Click the links to identify numerous VCs in your industry.  Then, research them to find out what companies they invest in.  Create your business case for why they should hire you and send it to the VCs and the companies they own. But make sure you know which of their companies may be in line for a transition before you engage with them.

Having an MBA is great.  You do learn about business.  Unfortunately, business isn’t run anything like it was when the MBA was first created.  Constant change is the flavor of the day.  Managing in transition isn’t the same as steady state management.  My guess is that there are far more companies in transition than there are in steady state.  If you can create a compelling case for why you’re the best for transition management, then you’ll likely find an opportunity to prove it.

Branding: It’s Mastering the Mind

Marketing is the battle for the customer’s mind – owning a share of mind. The process of strategic brand management is a two part exercise. The first part is getting into the mind by displacing something that already exists. The mind is like a dripping sponge and the only way to own a position is to replace a brand image that already occupies a share of mind.

Building a brand image is a long term proposition that requires an in depth knowledge of how the mind works. Words are the key to the mind and each word has either a positive, negative, or neutral value. So the process of building brand equity begins with the development of the right words to build a brand’s “unique value proposition”. That is what is: faster, better, or cheaper, than what already exists?

Obviously, Tesla has created a unique value proposition for their new model 3 that is reflected in the over 300,000 deposits of $1,000 each they have received so far from customers around the world for a car that will not be available for over a year, or more.

The second part of strategic brand management is maintaining and protecting that share of mind and growing the value of the brand with other customers. Brand equity is the value of a brand in the global marketplace. Some examples of the worth of a brand are: Apple ($154 Billion), Google ($83 Billion), Microsoft ($75 Billion), Coca-Cola ($59 Billion), Facebook ($53 Billion), etc.

Some classic examples of brands that have sustained and grown brand equity for many years are Nationwide Insurance (over 50 years) with their well known tune: “nationwide is on your side”. Peyton Manning, Nationwide’s current spokesman, only has to hum Nationwide’s infectious jingle for an instantaneous connection with customer’s minds. A competitor, Allstate, has another over 50 year old similar, but still effective slogan: “you are in good hands”.

Once you hear the familiar Intel “bing”, you don’t have to wait for the “bong” because it already has resonated. An over 100 year slogan that still resonates is Maxwell House Coffee’s: “good to the last drop”. And Wheaties: “breakfast of Champions”.

In conclusion, brand equity is made up of the intersection of the DNA of the brand with the DNA of the customer.

Business Startup: What skills do you need?

When you are unemployed and begin searching jobs listed in Job banks, like LinkedIn, Indeed, Monster and so on, you seek out job descriptions that match your skills and experience.  But when you start your own business, the job description might look like a book full of blank pages.  The skills, knowledge and abilities needed will be many.  They will be hard to define in the beginning.  In fact, the requirements will reveal themselves every day.  If you want to get a sense of what you’ll need, take time to talk to entrepreneurs who’ve failed and who have succeeded.  You’ll want to know every lesson you can.  Here are some lessons I’ve picked up along my own journey.

Before we look at skills, you need to understand a few other required characteristics of startup entrepreneurs.

  1. You need to be self-motivated. There’s no one around to push you to do things you need to do or tell you what you need to do.
  2. You need to very passionate about the business. Things will be difficult in the beginning but you need to keep pushing for success.
  3. You’ve got to be able to handle stress (and lots of it). It could take 2 years for your company to get off the ground. I’ve started companies with a family. When times are tough and no money is coming in, everyone will pressure you to fix it. (I’ve got a great post for this coming soon).
  4. You need to have a clear vision of your business, that is, a good business plan. My blog tells you how to do that (The Blitz Blog – The Source of Inspiration for High Achievers ).
  5. You need to know how to take a small success and create more success. This is the process for building your business.
  6. You need to be a quick learner. This includes learning from others because you won’t know everything you need to know.
  7. You must be customer friendly.   People will buy the service or product because of you.  If they like you, they’ll buy.
  8. You need to be the expert.  Whatever you sell, you need to be the expert on it.  You want people to seek you out.
  9. You need to be organized.  Startups need planning and focus.  You should have enough information to operate on autopilot (but drive it yourself).
  10. You need to be decisive.  Startups need money fast.  You can’t afford to overanalyze situations.  Make decisions and move on.

