Building on Bedrock

by Derek Lidow

  The media’s concept of entrepreneurial social status relates directly to the instantaneous valuation of a startup. Unfortunately, this ideal leads many entrepreneurs to focus on starting businesses that will generate buzz in the press and be perceived as growing fast. In fact, much media attention gets lavished on entrepreneurs just because they raise lots of money. That attention encourages entrepreneurs to raise more than required, spend more than necessary, and to prioritize making investors happy by increasing their share price, rather than making customers so happy they buy and pay more. The perception that high-risk entrepreneurship increases social status is predicated on our society’s insistence on gauging social status according to size and wealth.

  This view also encourages many aspiring entrepreneurs to attempt an endeavor they consider attention-grabbing but do not have the skills to accomplish. Not surprisingly, they fail. Ironically, almost all these failed entrepreneurs had low-risk entrepreneurial opportunities to compete in the same industry they were interested in breaking into through much less risky but less “cool” pathways, which we’ll discuss further in the chapter on How Good.

  When I first began to teach, I would help any student or aspiring entrepreneur who came to me seeking advice. I made it a point to aid them in finding three or more solid ideas for creating rapidly growing, profitable businesses using the skills they had or thought they could easily acquire. But those meetings usually resulted in the student or would-be entrepreneur feeling frustrated. When asked “why,” the common refrain was, “The ideas aren’t cool enough—they’re too mundane.” “But what’s mundane about feeling fulfilled, being financially independent, and making scores of customers happy?” I would ask. It turns out that’s a hard question to answer accurately and sincerely, and it requires we understand “why” people really want to be an entrepreneur—the subject of the next chapter.

  * * *

  [3] This statement is not intended to imply that all entrepreneurial opportunities are easy to exploit.

  [4] A “variety” store was also referred to as a five and dime. These stores sold general merchandise that was not perishable, and they were the most common type of store until they were replaced by discount stores from the 1960s to 1980s. Many retail store chains in the US are still operated as franchises. ACE Hardware is an example of a franchised chain of stores today. Ben Franklin went bankrupt and ceased operating in 1996.

  CHAPTER 4:

  Why

  In spite of almost limitless entrepreneurial possibilities, there are relatively few reasons why you would want to dedicate yourself to becoming an entrepreneur. After all, entrepreneurship is risky, stressful, and all-consuming; it leaves little room for family and friends and usually sucks up all of your available cash. Nobody just wakes up one day effortlessly transformed into an entrepreneur. Without great sacrifice there will be no business of your own! So why do so many people try it? Do we so lust after fortune, fame, and independence that we’re willing to risk almost everything? You need a reason—and it must be a really good reason—to chase the dream.

  Do you understand why you want to be an entrepreneur?

  Over one million aspiring entrepreneurs every year in the United States do succeed in starting profitable enterprises. Their dreams were powerful enough to make them want to overcome the many obstacles they encountered. But about 70 percent of the people who actually become full-time entrepreneurs in a typical year abandon their efforts or do not make any money back whatsoever, wasting time and likely damaging close relationships. They claim a multitude of reasons and excuses for giving up on their dream, including it being more risky, stressful, expensive, and all-consuming than they thought. Some allege that something better came up. Some of these disappointments result from uncontrollable external forces all entrepreneurs are prey to: the economy, competitors, changing tastes, and much else. But often these misgivings and regrets result from not understanding the original dream itself.

  To become a happy and successful entrepreneur you must understand the nature of your entrepreneurial dream. Jordan Monkarsh was so driven to see his Sausage Kingdom succeed that he created a whole new persona, Jody Maroni, to encourage the world to embrace his products. He worked long hours. He burned himself countless times grilling his sausages and making his condiments. He didn’t make excuses; he was doing something too important to him, proving to himself that he could be as successful as his father.

  Picking up where we left off with Jordan’s story . . . After four years on Venice Beach, Jordan felt secure about his checking account balance. He was able to buy new awnings for the store every other year, and he was in a good position to afford college for his kids someday. So almost exactly four years after opening day, feeling great, with customers lined up to sample and to buy, Jordan thought to himself, “This is running smoothly, so what next?”

  Jordan couldn’t pin down the exact sequence of the thoughts that were running through his mind, but he was not thinking about making more money—he was already making more than he had ever dreamed. Rather, he felt a combination of boredom and pride. He had fans who were asking for more, and they would adore him more if he gave them more. Why not be in constant contact with his ardent fans by making sausages he could sell in supermarkets? He fell in love with the idea.

  Some entrepreneurs consider new opportunities by investigating them. But most entrepreneurs start by seeing how far they can go before hitting the proverbial brick wall. Jordan, when he decides what he wants, goes at it with all his heart and might, brick walls be damned.

  He began looking for a food factory that was for sale, affordable, and appropriate for making sausages. Because many entrepreneurs attempt food manufacturing, it’s not difficult to find gleaming stainless steel kitchens that a failed entrepreneur needs to unload. Jordan bought a small, former catering kitchen, but he needed a quarter million dollars’ worth of equipment to turn it into a sausage factory. Though his month-end bank balances continued to grow, they fell well short of a quarter million dollars. But because the Sausage Kingdom had been profitable from the day it opened, Jordan’s bank manager introduced him to someone who was willing to buy the required manufacturing equipment and lease it back to Jordan for an affordable monthly fee.

