Six Important Lessons From Successful Entrepreneurs
Six Important Lessons From Successful Entrepreneurs
In the first few months of a business, an entrepreneur is likely to face challenges that, if not managed properly, may well sabotage the new venture. Imagine the confidence of that entrepreneur, however, if he or she could have the advice of others who have already met those challenges on the road to their own success. Readers and would-be entrepreneurs will find that advice in this article
Entrepreneurs who start businesses armed only with ideas and a rough plan – rather than a structured organization backed with capital, talented employees and a full stock of products – face a multitude of unique challenges.
As a result, these entrepreneurial business owners often have colourful and illuminating war stories of survival – especially from their early years. Sometimes they make their way via trial and error, sometimes with luck, but usually it is through perseverance. And while they are happy to share their stories, most end up doing so only with friends and family. Entrepreneurs don’t often get the opportunity to reach a broader audience, or indeed enlighten other businesspeople who might really benefit from their wisdom and experience.
In KPMG Enterprise’s book, “That’ll Never Work,” we collected 19 such stories from Canadian entrepreneurs; those men and women who took their vague idea, turned it into a winning one and built a workable business structure around it. Perhaps most impressive is the fact that all 19 have also been able to do the near impossible: keep their business intact and thriving for years, or even decades.
This article describes valuable lessons on how to grow a business with limited resources, even during uncertain economic times. Using anecdotes, it will illustrate how budding entrepreneurs can approach six common business challenges they might face on the road to long-term success. The six are:
• Working “on” the business, rather than “in” the business
• Financing is key
• Staying on top of receivables—when your customers stop answering the phone
• The advantage of working with family in your business
• Tapping the expertise of trusted advisers
• The importance of understanding risk and innovation
1. Working “on” the business, rather than “in” the business Some owners can get mired in the details. They become so heavily immersed in managing all aspects of their company’s day-to-day operations that there isn’t time for anything else. Clearly, careful management is critical to business success, but taken to an extreme it sometimes impedes owners from realizing their long-term vision. For some, clarity and perspective come with a step back and a bit of introspection.
Jory Lamb, president and CEO of software company VistaVu Solutions, went through the most critical time in the history of his business between 1999 and 2000.
After leaving a promising career as an accountant, Jory Lamb had learned so many lessons about running his own business the hard way. He had put thousands of hours into just staying afloat when cash flow was tight. Exhausted and mentally defeated, he did something not many in his situation would do; he took a vacation.
“I went away for six weeks, which is a huge amount of time for someone with a company that is technically insolvent. My family loaned me enough money to cover the bills for six weeks. It was love money. I took this money and I said to the people working for me, “You work with our creditors and make sure that the payments get made. These are the dates. Please, just make sure it happens.”
I went to Australia, where I had a lot of “windshield time.” I took buses, backpacked, and just kind of followed the countryside. And I read like a madman, searching for an answer to my many questions. One of the books I read was The E-Myth by Michael Gerber, which asked whether you planned to work in your business or on your business.
I remember I was in Townsville and there was this huge cyclone. It washed out the road and the bus was stuck. We couldn’t go back or forward, and I had nothing but time on this bus. I remember thinking right at this point, “If it’s going to be, it’s up to me.” I had to decide I was not ready to quit. I needed to pull myself back up and make this thing work. I needed to listen. I needed to learn. At that moment, everything changed. A light went on…
I wrote out a plan, communicated it, and got focused. As a business, we were building a bit of everything, always scrambling. What we needed to do was build a few things well. We shed work we were doing just a bit of but weren’t good at, and all of a sudden it started to make a huge difference.
But I had to stand on the precipice. If we hadn’t faced bankruptcy I think somehow, some way, I would have rationalized bobbing along, not really making a good living, not really performing well as a company. Somehow that would have continued to be acceptable and I wouldn’t have had to go out and sell and do the things I wasn’t enjoying as much. But there was no choice. It was a great thing.”
Though he almost learned this lesson too late, Lamb’s decision to step back, gain some perspective and re-focus his energies on a more precise set of tasks and goals saved his business.
