Year Seven: Renewal

Risk: Medium

Satisfaction: Medium

Key Issue: Creating a new challenge for yourself

There is nothing more dangerous to a business than is a bored entrepreneur!

Year Seven is a tough year on which to comment.  For many business owners, this is a time to capitalize on the gains built in the first seven years and grow their enterprise to the next level.  For many entrepreneurs, starting a business is more enjoyable than growing or operating a business.  This is how many businesses go onto divergent paths growth and renewal or neglect and decline. 

The story of the bored entrepreneur is personal to me.  Before starting his own business, my father was a shareholder in an electrical contracting firm.  They brought in my father to acquire his engineering expertise, just as they brought on another individual for his expertise in the field of programmable control. The founder of the business still owned 51% of the business and thus had controlling interest.  The company had a line of credit, backed in part by the personal guarantees provided by each of the shareholders and their respective wives.

The founder of the company was a bit of a tinkerer and inventor.  He invented, and patented as ‘self-propelling’ boat.  It took the side-to-side rocking motion of the boat and turned it into forward propulsion.  As with many entrepreneurs he thought that just because he was good at one business, he would necessarily succeed at all his businesses.  He decided to begin manufacturing these self-propelled boats using the line of credit from his original company.

When the other shareholders found out about this they went to the bank, asking the bank to ‘call the loan' so the founder could not drain the company on this boat venture.  The bank agreed not to call the loan provided the company undertook not to forward money towards the boat company.  The bored entrepreneur continued to follow his dream, resulting in the bankruptcy of both companies.

I have seen too many entrepreneurs follow this pattern.  Sometimes, they are like Richard Branson…sort of entrepreneurial polymaths.  Most are not, and have both successes and failures.  Many are  one-trick-ponies, and confuse a single success with entrepreneurial genius. In planning sessions, I tell these ‘serial entrepreneurs’ that the start-up plan should include an exit strategy.

So what should Year Seven look like?  I believe strongly in the following:

·       Ask yourself “Is this really, what you want to be doing?”  If it is not, develop an exit strategy or a succession plan.  If so, think of it as signing a seven-year contract extension.
·       If you want to commit yourself, re-vision your business to align your personal goals with the goals of the many stakeholders around you.  These include investors, employees, customers and your community.
·       Take action.  Inaction means attrition and attrition means an uncontrolled end to your enterprise.  It is better to go out of business than to be forced out of business.

 

The reason I am so passionate about planning in Year Six is so you can execute strategies in Year Seven.   Exit strategies and succession plans are just as important as are growth plans.  Too many entrepreneurs do not even think about the end as they are so busy building a business they never know when it is done.

One client with whom I am working is in year seven.  I put the ‘contract extension’ concept to him.  He told me that he wanted to do the next seven years, but that after that, he would be done.  This will help us develop a planning framework with an end game in mind.  By having a well thought out exit strategy, he can ensure continuity for his employees and his customers, and at the same time, reap the rewards of what will have been fourteen years of hard work and commitment.

Year Seven is either a springboard to bigger and better things, or it is a black hole drawing the enterprise to perdition. Not since the founding of the business is the passion, desire and direction of the founder more important.  There are two key differences.  Firstly, you have an infrastructure of success.  You have customers, you have production / provision methods and you have a financial track record.  You are not in uncharted territory.  The second is that you have more to lose.  The stakes are higher now than they were at the beginning. You have more people relying on you.

As a part of a strategic planning exercise, I had the planning team calculate how many people were directly affected by the success of the enterprise.  Over 200 peoples', lives depended on this firm.  This helped put the importance of planning into a greater context than profit or loss, but into a context of families.

Seven years may seem like a long time, but ask any entrepreneur who has succeed for that long and he or she will tell you that it went by in the blink of an eye.  As Geoffrey Chaucer wrote, “time and tide wait for no man.”

Year Six: Mastery

Risk: Low

Satisfaction: High
Key Challenge: Balance

The emerging picture from such studies is that ten thousand hours of practice is required to achieve the level of mastery associated with being a world-class expert…in anything.

Neurologist Daniel Levitin Quoted in Outliers by Malcom Gladwell

The sixth year of business is often one of the most satisfying.  If you are still around, you have not only developed a client base, but have experienced losing customers and gaining new ones.  You have developed your business skills, learned from the arrogance of year four, and carved out a specific role for yourself within your own company.   In many ways, this feels like smooth sailing.

This is a time for you to enjoy yourself personally and professionally.  If you have developed your business correctly, the business has become less dependent on you more dependent on your staff and your systems.  Even if your business is primarily about your own contribution to the enterprise, as is my one person training and consulting firm, you will have developed sufficient goodwill with your clientele to take some time for you and your family.

