by Derek Lidow
Learn your leadership skills in a culture that embraces and succeeds at innovation and change. Avoid organizations, large or small, that have highly regimented cultures. If you learn management skills in such a culture, you will develop the wrong instincts, which could take years to unlearn.
Develop and practice your leadership skills anywhere. Even if you have never led a team or organization you can always find ways to lead people in the same way entrepreneurs do. Some of these exercises were described in the chapter “How Good.”
There is not necessarily a clear-cut answer to the question of where to locate your business. But there are a number of critical factors you should weigh:
Vibrant entrepreneurial ecosystems (VEEs) are everywhere, but not for everyone. Each VEE offers significant advantages to certain types of businesses through a combination of preferential access to customers, talent, technology, and/or supply chains, as well as cultural expectations that help shape beneficial business behaviors—but almost always at significantly higher costs. VEEs are therefore an entrepreneurial drag on businesses that cannot or do not leverage the preferential access or the cultural norms.
For most industries, no vibrant ecosystem exists. Of the more than 1,000 distinct industries tracked by the US government, most can be entered from almost anywhere in the country without any competitive advantage or disadvantage. In my case, I started an information business where the location ultimately didn’t matter.
Most bedrock entrepreneurs prefer to locate near their homes, families, and friends. The emotional support can be invaluable during such a stressful time.
Once you’ve weighed all of these factors, the question becomes when to start your business, the subject of the next chapter.
CHAPTER 10:
When
“I just thought of this wonderful idea and I need to start a company to capitalize on it. What should I do next?” I am frequently asked this question. Most aspiring entrepreneurs assume that an exciting idea is the “trigger” to starting a company. As we’ve seen, the notion that great ideas make successful entrepreneurs is a myth. It is therefore incorrect and dangerous to assume that the answer to “when” is whenever you come up with a great idea.
I’m frequently asked other questions about the right time to found a startup: “Should I drop out of school? Should I wait until after my toddlers are in school or until I learn more about business, become more expert in my field, or find a complementary co-founder?” These questions, too, miss the point. In essence, if you ask any form of the “when should I be an entrepreneur” question, then you’ve already started. In the act of asking the question, you’ve already answered it: now.
Ray Kroc never asked “when?” He was fifty-two years old when he decided to change his life. He was already an entrepreneur—he and a secretary constituted both employees of a company that sold milkshake blenders. In his late thirties, Ray had felt under-appreciated by his bosses for his ability to sell Dixie paper cups, so he decided to leave the company and be his own boss. As a great salesperson, Ray knew lots of people in the food and food service business, particularly in the upper Midwest. He began to take note of things his customers did that he thought could be sold to others. One of Ray’s customers for paper cups had been White Castle, one of the original off-the-highway multi-location restaurant chains. One of its founders had invented soft-serve ice cream. The popularity of soft-serve ice cream quickly increased the demand for milkshakes, and the increased demand for milkshakes led the inventor to develop a high-volume milkshake blender. Ray saw the opportunity to sell soft-serve ice cream makers around the country, but the White Castle owners wanted to keep that innovation exclusively for themselves. They suggested instead that Ray sell the patented blender. Eager to be his own boss, Ray agreed, confident that he could sell a blender to every diner and soda fountain in the country. He started a company whose sole business was selling the milkshake blender. Over the next fifteen years he sold the unit to just about everyone who could possibly need one. Milkshake blenders are a niche and limited market, and after fifteen years, the business was well past its peak and in decline.
At the age of fifty-two, Ray knew he had to find something else to sell or he’d slowly go bankrupt. A few years before he had bought the rights to a folding table design he thought he could make and market. But the table proved too expensive to produce and too heavy to be portable, and Ray was forced to scrap the idea.
Though he was now perpetually in a bad mood, Ray still travelled constantly to meet prospective and existing milkshake blender customers, even though the travel resulted in fewer and fewer sales. It was nevertheless natural for Ray to have wound up in San Bernardino, California, to visit his biggest customer, the McDonald brothers. The brothers had developed what was then an already famous method for producing high volume hamburgers. During his visit, Ray was awestruck by what he saw: the McDonald brothers were serving hamburgers and milkshakes ten times faster than he had ever observed in any other restaurant he’d visited.
Immediately Ray felt he knew how to change his life. His experience selling blenders and paper cups had given him complete confidence that he was a good judge of which restaurants could make money and which could not. He decided then he’d do whatever was needed to convince the McDonald brothers to let him open up large numbers of McDonald’s all over the country. The next day, Ray went back to sell the McDonald brothers on the idea of making him their exclusive licensing agent for their fast food method—basically the same deal he had for selling the patented blender. The brothers were impressed with Ray’s decades of experience selling blenders. Furthermore, the person who they had employed to handle the flood of franchise requests they received had just had a heart attack. Nonetheless, Ray was forced to accept the brothers’ onerous take-it-or-leave-it terms to get an exclusive agreement. Deal in hand, Ray felt he was ready to move into the food service industry equivalent of the big leagues.