The typical skills needed for the startup entrepreneur are:

  1. Legal sense – you’ll have to create the business and operate within legal guidelines for your location and the industry.
  2. Accounting – how will you track your expenses and revenue? You will need a CPA but it helps to understand what they do because it could be you doing the accounting in the initial phase.
  3. Business development – You’ll have to decide what customers to market to and how they do business.
  4. Finance – How will you fund the initial phase of your business? You’ll have to establish the original budget and put the money in place.
  5. Marketing – You’ll need to create the social media and marketing materials for the business.
  6. Customer Relationship Management – You’ll need to be a salesman. People won’t buy products or services. They buy into YOU.
  7. Conflict resolution – Hopefully, you don’t make too many mistakes in the beginning but you need to fix them quickly.
  8. Collaboration – You might need to partner with other companies to sell your products or services. What kinds of arrangements can you have? You’ll have to figure that out too.
  9. Contracts – You’ll need to develop contracts, statements of work, proposals and other documents to support winning business for your company. Guess who gets to do that?
  10. Hiring – Once you bring people on board, there are a lot of government regulations that are required to hire people. You’ve got to know those too!
  11. Budgeting – You’ve got to be able to assess your costs to ensure you make a profit. Estimating labor and materials can be difficult, especially when your service is long term or customized.
  12. Writing – You’ll need to be able to create processes and policies that your company will use, such as privacy, nondiscrimination, quality, reporting, business plans, and so on. You’ll need documentation for your customer, the government and your company.
  13. Presentation skills – You need to be articulate as you’ll have to hold meetings and provide direction for your people. It must be clear and actionable. Otherwise, you waste time and money.
  14. Innovation – You have to keep your products growing and developing with the needs of your customer. Everyone usually talks about the APPLE model. It’s not a bad one to follow, if you can find out what they did in the beginning.
  15. Willing to learn – I can’t tell you how much I had to learn to get my business off the ground. Opportunities to learn are everywhere you turn.
  16. Adaptability – Very little will work the way you think it will. You’ve got to learn to adapt.
  17. Creativity – There will be many times where you will need something that doesn’t exist.  You’ll have to create it.
  18. Negotiation – Business is all about the deal and you must learn to master it to grow your business.
  19. Emotional Intelligence – You must be emotionally stable and able to handle the emotional swings of success and failure.  They are only bumps in the road to success and you have to hit some to get there.
  20. Focus – Businesses are built by defining a plan and implementing it.  Things change but you can’t let that happen so often that nothing gets done.

These are just a few of pieces to the puzzle of success.  Entrepreneurship is one of the greatest learning experiences you’ll ever have and it will also be one of the most challenging.  It isn’t for everyone.  When you’re in the middle of your startup, you’ll easily identify those who like the idea of entrepreneurship and those that don’t.  It’s a completely different mindset.  So, get out there and fill in the pages of your book with all the things it took for you to build your dream.

Education Overload – Earning Multiple Graduate Degrees

Recently, I’ve received hundreds of emails about earning multiple graduate degrees and the impact it will have on a career.  With such interest in this approach, I felt it was time to share some thoughts on the pros and cons of earning so much formal education.

There is no ladder to climb.  Just a few decades ago when I began my career, there were defined paths for upward mobility.  Companies would outline how one could transition from position to position, eventually gaining responsibility, authority and greater benefits (e.g. pay).  Today, that doesn’t exist.  Many companies don’t even have an organizational chart.  They will tell you that it provides you the benefit that you can go anywhere you want without restriction and that those old predefined paths only restrained you to a certain future.  They will say you have complete control over your career.  I really like this idea but it was really done to reduce top heavy management ranks, which is often slow, inefficient and expensive.  It wasn’t done to move more people upward.  You can make all the lateral movements you want, but moving upward, well, this is where you have to apply your knowledge to navigate an uncharted organization.  If you’re really searching for structure, you’ll need to target big corporations.

Graduate degrees are not required for executives.  While it seems logical that the most brilliant people will rise to the top of organizations, this simply isn’t true.  In fact, many businesses are started by people with little formal education.  I mention this because you might join such an organization.  You’ll take the job and then do research on the executive team, only to find that they are not highly educated like you. I’ve found this many times in tech and high tech companies, where you might expect to find highly educated managers. If you desire to be around the highly educated, you’ll need to seek them out.  Most are in technology and finance.

THE CONS

I know it’s hard to believe that being highly educated could have a down side, but it does. Here are a few things you might encounter when you have a lot of formal education and you’re working in Corporate America.

You’re a threat.  You might not ever actually see this directly but to management teams that don’t have graduate degrees, employees that do can be threatening.  They fear being embarrassed by their lack of understanding of many topics and feel there is some secret competition at play.  A good judge in determining the type of organization you’re in is to assess the leadership.  If they are more interested in growing their career, you’ll be considered a threat.  If they want to grow their organization, then you might have a chance for growth.