2. Financing is key Stephen McIntosh, owner of Factory Optical/Optiks International/EyecandyOptiks, started his business in the summer of 1999 with, as he describes it, “considerable opportunity for failure.” He had a $30,000 debit balance at his bank and owed legal counsel $20,000 for having helped him complete his acquisition of some existing facilities and employees. He also owed his vendor $30,000 for the working capital left in the company and the assets he was buying.
But, during this incredibly challenging period, he managed to stick to his guns during a standoff with his new bank, making sure he negotiated the right deal.
“During the purchase I was trying to establish banking facilities in Regina by telephone from London [Ontario]. After securing the private equity funding necessary to fund the purchase of the company, we needed an operating facility to finance working capital. I was referred to a very young and inexperienced banker in Regina who pleaded our case to his adjudication group, but the result was an authorization of only half the monies I required, subject to the personal guarantees of my 17 equity investors.
This was a true deal breaker; it would have fundamentally undermined the spirit of equity investing. After all, I had gone out and pleaded, begged, and borrowed from friends and family, and it had taken 17 people to reach the $560,000 purchase price for the company, in consideration of which I provided them a 49 per cent collective interest.
As an alternative, this young banker allowed me to rewrite the credit application myself, and we were provided double the original funding requested with no personal guarantees to speak of. We were now capitalized to go forward.
McIntosh’s determination paid off and 12 years later his business has grown from one to 17 stores and from $500K to $20 million, with a plan to reach $30 million over the next couple of years.
McIntosh’s refusal to accept the bank’s initial offer and to return to secure the required financing allowed the company to execute on its business plan, ultimately becoming the successful business it is today.
3. Staying on top of receivables—when your customers stop answering the phone There’s a fine line between reminding someone periodically of an overdue payment and harassing them, and it pays to know the difference. However, when capital funding is scarce, waiting is sometimes not an option.
For Henry Neels and Gerhard Rauch, owners and co-founders of Helton Industries, overhead door hardware manufacturers, this was the case early on. Thankfully, they quickly managed to find at least one creative way of getting paid:
“One of the most important things we learned early on was to stay on top of our receivables. The longer they were outstanding, the harder it was to collect them. We paid special attention to this issue because we had seen slow-paying customers put plenty of small companies out of business over the years.
To ensure we got paid, we invoiced promptly and made sure our customers adhered to our terms.
Sometimes we’d have to call. And sometimes they weren’t in. So, knowing their vehicles, and seeing them parked in their lot, we just kind of dropped by without an invitation. Then we’d threaten to stay until we got a cheque. I think many of these customers respected our fortitude. In many cases these cheques were already made out and in the bottom drawer. They were just holding them as long as they could. The squeaky wheel gets the grease.”
Anyone can identify with this story, which appears amusing on the surface, but illustrates a deadly serious lesson for any business person building a company: There’s no point in trying to stay polite to customers with overdue bills when you’re strapped for cash; without their money, which you need to continue operating, you will soon enough end up with neither a business nor customers.
4. The advantage of working with family in your business Though the mantra of “family is family and business is business” was drilled into the Price boys by their father from an early age, Ray Price, president of Sunterra Group, admits that for some families this is easier said than done. But, he says, he and four brothers (another brother and a sister are not actively involved in the business) have always found a way to work together successfully at Sunterra.
“One of the most important lessons you learn growing up on a family farm in Western Canada is that when something needs doing, you do it. My five brothers, one sister, and I would split up the work, get out on the farm, and get it done.”
But when Sunterra started out in the pork production business in 1970, Ray`s brother Glen was actually reluctant to get involved. He and his family spent time talking about it, examining the difficulties and challenges associated with family businesses. Ultimately, he came around. Today, Glen is the president of Sunterra Markets. Meanwhile, Dave is the chairman of the board, Doug is on the board and has a cattle operation providing beef for Sunterra Markets and Art is chair of the executive committee.
“My brothers and I have always managed to get along… But I know in my own case, I worked in the same 10-foot-by-15-foot office as my dad for about five years when I first started out. He smoked and I didn’t, and it just about drove me nuts. But that’s just part of growing up in a big family—you put up with some of those things.
