How to be an entrepreneur
or “If I knew then what I know now (Part 1)”
You have an idea. You quit your job to work on it. It changes the world and makes you a whole load of money. Easy.
That’s pretty much what I thought until I knew better. Here’s what a year learning about Entrepreneurship has taught me.
The Entrepreneur’s Delusion
Nowadays it seems everyone is — or wants to be — a “tech entrepreneur” (me included!). People may be driven by the idea of executing a world-changing product, being their own boss, or making oodles of cash before turning 40. It might be down to the effect of TV shows such as Dragon’s Den, Shark Tank and The Apprentice. Perhaps people aspire to the rags-to-riches (or sometimes riches-to-more-riches) stories of well-known entrepreneurs and their well-known businesses. Branson, Jobs, Musk, Gates, etc. have a lot to answer for.
Anyone can have an idea for a hot new app/website/whatever, build it, and watch it become the “Uber for <insert idea here>”. Right?
Wrong. This is the delusion of the wannabe entrepreneur.
As an aside, fans of South Park may remember the entrepreneurs-in-residence, the Underpants Gnomes who steal underpants because “stealing underpants big business” and business is “what gnomes do”! They suffer from a particularly bad case of the entrepreneur’s delusion.
The Entrepreneur’s Reality
While it is true that it is easier than ever to start a business, getting it off the ground — and, importantly, keeping it in the air — is not in the slightest bit easy.
Having a “good” idea is just the beginning. It is one of many pre-requisites that gets you to the starting line of entrepreneurship. But there is no shortage of ideas; ideas are 10-a-penny. So what makes a “good” idea and — more importantly — a successful entrepreneur?
“Execution!” I hear you shout, throwing a Steve Jobs, Chris Sacca or Michael Dell quote at me.
“To me, ideas are worth nothing unless executed. They are just a multiplier. Execution is worth millions.”— Steve Jobs
“Ideas are commodity. Execution of them is not.”— Michael Dell
Yes, execution is important. But how does an entrepreneur know where or what to execute on so that their time isn’t wasted?
More important than the execution are two things the successful entrepreneur focuses on: the customer and their problem. Unless the idea solves a big problem for potential customers, it is not worth pursuing.
Once our budding entrepreneur has a grasp of a real customer problem, only then can they think about execution.
So, the first step of an entrepreneur is not to have an idea, it is to identify a customer problem.
The Entrepreneur’s Journey
The entrepreneur’s goal is to create a sustainable business model with a product or service that solves the customer problem. Beware the “build it and they will come” mentality of our deluded entrepreneur; solving the problem may sound (or indeed, be) straightforward, but just as Frodo had barely started his journey once he left the Shire with the Ring, the entrepreneur has a very long road ahead, perhaps involving less orcs.
Where should our entrepreneur start? Let’s work backwards:
- Creating a sustainable (value-generating, revenue-generating and, ideally, profitable) business model is the objective.
- You can’t have a sustainable business model without a market of potential customers, some of which need to be paying customers.
- You can’t get paying customers without a decent product and value proposition.
- You can’t build a decent product without a talented team.
- You can’t hire the right team without some finance; usually a capital investment.
[Aaaah… money leads to more money. Capitalism at work!]
The entrepreneur’s day-job is to navigate this dependency chain: raise finance… to hire a team… to build a product… to serve customers… to generate revenue. These five areas are what the entrepreneur needs to focus on, although not always in equal measure as the venture grows.
Success doesn’t happen overnight; the journey is a gradual and iterative process. The phases of a startup venture are typically denoted by achieving common milestones (as described in The Lean Startup). As money is often king, these phases are often mapped to financing rounds as a validation of achievement:
- Problem Validation: The entrepreneur identifies customers with large problems that need solving (typically “bootstrapped” — i.e. self-financed).
- Problem-Solution Fit: The entrepreneur gathers and organises the resources to solve the customer problem (may require “pre-seed” investment).
- Product-Market Fit: The startup venture meets a market need with its value proposition (typically requires “seed” or “angel” investment).
- Scaling: The venture grows into a sustainable, profitable business (typically requires “Series A” and further rounds of investment).
- Exit: The end-game; the venture is acquired by an established business, or starts selling shares publicly (an IPO).
There are many pitfalls at each stage. Over 90% of startups fail and there are many potential reasons why startup ventures do not take off, or, if they do leave the ground, they don’t fly for very long before experiencing turbulence and coming back down to earth — sometimes with a crash. In most cases, the reasons for failure are nothing to do with the “good”-ness of the idea, or even the quality of the product or service. CB Insights identify 20 reasons why startups fail; these can be boiled down to our 5 focus areas: finance, team (and management), product, marketing (and customers) and business model.
At each stage, the entrepreneur takes an incremental step down each path: raising more finance (if required), to hire more people, to develop the product, to market to more customers, to generate more revenue. So, here’s what a typical entrepreneurial journey looks like, in a handy — and shareable ;-) — infographic.
A successful exit — either an acquisition or an IPO — is the most ideal outcome for a startup venture. Exit seems a long way off when at the beginning of the journey, and there are many other potential outcomes and, as we have seen, many potential reasons for failure.
Clearly, it is a lot more than a good idea that defines a startup venture’s success. Being a successful entrepreneur requires dedication, focus, a lot of hard work, support from the right people, and more than a teaspoon of luck.
Some final thoughts:
- Execution is important, but a successful entrepreneur must be able to navigate all areas of business, avoiding the many pitfalls.
- The entrepreneur must demonstrate success at each stage of their venture’s development to move to the next stage.
- The path each venture takes will be different. There is no methodology or silver bullet that can guarantee success.
- Entrepreneurship is not an easy ride. The journey is tough; perhaps the hardest thing most of us will contemplate in life.
But for those of us on the journey, it is worth it. Good luck to the entrepreneurs!
Suggestions and comments are very welcome. Many thanks to those who have contributed to this article, the infographic and my understanding of entrepreneurship.
There are very many excellent resources on the topics raised in this article, and entrepreneurship in general — the “essential reading” is linked-to in the infographic above. I would advise anyone interested in entrepreneurship — particularly those that think they have a great idea — to read these in particular before setting off on their own entrepreneurial journey: