I recently spoke with one of my longtime mentors. He is a successful serial entrepreneur. His name is Jim Hazboun and he is a senior executive at a large global company. He and I talked about two critical things no one tells you about becoming an entrepreneur and building a business, specifically the importance of having a compelling “why” for what you’re doing, as well as making an honest assessment of yourself, of how good you are and where are your shortcomings.
Even if you go through those two “issues” successfully, being an entrepreneur is not for the weak. So why do some startups fail where others succeed and grow sustainably?
I asked Jim what are the most common reasons for business failure and what are the key things every entrepreneur must do to have a chance of success.
The three most common reasons for failure.
This is what Jim sees all the time that makes good companies fail:
1. Bad execution.
You may have the best idea in the world, but you have to execute it well to get results. Innovation and execution are very different skill sets, and we sometimes think that having one means we’ll be good at the other.
2. Bad financial management.
Entrepreneurs need to know their finances and numbers in their entirety. Many businesses fail due to poor financial management. Even if your business is growing, it can still fail if you don’t manage cash flows and have enough working capital.
As another mentor of mine used to tell me:
“At this point in the game, who cares how good your P&L is? If your cash flow isn’t good, you’re done.”
3. Lack of essential entrepreneurial skills.
Many fail due to a lack of work ethic, sales skills, and social skills. Many also don’t have the emotional fortitude or patience to stay the course in difficult times. Finally, pride and arrogance have led many to failure.
So I asked Jim for advice on how to get started in a way that mitigates those three common mistakes.
The five things you must do.
Here are the five really important strategies to keep in mind:
1. Start your business smart.
This advice is not glamorous and may even go against what you may be hearing from others, who may say that if you really believe you can, sell everything you have to finance.
Jim told me in no uncertain terms:
“Never mortgage your house!”
Today, more than ever, there are a number of financing options available to the true entrepreneur. Jim prefers to use lower-risk sources, like loans or crowdfunding sites like GoFundMe or KickStarter, for starting. While you should “get excited,” Jim talks about how important it is to be sensible and set yourself up for both financial success and failure.
2. Side business.
Many entrepreneurs were able to create businesses by starting them as a side business. I personally did it this way as it’s a great way to help mitigate risk. Jim is a big advocate of starting your business while working for someone else. The key is to avoid conflicts of interest and ensure that you are delivering exceptional value to your employer at the same time.
3. Do your homework.
While starting a business is risky, good preparation helps reduce risk and positions you for success. This is where Jim says something of great importance:
“If you have a new business idea that no one else is doing, you should actually worry a little bit.”
That may seem counter-intuitive and like it goes against the spirit of innovation and ingenuity. This is what Jim has to say about it:
“Unless you’ve patented a brilliant new technology or great product, you’ll want to see that other entrepreneurs are already in the business you’re considering. If you follow the adoption curve, you ideally want to be an ‘early adopter’ or a ‘fast follower.’”
There is always the danger of being the innovator. Innovators don’t always survive because they spend all their fuel trying to help consumers understand the ‘new’.
Look at some of the biggest commercial successes like Google, Apple and Facebook. They were not the innovators. There were other search engines, computer companies, and social media. These guys were the “fast followers” who honed the idea and executed it better than anyone.”
4. Take the time to build a solid business plan.
Spend time on a comprehensive business plan. Going through this process will help you address the key areas needed to start and run your business successfully. It will also force you to face any confirmation bias you may have—that psychological thing we all do when we believe what we want to believe and ignore the rest.
5. Surround yourself with others who believe in you, but who will also give you “sincere encouragement.”
You don’t want to surround yourself only with people who say “yes” to you. But you also don’t want to be surrounded by negative and toxic people (Click here to find out how to handle them). Surround yourself with people you can trust.
And remember, if you are really interested in creating your own business, you can purchase our book “How to create a company while working: Discover how to manage your time, manage your money and motivate yourself while creating a company and working for another” , where you will find all the information you need to found your own company, without having to leave your job.
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