[My brother] Dave and I have worked side by side for the past 31 years. We’ve always tended to take on different roles. We can rely on each other. Glen has been responsible for Sunterra Markets since the start in 1990 and, while we might have discussions and the odd argument, I know he is the expert. It doesn’t stop me from telling him what I think, but at the end of the day we trust each other to make good decisions.”
It’s clear that the level of trust between the Price brothers is high, but so is their awareness of both the strengths and weaknesses of the others. In fact, this awareness and the closeness between them is a business advantage. And they certainly understand the unique — and sometimes sensitive – nature of the typical family business:
“About 10 years ago we had to sit down and have a serious discussion about how the third generation would be brought into the Sunterra Group. Part of our mission was to make them aware of the trials they would face if they joined. We also wanted to lay down some ground rules. For one, they would have to work from the ground up, and they wouldn’t receive special treatment. If they wanted a job, they would have to apply for it. The one thing we warned them about is that no matter what, people will think they were hired because they’re related. This perception means they will have to prove their worthiness. Each of us has had to prove our value, and it’s the same for them.”
While consumers and business leaders may attach some kind of mystical quality to a family business, such businesses come with many benefits. When properly established to harness the unique family attributes into a business with open links of communication – coupled with clearly defined ground rules and expectations – a family business can become a sustainable competitive advantage, dominating in its markets and continuing on for many generations.
5. Tapping the expertise of trusted advisers Entrepreneurs often require a steady hand to guide them, but they rarely realize it. Not only do most of the entrepreneurs in “That’ll Never Work” admit to wanting to know how to make the right decision every time, many said at one time they believed their employees in fact expected them to be all-knowing.
As Natalie Macaulay, partner and UK managing director of leadership consultants Emerge Learning puts it:
“There’s a difference between leadership and management. Often, leaders move up through the ranks, through what Emerge Learning calls individual contributor roles. They become experts in something and suddenly they find themselves at the helm as leader. One of the first steps they must take to become an engaging leader is to get rid of the notion that they’re supposed to know all the answers. In fact, they need to accept they will never have all of the answers. From there it’s about personal growth and helping leaders to be comfortable in their own skin, because you can’t lead a team if you have insecurities about your own performance.”
Most of the entrepreneurs in the book cited the need for one or several mentors, consultants or executives with broader business expertise than they had. They recognized—sometimes just in time—that they needed the perspective of someone who had witnessed more of the ebb-and-flow nature of business.
Trying to know everything is not only impossible, it’s exhausting, and detrimental to the business. While it may be scary to admit a need to defer to other experts inside or outside the company, it is an essential skill for any businessperson.
6. The importance of understanding risk and innovation Don’t let risk stall or sabotage growth or the business. Ensure you have contingency plans in place in order to mitigate it.
The following lesson from Charlie Spiring, vice chairman and director, National Bank Financial Wealth Management, attempts to illustrate how to prosper, even in high risk situations:
“Always give yourself more room in your balance sheet than you think it’s going to take.
Most entrepreneurs tend to underestimate how long it takes to bring a product to market, while overestimating revenue. You need to be realistic with your projections and you need to maintain a solid balance sheet so you’re ready for surprises.
One of the greatest lessons in history came from Bill Gates. Today, most people think of him as the richest man in the world, but there was a time when he was a small business owner and his biggest client didn’t pay him for eight or nine months. He actually came within two or three months of not making it. Bill Gates now keeps a hoard of cash on hand. He learned a lot from the scary balance sheet and he got through it. However, he came close to disaster in the beginning. Can you imagine the world being rewritten without Microsoft? Another lesson: You can’t operate in neutral. You’ve either got your foot on the accelerator or you’re going backwards. You have to have an adaptive instinct to keep moving ahead in business, to create innovative products, and to keep finding new things. That was another great skill of our team…. We listened when our customers asked for something new, for variations on our offerings, or for other ways of achieving goals. We’d often take a financial product from another country and re-engineer it for the Canadian market. A lot of times, our successes were born out of sheer market sense.”
Entrepreneurs spur employment, increase the business tax base, and offer services and products that have an immeasurable impact on our country’s economy—and our importance on the global stage. Canada’s future prosperity is inextricably tied to their success.
Let’s hope a few budding businesspeople will be able to make use of these lessons to successfully join their ranks.