TEN SURVIVAL TIPS FOR ENTREPRENEURS

If you do decide to take the plunge, here are the ten tips that have been most valuable to entrepreneurs I have worked with over the years. They’re in approximate order of importance. They’re especially applicable to New Collaborative Enterprises, but they also work for more traditional small businesses.

1. Manage Your Cash Flow. The commonest cause of business failure is simply running out of cash. That’s perhaps why women, who in most households manage the family finances, generally outlast men as entrepreneurs. Even highly profitable businesses can get buried by cash flow deficits. This is the most important rule, and I’ll write more about how to do it next week.
2. Risk Capital Doesn’t Exist. People who loan money at fixed rates want zero risk. People who invest in equities expect rates of return that compensate for risk, which means in excess of 20%/year for most entrepreneurs. No small business can afford that kind of payout. Only you, your family, and your business partners will be willing to invest capital for low short-term return when the risk is high (so-called ‘patient equity’). If your business can’t fly on that, plus what you can generate from operations, it won’t fly, period.
3. Offer Something Different. Innovation is the key to entrepreneurial success. You can’t just copy another business’ success formula and expect to do as well as your model. You have to have something different, something unique, that will bring business to you because no one else offers it. The innovation that differentiates you can be your product, or your service, or your operating process, or your market, or the way in which you deliver your product or service. And a unique product or business name (‘brand’) is not enough.
4. Use Viral Marketing. You can’t afford to break into the market by advertising. Advertising is used by already-established cash-rich businesses to entrench their position, and keep newcomers like you at bay. To compete, you need to create buzz for your product or service by word of mouth. Once you’ve done that, the word will spread effortlessly, and the media will be writing about your success. Free. There are lots of books and success stories on how to do this. Study them.
5. Ensure Your Team Has Appropriate Balanced Talent. Identify what skills — management, financial, sales & marketing, production, distribution, service — your business needs. You need some of them — whichever your core competencies are — in-house. The rest you need to line up from reasonably-priced external advisors who really care about your success. If there’s a skill gap, it will probably defeat your business. If there’s too much skill overlap, those skills will be underutilized and the talent will be fighting among themselves. Ideally, everyone with critical talent should be an equal partner. And you can’t afford people who don’t have critical talent, so don’t let them in, even if they’re family.
6. Have Experts Critique Your Plan. I’ll post an outline for a new business plan shortly. Your plan needn’t be overly long (6-10 pages is best) but needs to contain a dozen critical components, and needs to pass scrutiny by people who know what will work and what won’t in the business world. You can usually get that scrutiny for next to nothing if you ask the right people nicely.
7. Know When to Fold. Just like in poker, when you’re losing big-time, if you hang in too long, on the offchance of a miracle turning your fortunes around, you will almost certainly throw good money after bad. Talk to your financial advisor regularly and if s/he says you’re toast, listen, and cash in what’s left of your chips. Most businesses wait too long, causing agony to everyone concerned, and delaying the start of the next enterprise.
8. Have an Exit Strategy. That means deciding ahead of time how you will know when it’s time to sell or close the business. Failure to have one means you may jump at an offer and give your business away too cheap. Or pass on an offer you should have taken. Or make faulty assumptions about who’s going to take over your business. Or let the business go past its prime and into decline.
9. Listen to Your Customers. Research and then do more research. Talk to potential customers before you start, and ask them what they like and don’t like about your business, what they’d pay for what you offer. Pay attention to their answers. Once you’re up and running, keep asking and keep paying attention. For most people this is obvious and common sense, which is the only reason this critical tip is so far down this list.
10. Stay Agile and Alert. Everything changes: customer preferences, markets and demographics, the economy, prices and sources of supplies, delivery channels, competition. Stay on top the changes and adapt to them. Don’t get tied into long term contracts and commitments no matter how attractive the terms. You’re going to make mistakes. Make them early and fix them quickly.

And if all that fails, or if you’ve already failed as an entrepreneur, try again. Don’t give up. Magazines like Inc. and Fast Company have studied the predictors of entrepreneurial success, and the number one predictor is previous business failure. If you haven’t failed at least once in starting a business, you probably haven’t learned enough to succeed.

Next in this series: More on managing cash flow, and Outline for a new business plan.