Think Like an Entrepreneur: Small Business Entrepreneur

Thinking like an entrepreneur - an inspirational look at how you can build a multi-million dollar company without having to be a genius!

You, as the founder of your business, identify the skills crucial to your company’s growth. To an extent, you can choose what skills are crucial by varying the type of business you form. If you start a company to write custom software for larger companies, then, yes, software programming is a crucial skill within your business. But, let’s say, instead, that you start a matchmaking service (fixing up people with romantic interests, rather than making the matches that burn when struck). Is programming a crucial skill? The answer is: “I don’t know enough about the business to tell you for sure, but my guess is no.” If you have a dating service, using computer matching of individuals, maybe programming is a crucial skill (after all, it’s the computer pairing the people up!), but, if you have a more personal service, matching people based upon personal interviews with someone on your staff, then, I would say the crucial skill is the ability to communicate with and understand your clients. It’s more of a personal psychology skill. I will say more about choosing a business suited to the skills you want to see utilized within your company in the chapter on personality and business choice, but I want to reemphasize that you must identify the skills.

You cannot just say, “I want to start such-and-such-a-type of company, and I want these skills to be the ones used by my employees.” It doesn’t work that way. To an extent, the industry you are in and the type of “work” your company does will determine these skills. If you believe one set of skills is required, when in reality an entirely different set of skills is required, you will run into problems.

In the ideal case, you will know someone you trust who has successfully built a company similar to the one you contemplate, a mentor, to help you understand what skills are most needed. The best mentor is someone who has not only built a company similar to yours, but who has also grown sick and tired of the industry and has sold his company. This person will not view you as competition. Be aware that not everyone will be interested in helping you or becoming part of your network of resources. That’s OK. Just move on and seek other contacts. Despite hiring employees, and even if you have a good mentor, you will need to be the one to pass judgment on any business issues that significantly affect your company. You can never delegate that responsibility.

If your company grows larger, a good Board of Directors, consisting of people knowledgeable in the industry, can be a very valuable resource. You want people who can contribute to your organization. Many people want to hire people like themselves. Some business people hire people who, they feel, are “subordinate” to their own abilities. They want to hire people less talented than they are. Maybe, they have a fear of being outdone, of not looking as good as the employee. This is a good way to sabotage your company. Whenever you make a new hire, ask yourself, “What does this person bring to the company? In what area is this person superior to the people currently on staff?” You should hire people better than you.

Diversity of ability and skills is a huge benefit of having employees. But, how should you go about hiring? When you start out, there really is no need to post positions in newspaper employment sections and similar places. Don’t you already have enough suitable candidates among the people you are currently networked with? This is a big advantage of a small company. As your company grows, you will need to post jobs or make them commonly available, rather than just recruit from you current contacts. That is a difficult area. When and if you reach this size, hire people adept at making good hiring decisions. A good recruiter may be your most valuable employee, especially if your employees have significant contact with your customers or clients.

Most experienced Human Resources (HR) people tend to be very conservative in terms of whom they will hire. They are aware of the potentially huge cost to the company of making a bad hire. They are especially aware of how the bad hire will reflect upon the judgment of the person doing the hiring! This is a simple example of risk and reward. If the HR person takes a chance and hires a questionable candidate, and the candidate becomes a great employee, there is little benefit to the HR person. It is the hired person who will get all the accolades! But, if the questionable candidate doesn’t work out, then everyone, including the HR person’s boss, will say, “What were you thinking, hiring this guy? He obviously was a bad hire.” As a rule, people don’t make decisions that can only lead to little benefit for them, but that could lead to considerable downside risk for them.

This hiring mentality is exactly what you need in many industries. If you are hiring people to work in a warehouse, there is little benefit to not weeding out people who might be a problem. The HR people look for a reason not to hire the person. If they find one, that person won’t get the job. The chances that the person not hired would have been a stellar employee means little. The difference between a great worker and the average worker is not really that large. So, why take any chance hiring questionable candidates?

In growing technology companies, this overly conservative approach of HR people can sometimes be a problem. Here, the difference between the most productive employee and the average employee can be huge. And, many of the best hires are a bit unique.

When I wonder about a given company’s ability to grow through hiring, I am now asking myself, “If good Will Hunting applied for a job with this company, would he get it?” For those of you who don’t know who Will Hunting is, you need to relax a bit more. Go rent a video called Good Will Hunting. In many cases, the company would pass on Will. Lack of experience, a dubious history, etc. would knock him out of the running for a job. Now, true geniuses are rare, but I know of cases where multiple companies passed upon hiring questionable candidates and the individuals went on to work for other companies and, instantly, became the companies’ best programmers. One person, making $40,000 per year, outdid five experienced programmers, each making $100,000 annually. Was it a risky hire? Maybe. Was it a good hire? Definitely. The person’s pay went up considerably, but the person was still a bargain.