The problem for some entrepreneurs is the habituation to working long hours.  If you work forty hours per week, that soon seems to be the norm.  If you work sixty hours per week then that seems to be the norm.  The problem is that we do not necessarily use our time as efficiently as we should, or even as we once did.  Many people define themselves and their success by their effort rather than their results. 

 

This poses problems for the enterprise and for the entrepreneur.  The entrepreneur can give the impression that people are not trusted do their jobs.  This may not be true…in deed often entrepreneurs have great faith in their teams, however; the perception is more important than the reality.  From the entrepreneur’s perspective, this dogged mindedness to the business often comes at the expense of other aspects of life.  This includes long-time friends and often times family. 

In year six, you must review your personal and business goals.  Is the business doing what you wanted it to do?  Is your lifestyle all that you envisioned it would be when you started the enterprise?  Alternatively, do you need to make changes?  This is a great year for some personal planning.  This could even include thinking about a transitional plan or even developing an exit strategy.  It takes time to exit a business, so beginning this process early helps.

You have worked your butt off for five years.  In year six, remember the reasons you started the business, the price you have paid, and the rewards you may seek.  You don’t have to be religious to appreciate the wisdom of this verse:

 

For what will it profit a man if he gains the whole world and forfeits his soul?

Matthew 16: 26

Next time is the last this series…the transition of Year Seven.

Year Five: Managerial

Risk: Medium

Satisfaction: High

Key Challenge:  Re-defining the founder’s role in his or her company.

Year Five challenges are often similar to Year Three challenges.  The difference is often the scope and scale of your role in the business.  The challenges in year five are also extensions of the lessons learned in the Eighteenth Law…The Entrepreneur must develop ahead of the Enterprise. 

The important question to ask yourself at the beginning of year is what your role in the enterprise should be.  You have developed your management skills and understanding…you have ‘Moved North’ and are spending some time thinking about the future of the business…now it is time to find the job to which you are best suited.

Should You Hire a Boss?

Sometimes, the best thing you can do for your business is to replace yourself as the CEO.  This is often true when the entrepreneur brings unique skills to the organization.  I met a fellow in the eighties named Bill Gibson.  He is a public speaker and seminar leader now based in South Africa.  Bill once told me that the smartest move he ever made was hiring a boss.  It allowed him to focus on the thing that generated income for the company…Bill Gibson! (He also told me how many sessions he had to cover his new and substantially higher overheads!)

Some people have a passion for what they do.  When Bill Gates stepped down as CEO of Microsoft in favour of Steve Ballmer, he took on a technical role… something he wanted to do!  He re-cast his own role within the business.

For many founders, it is difficult not being the boss.  You may have a founder’s skill set, but may not have a builder’s skill set. These skills are different.  Having a founder’s skills is no guarantee you have a builder’s skill set.  I met one ‘serial entrepreneur’ who sold her businesses instead of having to build and manage them.  She was great at getting them off the ground, but then got bored and wanted a different ‘founding’ challenge.

Should You Be the Boss?

You may, on the other hand, want to grow your business.  You must decide which areas you want to drive, and which areas you want to delegate.  A client of mine, in professional services, wanted to grow his company.  He hired great project managers in order to increase his capacity in the business.  He also hired an internal accountant years before most people in a company his size would take that decision.  In fact…conventional wisdom would have said that he was five years too soon.  He knew that there were financial complexities coming and that he couldn’t keep up with these areas.  He found a great CFO/Accountant and never looked back. 

Managing and leading a larger business is a different kind of challenge.  It is slower and more systematic.  Many great entrepreneurs transition well from founder to builder.  Michael Dell and Howard Schultz are examples of founders who became great builders.  Just remember, if your role changes, somebody else may have to do things you used to do…and that is difficult for many entrepreneurs!

Year Five is a great year.  The angst of adolescence is behind you and you are still excited about operating your business.  You also have learned about both your business and about business in general.  Year Five is a great ‘launching pad’ for business growth.  Year Five is a planning year, a time for, looking at the future of your business, and your role in that business.

Year Four: Transition

Risk: High

Satisfaction: Medium Low

Key Challenge:  Humility!

Pride goes before destruction, And a haughty spirit before stumbling.

Proverbs 16:18

In the first version of my seven year business cycle, I paralleled business cycles to human growth…infancy, toddler, child etc.  Year four was adolescence. I still believe that the dangers of year four are analogous to this strange yet important stage of human development.

Unless your business is a survival or hobby business…a business, which is not even providing you with a decent income compared to the effort you expend and the risk you take, then you often are seeing success during this pivotal year.

Success is great, but can also create problems.  I made some of my biggest mistakes in year four, all because I started to ‘believe my own press clippings’.  I had some successes and I done a few decent sized contracts.  I was speaking throughout the province and, for the most part, my audience loved my presentations.  I thought of myself as Tom Peters meets Robin Williams. 