Ray Kroc serves as an excellent example of how a lifetime of experience can prepare us to be successful entrepreneurs. All the entrepreneurs profiled in this book were constantly testing themselves to see what they felt confident they could accomplish. Ken Marlin tested himself when he joined the marines, again when he joined D&B, and again when he bought the company from the Swiss. Stephanie DiMarco tested herself in finding a computer science partner and then producing a program that her boss liked to use.
Estée Lauder first learned how to sell, then how to make creams, and then how and where to market beauty creams before she borrowed money from friends and family to start Estée Lauder. Walt Disney tested to see if he could get a customer before starting Laugh-O-Gram and again before starting Disney Brothers Studios.
In entrepreneurship, when is always and when is always experiment now. Recall the Austrian School’s definition of entrepreneurship from the start of chapter 2: we are all entrepreneurs because all people who support themselves continually assess their risks and accordingly make decisions about what to do next. Even if you choose not to use their definition, their observation is valid—we are always assessing our entrepreneurial opportunities whether we realize it or not.
Sam Walton didn’t know he wanted to go into retailing as a college student. He didn’t figure that out until after he had worked at J. C. Penney and after he had found a supportive partner in his wife Helen. But throughout college Sam had pushed himself to be the leader of every organization he belonged to, all the while keeping up his childhood newspaper delivery business by hiring other kids to help. Sam was always testing himself to see how much of an impact he could have on the people around him. Whether he realized it or not, he had been preparing to be an entrepreneur since he was a teenager—as do we all! Sam just prepared much more effectively than anyone else.
Entrepreneurship opportunities are always opening and closing. The opportunity to meet potential partners, customers, suppliers, or people willing to loan you money could come at any time. The same goes for market openings. Every
company in existence is constantly buffeted by change, and large organizations change more slowly than their markets or slower than the technologies that could be put to use in those markets. Established companies are regularly cutting back on their services and making customers unhappy, thereby opening up an opportunity for entrepreneurs to take customers by providing better service. The status quo is constantly challenged, if not by some new technology, then by changing tastes, new markets, evolving supply chains, and shifting demographics. When it comes to change that opens up opportunities, our digital age is nothing new.
Mapping Out a Starting Point
Just asking any question about when you should consider being an entrepreneur means you want to be an entrepreneur. Your journey has already started. That doesn’t mean quitting your job to start a company right away. But it does mean that once you’ve asked the question, your responsibility to yourself is to be deliberate about mapping out your entrepreneurial journey—even if you don’t know where you’re going yet. If you do not have the motivation to be deliberate about mapping out your journey, then you likely do not have the motivation you will need to succeed.
Start by writing down your ideas for getting the skills you think you’ll need, how you’ll test these skills to make sure you are good enough, and then how you’ll collect enough of the necessary assets that we discussed in chapter 8. Think of this list as a list of experiments. Experiments are not something that succeed or fail. They are deliberate, thoughtful steps you take to acquire information that you did not have. These experiments will give you new information that is valuable enough that you’re willing to spend the time, and maybe a bit of money, to conduct them. Whatever you discover makes you more knowledgeable about the opportunities available to you and thereby increases the chances of your seizing them. These experiments reduce your risk, although they could also lead to the conclusion that you need to do another experiment.
I strongly advise against taking this journey alone, but most people do and many of them still succeed. Nor am I advising you to find a partner or a stranger to give you money. The fact remains that no one is ever the best person to know what he or she is capable of doing. Because we are all programmed to fabricate stories that make us feel the way we want to feel about ourselves, we are best served by finding objective sounding boards for our ideas.
I suggest assembling an informal council of role models—people whom you respect for what they’ve done with their lives. Invite them over for a meal or set up an equivalently respectful way for you to spend time with them. Devote the evening to asking them about why they did what they did. Ask them their advice on how to get where you want to go. Write down what they say because it can help sketch in a big part of that map you need to make. Ideally, your council will tell you things you did not know and will give you advice you did not know you needed.
Sam Walton’s council consisted of his wife and her father. Helen was ambitious and smart and saw the world from a more practical perspective than her ever-optimistic husband. Helen’s dad was a financially savvy small-town lawyer and rancher. Their advice proved pivotal to Sam’s entrepreneurial success.
Helen, as we noted, steered Sam away from having a partner and from opening a store with that partner in St. Louis. Her dad helped Sam understand his financial options, including immediately creating a family corporation that would own the shares of the stores he would open. Instead of Sam and Helen directly owning stores or any shares in Walmart, a family-controlled corporation held the shares, providing far greater flexibility as to when and how they received taxable income. This structure made it possible for their heirs to retain 50 percent of the shares of Walmart in spite of it being the largest corporation in the world. Because Sam sought and listened to the advice of Helen and her dad, he was able to preserve wealth in the most sophisticated manner available, guaranteeing the financial freedom of the Walton family for many generations to come.