Despite all I said about the value of growth via new employees, some of you might say, “Gosh, I just don’t want the hassle of having employees. I’d rather go it alone.” That’s OK, of course. I’ll say more about it in another chapter. But, what I said about developing a network to rely upon still applies. If you are too cut off, you will have trouble.

There are some crucial skills you should acquire before starting any business, areas with which you must at least feel somewhat comfortable. First, there is the area of human interaction. You must be comfortable speaking with other people. Enjoying it is best of all. Selling, in one form or another, is really an entrepreneur’s best skill. Let’s take the case of a company that will do computer consulting. It will send out programmers to help companies write code to manage their business better. The real key to this business is not the programming ability of the lead entrepreneur. In fact, several individuals with relatively few programming skills and little programming knowledge have built such companies. The real key is twofold.

One, you must find client companies to buy your product. This involves selling. Promotion. Maybe, taking a demo around to companies to show what you can do for them. There was a regular renaissance in this specialized-solutions-computer-consulting-programming field when Visual Basic appeared. Visual Basic made it fast and easy to create simple application programs for businesses. Many people, who were not programmers, saw how quickly a consultant could write code useful to their company. One day a consultant was at their company. The next day, there was a simple prototype of the application program that the company desired. The person assigned to work with the consultant thought to himself, “Hey, our competitors would really like this program. In fact, it would be easy to sell it to them. And, we have lots of competitors.” Often the company employee who saw this teamed up with the consultant to build a custom-solutions-programming company serving a specific industry. Some of these companies have grown to have market values in the hundreds of millions of dollars, while other such companies were sold along the way, leaving the founding entrepreneur rich. In most cases, the lead entrepreneur was not even a programmer.

As demand grew and it was clear the company could sell even more slightly-modified versions of the same solution (application program), often, the computer programmer could no longer keep up. What happened was natural. And, it brings us to the second key in building such a company. That is hiring enough programmers to write the code. This is certainly not a technical skill. You don’t need one iota of programming ability in your blood to seek out and hire programmers. It’s more of a human resources job. So, you see, it’s very possible for a nontechnical person to build a technical company.

Incidentally, as long as we are discussing this example of a custom-solutions provider, I should point out that such a company can grow from start-up to millions or tens of millions or even hundreds of millions of dollars in worth very quickly. All it really needs to grow is: 1) selling its product; and 2) hiring programmers to create the product. These are the only two things that can limit the growth rate of such a company. If you can add new clients and if you can produce what the clients want, you can expand quickly, incredibly fast, in fact. This is a great business model. You sell a high-end service; you hire people to perform the service; and you collect a good chunk of the payment for the service as the service is rendered or soon after. As you go, you gain experience and reputation which strengthen your company.

Most people are used to thinking in terms of manufacturing companies, which have a significant investment in plant and equipment. To produce widgets, you need widget-making machines. And, they cost a lot, $500,000 apiece, in fact. Each machine can only make 10,000 widgets a year. Not that the machines are unionized or anything, but they can only work so fast. You have one machine, and you are selling 9,900 units a year. Next year, you think you can sell 12,000 units. Well, gosh, you need another widget machine. And, maybe, a machine needs its own building. That means you need another building. Now, if the company is making $400,000 a year selling the 9,900 widgets, then, obviously, you can’t internally fund the new machine from current one-year earnings. You could seek financing, but that means that the bank from which you borrow has a say in your growth. There won’t be any growth, if they don’t lend you the money!

Maybe, the overall economy is bad, and the bank won’t lend you the money for the new machine. If you are a start-up company to begin with, your chances of getting bank financing are slim. And, even if you got it, you would probably pay a high interest rate. You don’t want that. Because the expansion of the industrial company must involve significant capital investments and the growth in added capacity often must exceed the immediately recognizable sales increase, industrial companies have capital barriers to growth which information-based companies do not. Similarly, service companies, such as a dating service firm or a money management firm, are not really capital intensive. They tend to be “people businesses,” where the most valuable company asset, next to reputation, consists of the employees and what they can do.

Because of the large number of businesses that can be started today that are not capital intensive, it really is the age of the entrepreneur. It’s not like I imagine it was in the early 1900’s when capital was the essential ingredient favoring the already rich in building new businesses. I will discuss this in the next chapter.

One final skill every entrepreneur must know is basic accounting and simple, financial decision making. You must know how to use numbers to not only track how much you are making, but also as input to evaluate possible directions you might take your company. Is Product A or Product B a better product for us at present? Questions like this crop up in every business, no matter what the industry. A few college classes in accounting or some self-study is really essential for all entrepreneurs who wish to attain a reasonably high level of success. Some things just can’t be delegated. You must achieve a relative comfort with numerical decision making. This is not at all difficult, but it is essential. The rest of this book will take you far in that direction.

Copyright 1999 by Peter Hupalo. Excerpted from “Thinking Like An Entrepreneur”, HCM Publishing.

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