The most successful entrepreneurs look at how businesses operate, study internal processes, team dynamics, relationships and the mistakes people make. They’re never satisfied with the way things are, just because they’ve always been that way. It’s the same for you. Your entrepreneurial journey starts with questioning everything in existence.
Entrepreneurship is risky. So is nine to five.
Even if you’re fortunate enough to land a stable job at a good company, you’re always at the whim of a bad boss. On top of that, you can’t sell a job or pass it along to your generations. Successful business on the other hand can warrant income and security even in your retirement days. Not only that, it can outlive you.
Look out for opportunities.
If you’ve ever sat next to a food truck and counted the number of patrons purchasing food and then multiplied this by the average amount spent and then extrapolated what the business owner would earn in a typical lunch period, you’re probably an entrepreneur. Natural entrepreneurs are curious, constantly questioning and challenging the status quo.
Projections mean nothing without an action plan.
Inflated numbers and unrealistic graphs mean nothing if you haven’t done your homework and are unwilling to put in the action.
Don’t go to a fundraising pitch without three things.
Executive Summary: This is a one or two-page summary of your business concept, the industry, your market and the highlights of how your business will operate. The executive summary gives the investors a quick glimpse into what your business is about.
Profit and Loss Statement (Income Statement): This is a one-page assessment that gives investors insights into your financials.
Human Resources (Personnel): Investors want to know whether both you and your management team has product and market knowledge to achieve the returns they’re looking for.
Understand the financial statements.
The Balance Sheet: A balance sheet is a snapshot of your business at a set moment in time. Your balance sheet shows your assets (cash, accounts receivable, inventory, prepaid expenses, furniture, equipment, etc.) and liabilities (accounts payable, unpaid expenses, etc.).
If you take your assets and subtract your liabilities, you have your company’s ‘net worth’. Your net worth contains the profits you’ve made and money you or your shareholders have invested. This snapshot can be taken at any time.
The Profit and Loss Statement: Also known as the income statement. This is a recap (either a month, a quarter or a year) of all the revenues you brought into the company and all the expenses you incurred in maintaining your business. The difference between the two is either your profit or your loss.
Cash Flow Spreadsheet of Forecast: A cash flow forecast predicts the company’s monthly revenue and expenses over a period of time, usually twelve months. It shows your monthly opening bank balance, revnees, expenses and monthly closing balance. Revenue predictions are usually based on your sales forecasts. A cash flow forecast is a useful tool both for monitoring your company’s performance and for identifying your cash requirements ahead of time.
Six key questions to ask before starting your venture
- Is your market large enough?
- Can you make a decent profit margin?
- Can your company deliver?
- Is it short-lived or sustainable?
- Do you have enough capital?
- Can you keep up with technological changes?
Question #1 Is your market large enough?
Many entrepreneurs tend to overestimate the market because optimism is built into their genes. Optimism it turns out is a double-edged sword. Optimism is a good trait for an entrepreneur that led them thinking about taking a risk in the first place. But being overly optimistic leads to inflated revenue expectations which never materialize and gradually endanger the entire business.
Question #2 Can you make a decent profit margin?
One mistake some entrepreneurs make is failing to negotiate for lower costs and find creative ways to increase production efficiency. Being resourceful on raw materials or other variable costs is a great way to increase your margins.
Question #3 Can your company deliver?
Before you commit, take a close look at every step of the value delivery process. Not only do you need to have suppliers and employees lined up, you also need a backup strategy should one of them let you down. Carry a detailed risk analysis by considering everything that could go wrong.
Question #4 Is it short-lived or sustainable?
Gluten-free products were all but unheard of a few years ago. Take a look at them today. They’re all big sellers occupying the shelves of almost every supermarket. Consumer products and services have a shelf life, some longer than others. Choose one with a longer shelf life.
Question #5 Do you have enough capital?
You don’t need to master the formulas. A decent calculator or app will do the job. Don’t make the mistake of starting out undercapitalized. You can bootstrap a business but you’re reducing your chances of success significantly.
Question #6 Can you keep up with technological change?
Technology is constantly leapfrogging itself. If technology is the key driver of your business, you need to be aware of astounding changes in technology and both the benefits and downsides it entails.
Objections are opportunities for growth.
Objections hurt. But instead of taking it personal and feeling offended, take this as an opportunity to get better, and train yourself to be ready next time. It sounds cliche but preparation is key. Decide ahead of time how you will answer each and every concern a potential buyer might have.
Use trial closes.
“We could start this service next week if you like… or we could deliver your order the week after next. Will that work for you?” This is a trial close in effect. The question encourages the buyer to raise any remaining objections about your product, and helps you see if the buyer is close to making a decision.
Silence is golden.
Whether in an interview or negotiation room, let the other person talk and when they stop, don’t say a word. Usually they will fill in the silence because most people are uncomfortable with it. Pay attention to what they say next. It might turn the whole interview into negative or positive territory. Tom calls this the ‘pregnant pause’. The pregnant pause is the most effective tool while you’re interviewing or negotiating with people.
What can you do if you’re targeted with the pregnant pause? The best thing you can do is to shut your mouth. Try to outlast the silence. It’s tempting to fill the void but if you don’t and someone else does, you can learn a lot of useful information.
“Let the silence hang, and more often than not, you will get the outcome you desire.”
Don’t just watch. Observe.
Observe how people handle themselves throughout the interview. The conventional wisdom ‘hire for attitude and train for skill’ holds true. Tom would pay attention to the candidates’ manners in an interview room. He would ask his assistant to bring him beverages for the candidates and observe whether they display common courtesy by saying ‘thank you’. After the interview, he watches to see if they leave the glass for someone to clear away. Finally do they push their chair back in? These small gestures of basic civility and respect can tell a lot about the candidate.
Looking for a reference check.
HR departments have been trained to lie or at least obfuscate the truth. Legally they have to be careful about what information they provide to you regarding an ex-employee. But there’s a simple and effective question they can answer and that is “Would you rehire this person?”
Grow to stop negative energy from spreading.
Many entrepreneurs and business owners ask Tom how they can stop negative energy from taking hold in their company. When people are happy and busy, politics are reduced to a minimum. There’s little time for backstabbing. When things are stagnant, people get stressed. They get too competitive to fight over a small pond of opportunities.
Leadership boils down to four steps.
- Create the vision.
- Sell the vision.
- Execute the vision.
- Monitor the results.
Effective leaders can sell their vision so strongly to get honest and enthusiastic buy-in from top management who can then sell the vision down the line and get everyone behind the vision to execute. Remember, communication remains one of the biggest complaints put forward by employees.
“Leadership takes many forms, but in essence you have to take a step back and put the needs of your company, customers, shareholders and employees first.”
Learn to negotiate.
There are many great books about the art of negotiation But when you strip away the smoke and mirrors, it’s simply about ‘finding the sweet spot where both parties feel they get a good deal’. Anything else is fool’s gold.
Here are some negotiation books I personally recommend.
Don’t underestimate the power of a good name.
When entrepreneurs can’t think of a good name, they tend to use their name and attach ‘and Associates’, which Tom suggests you to avoid. It doesn’t sound as professional as you might think and can appear a little fake.
Define your work-life balance.
Work-life balance has become a big thing in business in recent years. There’s no point being successful and having no one with whom to share that success. Find your sweet spot between working hard to build your business and providing a better standard of living for your family.