One of the frustrations that mentors experience is getting well into a relationship with an entrepreneur and finding a critical flaw in the business model. By “well into a relationship” I mean when the mentors and entrepreneur have been meeting for many weeks or months. Then, suddenly, we realize that the basic model or concept won’t work either financially, operationally, or in terms of marketing. Sometimes the technology driving the venture cannot be developed in a form that is attractive to the market. Sometimes the market or price point has been overstated or the competition has been understated.
More often than not, the thing that causes an entrepreneur’s dream to screech to a halt is numbers. Often the entrepreneur is an engineer, a developer, a chef, or a widget maker and they have not been trained in accounting or finance. Many, many startup founders simply don’t understand P&L’s, balance sheets, or cost of goods sold.
To alleviate some of the frustration among our mentors and to efficiently get our entrepreneurs on the right track we have developed a seminar program called Startup Success. Startup Success is a one day program that walks would-be entrepreneurs through ten steps to develop a basic business model and summary business plan. Startup Success was developed based on our experience working with startup companies here in St. Louis and in Highland, Illinois.
Startup Success has a unique twist, however. Once the entrepreneur competes the summery business plan (4-5 pages), our mentors review the plan and provide a written critique and recommendations.
In Highland, all entrepreneurs who want to enter the Highland Entrepreneurship Program must complete the Startup Success Seminar first. Our first seminar is scheduled for Saturday, June 1. We are hoping that this new process will prevent a mentoring team from getting six or eight weeks into the mentoring process only to realize that the concept or model will not work.
More about Startup Success is here: http://ventureadvisors.org/startup_success.htm
I have been talking with lots of Mayors, City Administrators, and Economic Development Directors lately, particularly in smaller communities that are either outside of or adjacent to major metropolitan areas. Many of these discussions have been about how to create jobs.
The drum that I have been beating is that a community should create an environment where individuals can start businesses. These individuals are the real job creators.
Here are three reasons why entrepreneurship should be an integral part of a community’s economic development strategy:
All in, the cost of providing assistance to an entrepreneur who is starting a business is significantly less that trying to recruit a company to bring jobs into town. Recently a City Manager told me about a recruiting effort to bring 50 manufacturing jobs into their community. The city put $2.5 million in CASH incentives on the table, which wasn’t enough because the company went to a neighboring community that had offered $3 million.
The point here is that the city was willing to pay $50,000 per job to attract this company. I find that this is pretty common. We recently heard of a company expansion here in St. Louis. The cost per job (funded by the State and County) was $78,500.
By contrast, two programs we are involved with are creating jobs at a much lower cost. In St. Louis the cost per job created was $1,540 and the program we are involved with in Illinois had a cost per job of just $795. Incidentally, these are permanent, well paying jobs.
2. Multiplier Effect
There really is a multiplier effect on the local business economy when an entrepreneur starts a new venture and succeeds. For example, one of the entrepreneurs I know secured a contract to manufacture products for a California based company. The entrepreneur then contracted with four local companies to provide component parts and services. The result is five companies in this town are benefiting from the deal that one entrepreneur was able to secure.
3. Staying Power
As companies grow they need to expand. Several of the entrepreneurs we are working with are looking for expanded space. None of them are looking outside of their communities. You can’t say that for a multi-national.
It is true that many startups will not make it. However, the chances of success can be greatly increased by a well designed and executed community entrepreneurship program.
This is a re-post from David Strom’s Web Informant site. You can read more of Strom’s posts here: strominator.com
Web Informant, April 23, 2013: It is all about focus
For the past three and a half years, I have been meeting occasionally with a nice young man named Aaron Witt who has a startup software business called ConvertMyEmail.com. Aaron is smart, he is earnest, he works hard, and he is making a modest amount of cash from the company. The business is one in an area that I happen to know a lot about (email software), and I think I have been mostly helpful in getting it going.
When we get together for our periodic mentoring sessions, Aaron is hyper-organized. He comes with a solid agenda; we go through it point by point. He has PERT charts that track his goals and what he has to accomplish when, and takes them to heart. He goes through during our session his stickiest points that he is wrestling with at the moment. He listens well and takes careful notes, and then more often than not acts upon them. As a mentee, he is one of my favorites because he has all these process things down pat. From the outside, it looks like he is making progress.