  Profitable entrepreneurs like Jordan can use de facto loans—that is, leases. They do not need venture capital (which I will treat more fully later), an uncommon form of financing that is unnecessarily expensive unless you need it to survive. Jordan didn’t need it and he was well advised by his bank manager to lease the equipment rather than selling an ownership stake to strangers and bringing them into the business.

  A quarter million dollars’ worth of equipment transformed the catering kitchen into a plant that could produce two tons of frozen sausages a week. Jordan recruited a friend with little factory management experience to help supervise the project. Yet again, permits and inspections caused months of delays. Before the factory could start to sell its output, Jordan had to spend much of the money in his bank account to pay for these unanticipated expenses.

  As he had suspected, the glorious reviews his sausages received from famous food critics, combined with the excitement his customers felt when he shared with them his aspiration of selling sausages in supermarkets, made it relatively easy to convince Trader Joe’s, then just a regional specialty food market, to offer his sausages along with their other frozen foods. So when the FDA finally permitted Jordan to ship his sausages, he had a big customer to ship to. And once again, almost immediately in fact, the month-end bank balances grew.

  On a Sunday afternoon, about the time Trader Joe’s started selling Jody Maroni sausages, a man paying for a spicy Italian sausage combo handed Jordan a business card with a Los Angeles Dodgers baseball team logo on it. The man asked if he could come by sometime the following week and talk to Jordan about an opportunity. When the gentleman visited again, he asked Jordan if he’d be interested in operating a sausage concession at Dodger Stadium—the equivalent to
being offered a chance at playing in the big leagues. If Jordan could do well at Dodger Stadium, he’d be able to market his brand nationally and open many more stands.

  But concessions at sports venues are expensive to run and not very profitable. Worse, after yet another run-in with health inspectors, Jordan learned that at Dodger Stadium he would not have a kitchen, which meant he would have to serve pre-cooked sausages. Getting warmed-up sausages to taste great long after they’ve been cooked is an entirely different ball game, so to speak, than making them to order. Jordan’s factory required some completely new types of expensive equipment, and he had to quickly learn the art and science of smoking meats in order to reformulate all the sausage flavors his fans expected. This turned out to be a great skill to master—over the next five years virtually every sport venue in Southern California contracted to offer Jody Maroni sausages.

  While Jordan was launching his brand at Dodger Stadium, another gentleman stopped by his Venice Beach stand and handed him a card with a Universal Studios logo on it. Universal planned to build a sprawling new theme mall at the entrance to its popular Universal Studio Tours, not far from the LA suburb where Jordan grew up. The Studio was trying to populate its mall with interesting and fun shops and restaurants, and they wanted a Jody Maroni’s Sausage Kingdom stand. The rent would be expensive, but Jordan was wowed by the presentation and felt proud that such a great brand wanted to be associated with his. He said yes on the spot. Fortunately, Universal would build the space for him, so Jordan wouldn’t have to borrow any money to make it happen.

  The stand, on the Universal Studios CityWalk, succeeded beyond Jordan and Universal management’s most optimistic projections, doing even more business than the Venice Beach location. Jordan felt good about all this business and his growing renown, but he was stressed by myriad problems. Appliances and machines broke down and had to be fixed immediately. He worried about hiring the right people for his factory and sausage stands and whether they were being trained as he wanted. Could he find a good backup for his supplier of chicken, who was turning flakey on him and missing deliveries? Could he negotiate an affordable new lease on his Venice Beach stand? And could he still take the time off to go with his family to Hawaii? Universal Studios was opening a new attraction and was expecting record crowds at CityWalk, and Jordan’s supervisor for that location was in the hospital recovering from a motorcycle accident. Fortunately, Jordan’s factory manager was doing a good job acquiring more customers for the sausage factory while expanding capacity to accommodate the demand from CityWalk. That part of the business, at least, was in good hands.

  Jordan remembers this time as the high point of his entrepreneurial career. He was making more money than he had ever dreamed. He had moved his family to a great home in one of his favorite LA suburbs. He was a local celebrity. He was able to help the causes he cared about. He loved his life and “selling joy.”

  Up to that point, Jordan’s fantastic run had been powered by his innovative sausages and his larger-than-life King of Sausages persona and brand. He had never taken a business course, and he didn’t know what a balance sheet was or why anyone would bother counting inventory. Jordan’s alter ego, Jody, was a people person, and the business he ran, Jody Maroni’s Sausage Kingdom, relied on people, not processes, for its success.

  Entrepreneurship researchers glean many of their insights about entrepreneurship by looking at what happens to some group of founders over a five-year period. What are the characteristics of those who survived versus those who did not? Other researchers study entrepreneurs who succeed at a particular moment and try to distill the common elements in their experiences. Eight years after Jordan had invested his modest savings in a food stand on Venice Beach, he would be considered by any researcher using any common standard, or anyone that knew him for that matter, to be a model entrepreneur.