You don’t need to take any of the advice of your council, but you can still benefit from their views. After his Laugh-O-Gram bankruptcy and his move to Los Angeles, Walt Disney sought the counsel of his older brother Roy and his uncle Robert. He listened to their advice because he needed their support to survive. They told Walt to get a job and start paying rent, but Walt wanted to persevere trying to sell the animations he produced in Kansas City. Roy and Uncle Robert’s contrarian perspectives on Walt’s prospects made him even more diligent in pursuing every possible angle.
Once that New York agency offered to pay an advance to distribute Alice’s Wonderland, Walt asked Roy to be his full-time partner. Uncle Robert then agreed to help out, something he had refused to do when Walt himself asked. With Roy’s bookkeeping help and financial advice, Walt set up the Disney Brothers Studios more prudently with far greater chances of success than when he had set up Laugh-O-Gram Studios on his own. Although Walt’s personality and perfectionism always made him want to spend more money than he had, Roy’s influence acted as both a conscious and subconscious governor on spending, even though Walt only reluctantly acknowledged its benefit. Without Roy’s counsel and support, and initially Uncle Robert’s, Walt Disney would not have made it.
Entrepreneurs have succeeded without mentors, advisors, or outside sage advice—it’s not required. Asking advice or counsel from someone you do not respect is a waste of time. The point is to get a broad set of perspectives and become as well informed as possible so you can cut down on the number of experiments you need in order to acquire the essential knowledge, experience, and skills of a credible entrepreneur.
Anecdotally, I’ve found that entrepreneurs who take a systematic, deliberate approach to considering their entrepreneurial opportunities do much better than those who just leap at them. Deliberation isn’t about writing a business plan, but about carefully figuring out how you might get to where you want to go. Developing a “map” and reviewing it based on the inputs from the people you respect is the most cost-effective and success-enhancing way of assessing and minimizing risk. Here’s how:
Write down what you’d like to do and why you want to do it.
Make a list of what you’ll need to do to get what you want.
Write an explanation of how you’ll get what you want, where you’ll look to get it, and how much of it you think you might need.
Set a goal for when you think you can get it.
List what you don’t know about what you need.
Prioritize the list of what you don’t know and think of actions you can take or experiments you can perform quickly, inexpensively, and reliably to find this knowledge.
Go over this list with your advisors. Listen. Ask questions. Amend your list accordingly. Now you’re ready to conduct your experiments. Think of these experiments as mock-ups or simulations of the experiences you’re going to deliver to your customers to make them happy. Cook up the sausage you plan to sell even if it doesn’t yet have the exact look and feel of what you plan to serve. If your sausage elicits oohs and aahs from strangers, then it makes sense to refine the recipe, preparation, and appearance to see if that makes the sausage irresistible. If your talents are digital, you can lay out what your screens might look like for your app and just pretend with potential users what will happen to the information on the screen as they touch one button or another. Don’t bother writing the program until you know for sure that people are excited by it and want to use it. In my design-thinking world these experiments would be called rapid prototyping; they’re less real and much less expensive than minimum viable products (MVPs).
If done thoughtfully and deliberately, your experiments will give you knowledge that may be unique in the world (even if it may be the knowledge that your idea wasn’t exactly what your potential customers wanted). Keep notes on all that you learn, and summarize these lessons at least monthly. Assess your progress on understanding your what, why, how, where, and how much. Every few months, or any time you make a breakthrough, present to your council how much closer or farther you
are from committing money and full-time effort to achieving your entrepreneurial aspirations. Then listen and ask questions and amend your plan again.
Family Matters
Founding a company always profoundly affects your family. You can succeed as an entrepreneur and as a spouse and parent, but you have to integrate your family’s timetable with your timetable. Savvy entrepreneurs strategize their family objectives and projects with the same intensity they bring to planning their business needs. The possibilities and pitfalls are many; and for bedrock entrepreneurs, a family that stays happy or a family that respects the actions of their entrepreneur can be the difference between fulfillment and disappointment. Indeed, families are the key to the question of “whether?” as we’ll discuss in our next chapter.
When to Quit
I am frequently asked, “Should I keep going?” or “Should I sell?” To fully answer those questions you must understand the difference between feeling happy and feeling fulfilled. Many entrepreneurs I have known came to me to ask for more money to keep their enterprise and entrepreneurial hopes alive with the typical refrain, “I just need a bit more time to do…” Some of these entrepreneurs have asked multiple times, and lead lives where entrepreneurship has become the equivalent of an addiction. They sacrificed friends, family, and others to keep their entrepreneurial hopes alive. These addicts don’t care what people that have more experience think, because they need to have the prestige and control that comes with running their own business. It doesn’t really matter if the business is viable or if it can support them—showing the world they are an entrepreneur is more important than eating. Walt Disney started out that way in Kansas City, and he was literally starving when he threw in the towel, declared bankruptcy, and moved to Los Angeles to be supported by his brother and uncle.