There is just one thing, almost Shakespearean in terms of a tragic flaw: he lacks focus.
When we began our sessions in late 2009, he had a full time job where he had to travel around the world for his company. As you might imagine, that took a lot of his time and I couldn’t really blame him for wanting to stay with the regular paycheck. But as it happened, another firm bought out his and he became redundant and was cut loose last year. Aha, I thought. Finally, time where he can really get behind his business and make it sing.
It hasn’t happened, although he is doing all the right things. Why? Because of his lack of focus.
We met this week for another mentoring session and an update, and he gave me the bad news. Well, he didn’t initially see it that way. “Did I mention that I am thinking about starting another company?” he asks. Oy vey, I am thinking. Here we go again. We discussed this new company – which has at its core a dandy idea – and I am beginning to think, he just can’t stay on company #1. I told him my feelings, and that he needs to stick with the first business and give it his all, otherwise he will be responsible for two failures. “That is what my wife tells me.” Yes, maybe I should give her a call (although there is something sacrosanct about the mentor/mentee confidence, similar to a confessional booth almost).
Coincidentally, I met another young entrepreneur this week for the first time. He was all over the map: in addition to working a full time job, he was starting a new company and volunteering at several charities. Focus, I told him. (It is like that line about plastics in The Graduate. You don’t need to say anything more.)
In all my years of coaching and mentoring entrepreneurs, focus is Job 1. Not raising capital (although that can be tricky). Not hiring the right programmer (ditto), or building the right set of Web sites and social media entities, or nailing customer satisfaction, or the hundreds of other things that can swallow a startup and quickly sink it. It is staying focused. Take your eye off the ball, and someone takes your ball away.
Recently I had a conversation with the Director of a small business incubator in a community in Southwest Missouri. He described the wide variety of services that the incubator provided to entrepreneurs including a diverse slate of classes and workshops. I was surprised to learn that among the classes offered, which included accounting, Quickbooks, and social media, the only class that had no registrations (and presumably no interest) was the one on customer service.
Venture Advisors’ mentoring programs assist entrepreneurs with a wide range of issues that startup companies and growing businesses face. However, the majority of the discussion in mentoring meetings revolves around customers; how to identify them, how to acquire them, and how to keep them.
Several months ago in a mentoring meeting with a growing manufacturing company the owner brought up a customer service issue; the delivery to the customer was going to be late and the customer was very unhappy. One of the team’s mentors made a comment that has stuck with me: “It is not whether or not you will have problems or issues with customers, your reputation and success will really be dependant on how you deal with those problems and issues.” In other words, all businesses at some point will have customer service issues or problems.
In the case of this manufacturing firm the issue was created because of cash flow (or lack of it). While the team of mentors addressed the cash flow issue, most of the meeting was spent analyzing, discussing, and making suggestions on how to interact with customers; setting expectations, communication, honesty, and how to resolve complaints. As it turns out, the dissatisfied customer has been “turned around” and is now one of the company’s biggest cheerleaders.
One challenge that many entrepreneurs face is a failure to recognize that they have to satisfy multiple levels or categories of customers. For example, I used to work for a specialty confections company. Our customers (end users) purchased our cookies and candies to give as gifts or to consume themselves. However, we had thousands of retailers as customers too. We sold our products to the retailer who then sold our cookies and candies to their customers. The retailer’s needs were very different from the (end user) customer’s. The retailer, however, was our real customer since we were being paid by them, not the end user.
The point here is that both “customers” had very different needs and expectations toward service. We had to recognize what those priorities were and to fulfill those diverse expectations.
Perhaps the high failure rate among small businesses is a function of a lack of understanding by entrepreneurs of what constitutes customer service, or as stated earlier, how the entrepreneur deals with customer problems.
Business owners ranked third, behind physicians and K-12 teachers, in the Gallop-Healthways Well-Being Index. The Well-Being Index for physicians was 78.0, for K-12 teachers it was 73.5 and for business owners it was 73.4.
The index was based on 170,000 interviews conducted in 2012 and occupations were placed into 14 categories. The Index was comprised of 55 individual items that collectively measure Americans’ physical, emotional, and fiscal wellbeing.
Some other interesting findings from the survey include:
- 90% of business owners said they use their strengths to do what they do best every day, which ranked them fourth behind physicians; nurses; and teachers.
- 57.7% exercised 30 minutes at least 3 days per week, which ranked them fourth behind farming, fishing, and forestry; physicians; and construction and mining.
- 62.5% ate 5+ servings of produce 4+ days per week, which ranked them third behind nurses and teachers.
- 20.5% were obese, which ranked them thirteenth for being obese or second for not being obese, physicians were the least obese.
- 17.4% smoked, which ranked them in the middle of the groupings
So what does this say about entrepreneurs? Or what do entrepreneurs have in common with physicians and teachers? Education, motivation, determination, confidence, self-sufficiency…and they are generally physically and emotionally healthier? It kind of makes you want to start a business, doesn’t it?
A summary of the Gallup findings is here: http://www.gallup.com/poll/161324/physicians-lead-wellbeing-transportation-workers-lag.aspx?ref=image
Venture Advisors’ entrepreneurship program created 44 new, well paying jobs in Highland, Illinois in 2012. And they were created at a fraction of the cost of traditional business recruiting incentive programs.
Venture Advisors used an innovative approach in Highland, a community of 9500 that leveraged local resources to create quality, permanent jobs in manufacturing, service, retail, and professional services.
The credit for this achievement goes to the many people and entities in Highland that had the vision and leadership to recognize that Highland is an entrepreneurial community. Most of Highland’s successful business (and major employers) were started in Highland.
The Highland Entrepreneurship Program is really a community based program. Parties involved in its success include Mayor Joe Michaelis, City Manager Mark Latham, Economic Developer Kathleen Mulcrone, the Industrial Development Commission, the City Council, The Highland Chamber of Commerce, several of Highland’s banks, the many men and women who volunteer their time as business mentors, and, of course, the entrepreneurs.
Kudos to Highland Illinois, an entrepreneurial town.
Our society places a very high value on youth. In the entrepreneurial landscape that value is evident by the number and diversity of entrepreneurial programs and services targeted at “young people.” Some examples are:
- Most colleges and universities now have degree programs, certificates, or areas of emphasis in entrepreneurship.
- The many business plan competitions hosted or sponsored by colleges and universities.
- Many high schools are sponsoring competitions or other programs to interest students in entrepreneurship.
- Many business incubators and accelerators focus on young entrepreneurs. Some of these are affiliated with colleges and universities, others are not.
- And then there is Peter Thiel of PayPal fame, who pays young people to drop out of college to start businesses.
It’s all good.
I did a focus group recently in a rural community with group of business people. The objective of the focus group was to identify how to attract entrepreneurs to the community. There was much discussion about attracting college kids until one of the participants (a successful entrepreneur) said: “I didn’t even think about starting a business until I was in my 30’s.”
That got me thinking. Right out of college I tried to start a business that failed within a year. I didn’t have the capital and I didn’t have enough experience. And, I didn’t have the experience to raise the capital. I started my first successful business at age 32. I was 46 when I started the second one and I was 52 when I started the third.
When I consider the five dozen startup entrepreneurs I have worked with over the past few years, only a couple were twentysomethings. And those entrepreneurs had very steep experiential learning curves to get over.
Even in the tech arena, the few successful tech startups I have been exposed to in St. Louis were founded by entrepreneurs who were already past 30 (or maybe they just looked older).
I did, however, have the opportunity to work with a couple of college seniors who started a business (magazine publishing, if you can believe it) and upon graduation continued to grow the business. Fifteen months later they had to sell the company since both had been accepted to grad school and they couldn’t put it off any longer (I am sure their parents had something to say about it). One went to Harvard and the other went to Stamford. Significantly, they sold the business for 17 times earnings!
I suspect that they were both probably bored with their MBA coursework. They learned more starting a business than they ever would in a classroom. Would they have stayed in St. Louis? I don’t think so. One is headed to Wall Street and the other to Google.
The point here is that most of the successful entrepreneurs I have been exposed to were not college students or recent graduates; they are in their thirties, forties, and fifties. Maybe that is why it is so difficult for “young” startups to raise capital. The angel investors and VC’s realize that these kids, regardless of how great their idea is, need to get over the learning curve and that needs to be done on someone else’s nickel.