Monday, 28 October 2013

Billy's Third Law: The Dangers of Falling in Love

Don’t fall in love with the business too soon.

It seemed like such a good idea at the time!
My explaining my last stock pick to my wife
When you are getting starting in business, you need objectivity.  You can fall in love later; once you have an idea that you are sure has a chance make a profit.  But if you fall in love too early, you lose all sense of objectivity and you cannot make a rational decision. 
People in love are irrational.  Consider family Christmas letters. My friends’ children all have all-star athletes, on the honour roll, work with the elderly in their spare time and are currently being considered for a Nobel Prize.  (Never let your own children read these letters – bad for their self-esteem.)  You never hear a mother say “My kid is the ugly one three in from the left.”  You see the point, love is neither objective nor rational.  Now in the world of family – this is (to quote Martha Stewart) a good thing. In the world of the entrepreneur – it is a bad thing. 
Do not misunderstand me.  You need real passion to run your business.  You just need to be rational in deciding which business to start.  It is a little like courting.  You take time to get to know each other.  See if you are compatible, and then fall in love and then get married.  I mean, it’s not as if you appear on a television show, compete for a multimillionaire and then get married to a complete stranger at the end of the show. (Well not again anyway!)
A woman asked me to help her and her husband with the financial plan for a franchise.  I have nothing against franchises, but I had never heard of this one so the brand recognition advantage was clearly not there.   On reviewing the sales estimates, which seemed high for a first year business, I asked her where these numbers came from. She replied, “Why from the franchisor’s sales representative.  He also told me that this was such a good location that if we didn’t buy it that he might just buy it himself”.  When I dared imply that she might trust a franchise salesman’s forecast she was insulted.   “How could I be so negative – how could I be so cynical?  What kind of entrepreneur was I?”  She had a real rant  In her heart, this was a ‘done deal’ and I was just raining on her parade.
She and her husband had fallen in love with this franchise.  She had lost all sense of perspective and could see the two of them working together in their small business and living happily ever after.  Eventually she and her husband purchased the franchise, financed by a loan co-signed by her parents.  She went out of business three months later.  I may be a smart-ass, but I am not an idiot. 

At the pre-start phase, I think that everybody needs to be an optimistic cynic!  You need to know where you are going, look realistically at how you are going to get there and what obstacles will get in your way!  Remember, you don’t cut off a toe to make a shoe fit; neither should you force a business concept which cannot work just because you hope it will work.  Remember the words of my friend and business planner Elizabeth Lake:
Hope is not a strategy.
Next week, we shall see the importance of love and passion in business.

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