When Should Start-Ups Get Accountants
WHEN SHOULD START-UPS GET ACCOUNTANTS
I actually consider this a somewhat short-sighted question. To explain why, let me give a brief answer, then explain my thinking. So, here’s the answer — ‘they shouldn’t.’
Now, I know that doesn’t seem to make sense, so let’s extend it out further — you see, the reason I don’t think start-ups should get an accountant is that they should already have one! By that I mean the entrepreneur(s) should involve a good accountant right from the inception, before the idea (*) transitions to a startup.
(*) As Michael Gerber says in his classic book ‘The E Myth’:
Let’s pick up on what he’s saying here because there are two things:
- Most entrepreneurs are merely technicians with an entrepreneurial seizure, and
- Most entrepreneurs fail because you are working IN your business rather than ON your business.
Leaving aside the apparent generalization contained in his statements, with all it’s potential for causing upset, we’ll move on to discussing what the two statements mean.
Technicians with an Entrepreneurial Seizure
What does he mean by this? Once again there are two parts:
- Technicians, and
- Entrepreneurial seizure.
Technician
First, let’s look at the definition of ‘technician’. Here’s what the Merriam-Webster dictionary says:
A technician is:
- A specialist in the technical details of a subject or occupation;
- One who has acquired the technique of an art or other specialization.
As you can see, there’s absolutely nothing wrong with being a technician, especially a good one.
Entrepreneurial seizure
Given it was Gerber who espoused this term, we must look to him for the definition, which he gives as:
“The moment the entrepreneur decides it would be a great idea to start his or her own business.”
Obviously, this moment must exist, or else no business would never happen.
So, what is Gerber getting at? Let’s look at another quote from him, then discuss this further:
You see, his point is that so often someone:
- Who’s really good at doing some task, or process, or whatever (i.e. they’re a technician) — but not usually at business in general,
- Decides they could earn more, have more spare time and have more control over their lives if they set up in business on their own account (~),
- Hands in their notice without much further thought, and
- Starts their business.
(~) Often referred to as TCM, or time, control, and money.
In short, what he’s saying is that they have entrepreneurial seizure, and start-up their business without much business preparation. The fact is that a successful business doesn’t just happen overnight. No, to be successful — to be one of the 5% that don’t fail within the first 5 years — the budding entrepreneur must first put time and effort into considering all sorts of factors. Then, and only then — if the advice they get, and the numbers they’ve prepared all stack up — they should start the business.
As we discuss the second part of Gerber’s original statement, we’ll cover off those factors I mention.
Failure from working IN the business rather than ON the business
This failure doesn’t necessarily mean the business fails although, sadly, so often it is a root cause of this. No, it can simply mean failing to live up to the potential of the business. Or the original expectation of the entrepreneur — particularly in relation to TCM, as mentioned earlier.
But Gerber’s point here is that entrepreneurs — technicians in particular — get caught up in the day-to-day nitty-gritty detail of the business that they lose sight of the bigger picture. I.e. they don’t realize their TCM expectations are going down the gurgler. In part, as Gerber so bluntly says, it is because they have no idea how to run the business. But to a large extent, as Gerber discusses in his book, they simply keep falling back into their technician — do the grunt work — habit, and pay no heed to what the business needs holistically.
In other words, they continue to work IN the business, rather than ON the business. Now Gerber goes on to say that technicians are necessary — every business needs them. However, there are other hats that must be worn. One of these is, ironically, entrepreneur — the visionary who sets the goals for which the business is to aim. But there must also be the manager — the one who manages the technicians in such a way as to deliver on the strategies determined as the way to achieve those goals.
Between these hats — in particular, the latter two — it is essential that what Gerber calls working ON the business is covered. What does he mean by this? He means — and it’s perhaps the most important part of any business — that a watchful eye must be kept at all times on:
- The performance of the business:
- a) Financial performance (!),
- b) Performance in non-financial KPIs (!), including:
- i/ Customer satisfaction,
- ii/ Employee satisfaction,
- iii/ Supplier satisfaction,
- iv/ Product quality,
- v/ On-time delivery,
- vi/ Market share,
- vii/ Systems efficiency, and
- viii/ Productivity;
- Opportunities faced by the business;
- Challenges/threats the business faces, or will face;
- Enhancing advantages the business has (over the competition);
- Innovation — of product, service, or systems.
(!) This also involves drilling down to determine the causes of the results being achieved, so that good performance can be repeated (or even enhanced) and poorer results can be improved.
As part of all of this, you can see that this watchful eye, this working ON the business involves making sure the business is actually achieving its business plan, is heading towards those goals that were identified. And this is where the technician entrepreneurs tend to fail. Most never set up a business plan in the first place — the business was set up as a result of an entrepreneurial seizure, after all! And then they tend to get stuck IN the business, so continue slaving at the daily grind, often with a sneaking suspicion (constantly buried deep within their busyness) that at a high level — the working ON the business level — things are not going right.
So, what must be done? Well, obviously, there must be a business plan — in order for an eye to be kept on how well it is being achieved. And this business plan, when should it be put together? Before start-up!
And who should be involved in putting the business plan together? The entrepreneur alone? No, here’s where, as I’ve so often said, the experts need to be allowed to use their expertise. It’s here I admit that you can argue that accountants are technicians.
You see, they know how to do this kind of thing! They know how to keep an eye on performance, and all those other things needed in working ON the business. So, the entrepreneur, before giving in to their seizure, should first find themselves a good accountant. Then work with them on the business plan.
Yes, they will likely need some other experts to cover off the full gamut of the business plan work — e.g. establishing that there is actually a market for whatever is proposed. But their accountant is the start. But that’s not the end of the business’ need for an accountant — and I’m not referring to the accounts. No, I’m referring to having the accountant in the working ON the business team — letting them bring their ‘outside eyes’, as I call them to bear upon the various areas that must be watched in order to achieve that business plan, to reach those goals that the entrepreneur set out to attain right at the beginning.
All of this is a very long way of saying that start-ups should ‘get an accountant’ before they are start-ups!
A final word of caution — it is possible that involving the accountant, or any other expert, for that matter may mean that the business never becomes a start-up. This is because their business understanding, combined with the process of business planning may identify that, in fact, there is no substance (or at least insufficient substance) to the perceived business opportunity. That will, of course, save the potential entrepreneur from a whole lot of lost money and stress in their future. Well worth the money, I’d say!
This post was first published at www.beanstalkknowhow.com on October 22, 2019.