Confidence is important…in fact it is critical not only in public speaking but in business generally.  The problem is pride.  I started to think that I was a little too good for my clientele.  I didn’t treat my customers quite as well as I should have.  I even billed a client a cancellation fee, something that I had never done before.  By the way, I never worked for that company again.

It is a bit like being an adolescent.  Apparently, the neurological pathways between the emotional and the rational parts of the brain are not completely formed until age twenty-five.  This accounts for dumb things done by guys in their late teens and early twenties.  This is similar to many of our behaviours in business.  Billy’s Tenth Law about buying the Porsche too soon is typical of this stage in an owner’s business life cycle. 

Hubris and the inevitable need for change create a potentially dangerous combination.  Pride tells you that things are good and that you are damn good.  This blinds you to the need for change and can make you take customers, and success for granted.  Why did Microsoft wait so long to develop office for the iPad?  Hubris.  We can miss the obvious just because we are successful!

Year Four is risky.  Decisions based on a false self-perception can come back and bite you in the ass.  This is especially true if you are a younger entrepreneur.  I made more mistakes in year four than my father because I started my business when I was thirty-five and my Dad started his when he was fifty.  If you are in Year Four both you as the founder and your enterprise is transitioning into a sustainable, long-term businesses.   Be aware that you and your business are changing and that you must do your best to manage change and manage yourself. 

Year Three: Stability

Risk: Medium

Satisfaction: High

Key Challenge: Developing management and business skills

 

By your third year of business, one of three things will have happened:

1. Your business is barely surviving and you should be looking to shut it down.  If at the end of three years, you are not succeeding, your business is probably not viable…software development notwithstanding.
2. You are comfortable in your business and you have chosen not to grow.  This is where many self-employed and micro businesses remain.
3. You are continuing to grow and you can clearly see the potential in your business.

The ‘Management’ message applies primarily to that third group…growing your third year in business.  In order to grow you must begin to develop additional managerial skills.  Most people who are successful in their first two years owe their success to two factors: technical skills and marketing skills. You have successfully delivered on products or services and you have developed a customer base. Sometimes, you find businesses who can fake if for two years, but this never lasts.  In order to grow a business, the company must increase capacity, capability or both. 

Capacity relates to the ‘quantity’ of output.  This could be units of production, hours of service or even metrics such as sales per square foot.  Capacity relates to volume output.  As your business grows, you may need to increase volume output.

Capability relates to the different things you sell.  Capability represents the different products or services you can produce or provide your customers.  Capability relates to product mix. If your business is not at capacity, you may increase your capabilities to increase sales.

 

In order to increase your capacity or capability, businesses use the other two aspects of business development…Finance and Human Resources.

 

You need finance to ensure you have the ability to purchase the assets required to support growth.  This could be purchases of capital assets, such as machinery & equipment to allow for increased production or financing inventory and accounts receivable as your business grows. 

Most business owners also hire additional people to grow the company. This means developing managerial skills such as recruiting, training, supervision and motivation.  You must manage people.  For many entrepreneurs, these are new skills.  Being a great chef in one kitchen does not ensure success when managing chefs in a small restaurant chain.   Just because someone is good at selling, does not necessarily mean that they can succeed as a sales manager.  Finance, the downfall for many growing businesses, is more than getting your annual financial statements from your accountant and wondering where all of your money went.

Since your business is stable, you have the opportunity to develop your management, supervisory and financial skills.  You must transcend your technical and sales skills and develop the kinds of skills that allow you to move your business forward.  Check out your local college or business development centre for ways to develop.  As your business grows, your knowledge requirements tip from technical,  to business…from running your business to running a business.

For those who are content with operating as a micro-business or even as a ‘one person shop’, stability is a good time for developing additional skills. It is a great time to think about business development and entrepreneurial life style.  Year three is a great time to reflect on the journey of the past three years so you can enter the dangerous year four with a clear idea of direction and purpose.

Next week…the dangers of year four!

 

Year Two: Development

Risk: High

Satisfaction: High

Key Challenge:  Focus

 

It’s difficult to develop an FAQ until you have any questions.

Congratulations... you have survived your first year in business.  The second year of business is a year for growth and development.  Developing your business takes many forms.  The first is obvious…developing a customer base.  In theory, we know our target market before we start our business.  The reality is that we don’t always get it right. 

I heard a great story on this topic.  Some entrepreneurs decided to start a valet parking service in Kelowna BC over the Christmas shopping period.  The thinking was that seniors wouldn’t want to walk in the inclement weather and would use the valet parking service.  When the business started a curious thing happened.  The problem was that seniors didn’t use the service.  As children of the depression, seniors found that paying for parking a car was an indulgence.  However, there were customers for the service.  The sub-twenty-five year old crowd used the service.  They felt that this was an affordable luxury and used the service for status rather than for pragmatic reasons.

