Entrepreneurship Process

©2004 The Caring Enterprise Coach

This article is a summary of what everyone should know before starting their own business. It assumes that you’ve done the following groundwork:

  • You’ve decided what you want the business to be about
  • You believe you have some core competency — something you are exceptionally good at — that will be valuable in such a business
  • You have the key attributes of an entrepreneur: Common sense and self-confidence
  • You have the basic skills needed to succeed in any business: Creativity, communication skills, information management skills and interpersonal skills

If you talk to your local accountant or small business advisory office, they’ll probably tell you about the importance of doing a business plan to raise financing, the need to incorporate and register your business name, how to advertise your product and service, and the importance of administrivia like business cards and letterhead. They’ll also probably tell you that entrepreneurship takes courage, patience, an ability to handle enormous stress, and a willingness to take risks and work long, hard hours. And they’ll tell you that growth is paramount.

Most of this is nonsense, and all of it is putting the cart before the horse. Why do they tell you this? Because it’s what they’ve been taught, and because of the frightening failure rate of small enterprise. But most entrepreneurial businesses don’t fail because of bad advertising, cowardice, owner laziness or inability to handle stress. They fail because they are poorly thought out, poorly researched, set up wrong, marketed wrong, badly managed, and given terrible business advice. I base this immoderate assessment on my experience working with over a hundred entrepreneurs, listening to their stories, and seeing what works (and what doesn’t) in small enterprise, and why.

Let’s take a step back and consider what an entrepreneurial business is. It is a (usually small) number of people with a shared idea and a willingness to work together to make that idea commercially viable. That means, according to what they teach you in business school, finding capital, developing your product and then going out looking for customers for it.

This is a recipe for failure. The money you borrow (which in an entrepreneurial business is always horrifically expensive) compromises your control and immediately presents the possibility of the loan being called, and the personal assets securing it being forfeited. And there are a million possible reasons why there could be few, or no, customers for your product. The #1 reason entrepreneurial businesses fold is because they simply run out of cash. The #2 reason is because the owners make one or more fatal decisions, and the most common fatal decision is to produce a product that nobody wants to buy.

Here’s an alternative model, based on what Charles Handy calls Existential Enterprise, and which I have called New Collaborative Enterprise. Its first two principles turn the business school formula upside down:

  1. Marketing: Don’t sell or market anything — identify and produce something for which there is a substantial unmet need.
  2. Financing: Don’t borrow money or sell part ownership in your business — only spend your own cash or cash you’ve earned.

This isn’t rocket science. The first rule simply says do your research before you start, do it thoroughly, and do it with potential customers. That way you have sales before you have costs. Then rule number two becomes easy — your customers finance your business, and the debt is quickly extinguished when the product is delivered. This is an oversimplification, of course. You can’t always finance operations this way. But if you have to borrow, the principle is the same — pay it off fast, as part of the same transaction that gave rise to the debt in the first place, and never give up equity — it’s like selling your soul. Most women can confirm the insanity of spending cash you don’t have — which is one reason women entrepreneurs tend to start their businesses more slowly, and keep them going much longer.

Time for some more heresy. MBA graduates will tell you to select a management team with a balance of skills — operational, financial, sales, management etc. But they don’t know what your particular business needs — if the business is an R&D outsourcer it needs people with deep knowledge about research, not accountants and sales executives. An Existential Enterprise will follow these principles instead:

  1. Association: Make a living only with people you love and trust — life’s too short to spend so much of it with people you don’t care about, or worse. In most cases, don’t incorporate — it adds paperwork, has no tax benefit and usually offers no liability protection to the entrepreneur. A partnership requires little or no bureaucracy and is infinitely flexible. Instead of a shareholders’ or partnership agreement, develop together a simple Statement of Objectives and Operating Principles, which affirms why you’re making a living together, commits all members to live up to certain shared standards of behaviour, and affirms that each member is responsible for the well-being of all other members, as each member defines well-being, and responsible as well to the community in which it operates.
  2. Management: Let the group that you make a living with select and manage itself (new members and expulsions require unanimous approval of other members), based on the ‘mutually exclusive/collectively exhaustive’ skills principle (i.e. each member should bring unique and critical skills to the enterprise, and between all the members you should have all the skills that you collectively decide you need).
  3. Structure: Have no titles, no reporting lines, and no hierarchy — all members are equal. No “employees”. No “leaders”. If ego-fulfilment is part of your reason for starting a business (which wouldn’t be surprising if you were recently ‘downsized’), you’ll need to get that satisfaction from making the business work and making yourself and your partners happy. If you feel the need to boss people around, find somewhere else to do it. The only reason for the cult of leadership in big business is that big business is basically unmanageable, and arrogant, overpaid bullies can make it appear slightly less so to its investors.

This may sound idealistic, but it works. Partnerships are a very common form of business organization, and those formed with family members and others where there is a bond of love and trust are especially durable. And many large businesses are learning the benefits of flat organizational structure, decentralized decision-making, and the abolition of titles.

Next, the business school grad will tell you you need systems that provide each person with compensation and reward that is ‘commensurate with performance’. That means your partner who’s independently wealthy and who self-promotes like crazy will get money he doesn’t need, and the young, modest partner with a big mortgage will get less money than he needs, and so will probably leave to get more. And the partner who values and needs her spare time but who has critical and scarce skills will be bribed to work long hours and so will probably leave to get less. Here’s a more sensible approach:

  1. Goal-Setting: Have each member discuss with the others what (income, time off, travel, non-travel etc.) they want and reasonably need from the business. Define that, not growth or profit, as ‘success’. Measure your attainment of it. Don’t bother with more traditional measures — they don’t matter. Together, plan and operate the business to achieve that success for each individual.
  2. Defining Roles: From that definition of success, collectively define the enterprise’s goals, and have each member create their own role statement to achieve those goals. Refine these role statements together, to close any gaps and remove overlap. You may have to add members to do this, and members with redundant roles may have to self-select out.