Possible solution: If you find yourself here, you have to be humble and give your ideas for growth and improvement away.  Show your management you’re here to help them become a success.

You’re underemployed.  Face it.  There are not that many jobs that require a graduate degree and hardly any that will list two graduate degrees as necessary.  Unless you can afford to search for that perfect job for a long time, you’re likely to accept a job that you can easily do.

Possible solution: Begin your job search when you are in graduate school.  Utilize the university’s resources to place you in a higher position.  Work with professional organizations while you are in your academic program too, as they are more likely to help students than graduates.

You’re Academic.  I always thought this was a good thing but I’ve had a few instances where senior managers have told me I was too academic.  I think they meant it to be derogatory and imply that I didn’t have enough experience.  Well, when you’re a young professional, this will be a problem.  Again, this is a biased view from a less educated management team, where experience is more important because it is what they have most.  What I found is that being labeled academic is good and bad.  It’s bad because it implies you do threaten people around you a little.  It’s good because they realize that you are well educated and have the ability to perform industry recognized analyses.

Possible solution: Don’t waste any time or energy on proving you are smarter.  Let your work show that.  You should focus on results and creating tangible successes that define your value to the company.  It is helpful to show management that you can help them improve their own career.  Once they feel that support, they won’t be as inclined to keep your career suppressed.

You’re Expensive.  High credentials mean high salary.  This is what companies will see and that can scare them.  They’ll overlook the fact that you can bring high productivity, high efficiency and high output.  Most companies don’t try to identify the financial impact of such indirect benefits.  They only focus on the direct costs that are easy to measure, like your salary.  This can make finding a job really difficult.

Possible solution:  High salary is offset by high returns.  You’ve got to be able to show real situations where you have greatly reduced cost, created new earnings, or improved existing earnings.  Companies want to make money and you must be able to provide evidence where you’ve helped do that. 

THE PROS

The majority of the advantages of higher education are personal.  It brings a sense of accomplishment, pride, an understanding of how to learn and confidence.  These emotions are powerful and will help you push through challenges that are ill-defined, untested and unbeaten. The difficulty is keeping this confidence under control and avoiding being overbearing to others, as most people aren’t excited by change and challenge.

You’ve got credentials.  It feels good to help those degrees and more importantly, the knowledge and understanding of how to learn.  Multiple graduate degrees communicate the message that you are smart.  In organizations that like utilizing smart people, you’re an asset.  You have numerous advantages, like being able to work alone without supervision, solve difficult problems, create new ways of doing business, research how the competition does business and so much more.

Career Strategy:  Don’t focus on communicating your brilliance.  The degrees will do that for you.  You should however strive to create tangible accomplishments that clearly articulate your ability to put that brilliance to work and create success.  These tangibles are what others will consider to be work experience.

Changing fields is easier.  Many multiple degree holders have earned these illustrious credentials to afford themselves the power to change occupations much easier.  In my experience with such high achievers, it does help to have a considerable depth of expertise in multiple areas.  Transitioning from one industry to another is possible but not necessarily any easier.  The advantage of your credentials is that you usually don’t have to entertain a lower position at the new company.

Career Strategy:  While you may have knowledge in multiple areas, it’s important to create tangible accomplishments in these areas to communicate that these skills and knowledge are still current and valuable.  If you can’t create accomplishments with the knowledge, create some successes with the skills that can be transferred to other fields.

Instant Recognition.  When you submit a resume that has multiple graduate degrees, companies will recognize they are dealing with someone who is smart and can learn.  They will search for the value you can provide.  This is very important as most first reviews of resume are typically to identify factors that eliminate you from consideration, not inclusion.

Career Strategy:  Ensure your credentials include accomplishments and accolades that are expected for someone with such qualifications.  The value is not just in what you know, it’s in what you can do with what you know…and that you have to prove.

The mind that wants to learn and grow constantly is special.  It seeks to create value wherever it can and as often as it can.  Most of us are not like this, as we seek to settle into life, create stability and entertain ourselves until retirement.  While we appreciate its abilities, it also reminds us of our own abilities and how we may not measure up.  It scares us and, at times, makes us feel as if our stability is being threatened.  Education is very important and we should all seek to constantly improve ourselves.  But we don’t.  So to those who chase many academic credentials, your success will be found with those who appreciate and value such knowledge. Please know that all companies don’t appreciate you.  So you may have to spend some time searching for those who will embrace you, preferably while you’re still in school.  Finally, I leave you with a quote from the British Author and creator of the fictional detective, Sherlock Holmes, Sir Arthur Conan Doyle, who once said “Mediocrity knows nothing higher than itself, but talent instantly recognizes genius.”