The second part of focus is your product or service mix.  As we get a better idea of who our customers are, we can also get a better sense of what our customers want.  This can mean honing,  focusing and expanding our product / service mix.  There is often a ‘disconnect’ between what we offer and what our customers actually purchase.  One metric we use in planning sessions, is to determine the most common products or services purchased by our customer. 

Think of a restaurant menu.  If you were to evaluate your menu, you would see the most popular and the least popular menu items.  You then ask why an item might be popular, or unpopular.  Is it the price?  Is it the menu design?  If there is no obvious reason, then it is an item your customers just don’t want to order from your menu.  The product mix, for goods or services, often reflects the entrepreneur and not the customer.  We start out not knowing what the customer wants, but; after a year we should have a better idea and adjust our product mix to suit the customer. The problem for many entrepreneurs is they are still running the business for themselves and not for the customer!

The third focus issue is the promotional message.  Even when we get our customer and our product right, customers often buy for reasons other than those we considered.  In our valet parking example, the business owner should shift the marketing message to a status message from a pragmatic message.  In businesses where multiple parties make decisions, it is important to create messages for each decision maker rather than an overarching marketing message.  These multiple messages become clear once we see how real customers make decisions.

Selling software to businesses is a good example. This type of sale requires three distinct marketing messages. 

Message one is the user message.  This message focuses on what the software done, and how it helps the users of the software. This user based message is the most common message provided by software companies.  This message is for the product user.   

Message two is the business message.  This is the business case for using the software.  The message is on issues including increased productivity and cost savings.  This message influences the owners, managers and accountants in the customer organization.

Message three is the technical message.  This is the technical case for the software.  This is all of the geeky stuff that the technical people need.  Issues such as compatibility with other programs and systems, customer support and security are often included in this message.  This is the addressed to the Chief Information officer or systems professional whose job it is to install and integrate the software.

The first message is often accurate, but it takes time to develop the technical and business message until you have real users.  There are often hidden advantages we learn from customer usage that we can never learn during the start-up phase.  Updating the message is critical to ensure business growth.

Evaluate your client base...Analyse your product mix...Re-visit your message.  These three strategies are essential ingredients to business development in year two.  Focus takes time and discipline, but focus is an important building block on your road to developing a sustainable business.  

Next time, we move into the third year, the management year.

Year One: Start-up...A Great Beginning

If you started a businesses because you hate your boss and after six months you still hate your boss…seek professional guidance!

Risk: High

Satisfaction: High

Major Challenge: Ramping up sales

 

 

Starting a business…especially for the first time is, quite frankly terrifying.  People start businesses for a variety of reasons.  There are two groups of commonly cited reasons for taking the plunge.  One group centres on money, the other on frustration.

Many business start-ups come about as a result of unemployment or underemployment.  My father started his business during the depths of the recession in the eighties because the firm that employed him went out of business.  His former clients actually phoned him; they needed his engineering expertise. You could say that they started the business for him!

Immigrants often start their businesses for similar reasons.  They possess a skill set, but may not be employable.  The alternative is to start a business.  Amazingly few people start businesses, especially first time businesses with the goal of getting rich.  They are really hoping that the business will survive and that they can actually support themselves.

The second group are the ‘corporate refugees.’  I started my business when a client offered me a contract.  The truth is that I never really ‘fit in’ to the larger corporations for whom I worked.  I was lucky, I had some great bosses, but others tell me that the reason they quit is that their boss was so bad that they couldn’t stand working for him or her.

Everything seems new when you first start out.  You work hard to impress your clients, especially those early larger clients on whom your business really depends.  Many businesses do not make it past the first year.  They can’t ramp up quickly enough, they can’t make a profit or the business many not have been viable in the first place.  Many survive but are not sustainable.

The Year One Challenge: From Need to Demand

Demand = Need + A Visa Card

There is an enthusiasm that comes with the start-up.  Most people start with the expectation that the world will love their product just as much as they will.  Unfortunately, that is not the case.  Many people are unable to make their case to their potential customer.   I have heard many business ideas that sounded almost perfect.  There was a real need for their product or service.  Unfortunately, there is a big difference between need and demand.

As business planner I have some bad news for you…there is almost no way to discern between need and demand when starting a business.  I tell my students and clients that their first year in business is their final step in market research.  My dad knew that there was demand because his clients found him.  Others aren’t so lucky. 

One of my seminar participants started a business providing credit and collections services for small and medium sized businesses.  During his market research he called businesses, explained his concept and asked if it was the kind of service they might need.  Everyone he called was enthusiastic about his service.  He started the business and had no clients for six months.  Those he spoke with needed the business, but they didn’t demand it…they didn’t see the need to purchase. 

Your first year is a roller coaster.  It is tough, but exhilarating at the same time.  If you can fight through and achieve success by the end of the first year, it is one of the greatest accomplishments you can make.  Then, you are ready for year two…development!