  Managing a business that makes and offers over two dozen different types of sausage, some pre-cooked, some fresh, some frozen, at two high-turnover food stands, half a dozen sports venues, and several dozen supermarkets is much more complex than running a single food stand where you make fresh sausages in the kitchen every day. Not surprisingly, Jordan made some expensive inventory mistakes, resulting in meats and even frozen sausages spoiling because they were not consumed in a timely fashion. After wasting what just a few years before would have seemed like a life’s savings on bad inventory, Jordan finally taught himself inventory management, installed inventory tracking software, and trained some of his staff to use the software and take responsibility for processing orders to buy meat, schedule production, and control the inventory.

  Jordan, like many self-made entrepreneurs, wants to feel he understands all aspects of his business. “Teach me” is a phrase he used and uses when there is something important he doesn’t understand. But like other self-made entrepreneurs, Jordan didn’t and doesn’t want to take the time out of his hectic schedule to learn anything he doesn’t for-sure need to know. That’s a mindset that means mistakes will be made, and that as the business grows those mistakes will increase in size and costliness.

  There are many far less expensive ways to grow a business than learning through costly mistakes. But Jordan and many other entrepreneurs do not like conceding that they need help, particularly if they’re already making enough money or growing fast enough to keep themselves, their investors, and their banks happy. Most entrepreneurs regard their mistakes as one-time events. So they single-mindedly continue to focus on the customers who are asking for more, failing to consider how to handle the growing complexities of their businesses.

  All of Jordan’s behavior—working to expand, learning on the job, toiling tirelessly to train his team—was rooted in his desire to prove to his dad that he could be more successful, that he could make sausages that tasted better than anything his dad had produced, and that he could be as compassionate a boss. It was important enough for him to bet his life savings on it when he could have spent the money on a more comfortable lifestyle.

  The desire to impress his father also explains Jordan’s refusal to ask for help from more experienced advisors and mentors. Many people, not just Jordan, want to feel as though they can do it all themselves, rather than feel as though they need assistance. Jordan didn’t want to dilute the praise he would receive or the pride he’d feel for making it—he wanted to figure out what to do on his own.

  As long as the business continued to perform well, Jordan had proved to his satisfaction that he could run a successful business and gain his father’s admiration. He felt accomplished, contented—and a bit bored.

  Now another of Jordan’s strong inner desires came to the fore: his wish to be loved and admired for who he was. He felt deeply satisfied when people complimented him for his work, driving him to do all he could to get his product into the hands of as many people as possible. The praise also drove him to give money to causes he cared about. “I loved the populist aspect of my business,” he says.

  Wanting to be loved by scores of people, whether Jordan realized it or not, led him to focus on actions that could bring him more recognition, sometimes to the detriment of making more money or reducing the risk of losing money. He fervently wanted to accept the high-profile expansion opportunities that were presented to him, even if they might be financially risky. Looking too deeply into the problems and potential risks associated with expansion could get in the way of reaching more fans. Besides, Jordan felt he could solve any problem that popped up, whether he had anticipated it or not.

  Getting Below the Surface

  Jordan did not understand the true nature of his dreams—his motivations—until decades after he founded the Sausage Kingdom. The fact is that most aspiring entrepreneurs do not understand the real reason they want to endure the traumas of starting a business—to their detriment. There is always a public explanation that people tell themselves and others about why they chose to be an entrepreneur. And then there is almost always a private reason, a reason that
is sometimes so private and emotional that the entrepreneur may not acknowledge it or even realize it, let alone admit it to anyone else. As it is true for all of us, it is always the private reasons that drive our actions, particularly our entrepreneurial actions.

  To better understand reasons that work and don’t work for being an entrepreneur, it helps to invoke some key insights and findings about motivation from the field of psychology. Motivations are the mental processes that lead to us to take action—all action. Fortunately, thousands of studies, led by many brilliant researchers, have yielded valuable insights on why we do what we do, and why we do some things with more determination, passion, and intensity than others.

  More specifically, motivations are the mental processes that determine what actions we will take to improve our state-of-mind, i.e., our well-being. We act in order to get what we desire or to alleviate some fear or discomfort. All our actions, all of the time, are ultimately driven by selfish motives—to improve how we feel about ourselves and our status in the world.

  We all have a long list of desires, while at the same time we try to steer clear of our fears and any discomfort. Motivation—how our brain decides to take the actions it takes—is therefore an extremely complex process. But we can say that generally, our brain prioritizes actions to eliminate profound fears before it takes any other actions to achieve a desire, even an intense desire like sex. Once fears are under control, our motivations then shift toward achieving our desires, whatever they may be. We differ greatly on the relative importance of our desires, each of us making our own trade-offs between immediate pleasure and long-term feelings of well-being and purpose.

  To understand our real motivations for wanting to be an entrepreneur, we need to home in on what we selfishly want most. Only those particular desires or protections from specific fears can drive the consistent long-term actions that will make us successful and satisfied entrepreneurs. First, we need to understand the difference between implicit and explicit motivations.[5]