Now everyone in your enterprise knows what you’re trying to accomplish, what it will take to achieve it, what’s in it for them, and what their individual role is. If each member has the key attributes and basic skills listed at the start of this article, you have all the ingredients in place for a successful (on your own terms) enterprise. All you need to do now is communicate well and avoid the landmines.

Think of it as a jazz combo versus a traditional symphony orchestra. In the jazz combo, everyone knows their role, takes their cues from each other, and communicates network-style with the other band members and with the audience (customers). If the audience gets restless (customers are dissatisfied or their needs change) you can improvise quickly. You don’t need hierarchy. By contrast, the symphony orchestra, like the traditional business, is hierarchical, communicates only through the guy at the top, and is totally stuck to the rehearsed script (the business plan). If the audience is unhappy, the symphony just ignores them and plays on. Which business model makes more sense to you?

Once you’re up and running, here are three final principles to keep things going smoothly:

  1. Networks: Networking is critical to every business. Business success correlates highly with the amount and breadth of effective, face-to-face time (telephone time is OK, but a very poor second) — time you spend with (a) customers and prospective customers, no matter what your role is in the enterprise, (b) experts and coaches that can listen to your problems and provide richly contextual insight to help you do your role better (these will often be other entrepreneurs, who you can help and coach reciprocally), and (c) allies — strategic partners who offer you access to markets and supplies and connections, knowledge you wouldn’t otherwise have, new ideas and emerging innovations and technologies, and other mutual advantages.
  2. Managing Growth: If the business needs so many people that it gets unwieldy, encourage the members to break it into two or more small Existential Enterprises with no members in common. Don’t worry, it won’t fall apart — in fact it may even be tighter and stronger, as long as each enterprise keeps following these principles. We live in a World of Ends, and command-and-control is now not only unnecessary, it’s an impediment to success, and it makes people unhappy.
  3. Stakeholders: The needs and happiness of the members, you and your partners, come first. Your customers come second. The interests and needs of the community in which you operate come third. That’s it. Remember this priority when you make decisions. In Existential Enterprise, there are no shareholders, absentee owners, creditors, Board of Directors or Board of Management to usurp this critical priority, to interfere and force you to do things you don’t want to do, to make you a wage slave in your own enterprise.

Most of the problems in traditional entrepreneurial business — the ones that lead to the stress, long hours, divorce, sacrifice, unhappiness, and, often, failure — are created by the MBA mythology of how to start, build and operate a business — a mythology that often defies intuition and common sense. And that’s all these ten principles are: Common sense, that I’ve seen work in dozens of small, successful enterprises, and the ignorance of which has been the undoing of dozens of others I have worked with. That’s why people with no formal business training are sometimes the best entrepreneurs: They don’t have to unlearn all the nonsense, and guided by common sense they instinctively build something closer to the Existential Enterprise model than the Business School model.

I’m not saying that this is easy. Adhering to these ten principles (especially the first two) requires a lot of time and energy, and considerable intelligence. But they are relatively fool-proof and stress-free. After all, what could be more joyful than creating a successful enterprise with people you love and trust, on your own terms — a true labour of love?

This entry was posted in Working Smarter. Bookmark the permalink.


  1. Dave, on point # 5 which I wonder how scalable that approach is. Is there some size where reporting lines become necessary?

  2. Rob Paterson says:

    Dave – 100%Rob

  3. Dave:That is my business model right there, although I’m a one man show embedded in a network of friends and colleagues. Great piece. Thanks.

  4. Excellent article, Dave. Identifying an unmet need (unseen need?) and meshing that with the one thing a person does exceptionally well seems to me to be the hardest thing to figure out. Not everyone is fit to be an entrepreneur. But your are so right. The business school model has always seemed to me to be a migraine inducing chore. I mean, running a business should be fun.

  5. Arif Raja says:

    So intuitive!All my readers should know about this approach! How can I republish this?

  6. Mike says:

    Excellent article, Dave. It’s funny how the points you make clarify why it is that business schools have not found a model to teach entrepreneurship. Real small-business development runs counter to the MBA-fueled corporate paradigm.As someone who loves reading business books, I think you have the foundation for a valuable resource on entrepreneurship.

  7. Dave Pollard says:

    Darryl: I think when you reach that point it’s time to break the enterprise up into autonomous units that don’t require hierarchy.Arif: Any way you want, as long as you don’t charge money for it and as long as you attribute it to me.Thanks, everyone, for the encouragement to keep writing the book that this post, and the earlier innovation and ‘landmines’ articles are essentially chapters of.

  8. Myke says:

    This is my business model also. You didn’t mention health. Traditional organizations often help with health insurance, which encourages dependence on both the employer and the medical establishment. I suggest that micro-business entrepreneurs (see David St Lawrence’s blog at http://ripples.typepad.com/ripples/2004/06/virtual_microbu.html) should proactively prevent health problems via diet and exercise to avoid the disaster of extreme medical expenses. (I do have catastrophic health insurance

  9. conan dalton says:

    I like the jazz band vs symphony orchestra analogy. I’m a software writer with influences from the recent “agile” movement. Agility in software emphasises abilty to quickly respond to changing needs over sticking to a plan that’s probably out of date … agility means choosing priorities intelligently rather than doing what you were taught at school … and communication is worth a thousand documents!Thanks for a business-modelling article that I can relate to!

Comments are closed.