Thinking About Starting a Business? Read This First.
Forming a new company requires more than just an entrepreneurial spirit.
We are all aware of the high percentage of new businesses that fail. When this occurs, money is lost, time and effort are wasted, and dreams go unfulfilled. If you are considering starting a business of any type and want some insight into the risks (and rewards) of doing so, I suggest you read Michael Gerber’s “The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It.” This is one of those rare business books that not only describes problems, but also offers good advice for overcoming those associated with a small business start-up.
One of Mr. Gerber’s fundamental beliefs, and the basis for the book’s title, is that it is a myth (the “Entrepreneur Myth”) that small businesses are started by entrepreneurs risking capital to make a profit. Entrepreneurs typically do not start businesses, he says; people with certain technical skills start businesses when they are gripped by an “entrepreneurial seizure” and suddenly feel a need to do things for themselves.
This concept really hit home with me, because I know of instances where a dissatisfied employee one day realizes he or she can do things better and opens a competing machine shop, assembly house, restaurant, retail store or some type of “one-stop-shopping” business nearby. While this new business sometimes becomes successful, it fails just as often because the new owner knows no more about running a business than his or her former employer. The problem, as stated so well by Mr. Gerber is “the technical work of a business and a business that does that technical work are two totally different things.” So to put it simply, a person with technical skills will not necessarily be a good owner of a business that sells those technical skills. In fact, it can be argued that the more technical skill a person has, the more that person will focus on the technical things going on to the detriment of other aspects of the business.
Anyone starting a business must be able to balance three sets of skills—entrepreneurial, managerial and technical—and there does not have to be an equal balance. In fact, in most cases, the technical skills should receive the least amount of attention, as the owner should be able to bring others into the business who can handle much of the technical work. This leaves the main focus on applying (and improving) entrepreneurial and managerial skills. The exact balance of time spent on these two skills will vary with the type of business the person is running. In some cases, there needs to be a greater focus on the entrepreneurial side, where new opportunities are sought out and actions are completed at a fast pace. In other cases, there needs to be a greater focus on the managerial side, where organization is established and systems developed to carry out daily business activities. Whatever the balance between entrepreneurial and managerial time, the new business owner must recognize the importance of giving up some control of those technical aspects of his or her business.
So if willingness to give up a certain amount of control of the technical aspects of a business
is one step toward success, what are some of Mr. Gerber’s other recommendations? One is to set up the business to run like a franchise, in which everything is systematized, so that the output is consistent. The objective is to establish order, standard work practices that are documented and can be followed by employees with varying levels of skill, clearly defined responsibilities and accountabilities, and an unwavering focus on delivering value to customers. A true franchise should operate effectively, no matter who is in charge, as has been demonstrated by some of the country’s most well-known franchises.
Another recommendation is to invest the time upfront to establish a business development program, which consists of the owner’s:
• Primary aim. As the owner of the business, how you would like your life to be?
• Strategic objective. This should be a very clear statement of what your business has to do in order for you to achieve your primary aim.
• Organizational structure (organization chart). What will the organization will look like when it’s done?
• Management strategy. A system designed into your business to produce a marketing result.
• People strategy. Make sure people understand the idea behind the work they are being asked to do.
• Marketing strategy. What the customer wants is all that really matters.
• Systems strategy. What systems are needed to free you to do the things you want to do?
For those with the desire and commitment to someday start their own business, consider some of Mr. Gerber’s observations and recommendations to increase your likelihood of success.