Entrepreneurs are the worst at building a successful business

Contrary to popular opinion, Entrepreneurs are easily the worst at building successful businesses.

Entrepreneur – Wikipedia: “willing to accept a high level of personal, professional or financial risk to pursue opportunity. …in possession of an enterprise or venture.”

There are three basic business owner profiles:

  1. The Market Focused owner (the Entrepreneur falls in this category)
  2. The Systems Focused owner
  3. The Product Focused owner

Market Focused owners are just that – focused on what the market wants. They poke around and find holes in the way customers are being served and create companies to fill that need. They’re usually not passionate about any particular product or service, and sometimes know little about the one they’ve just decided to stake their future on. They’re dreamers, visionaries, spontaneous, flexible, willing to take big risks, and understand that speed of execution is vital in starting and growing a business. Entrepreneurs are Market Focused owners.

They’re also more often than not terrible business people. Too often the entrepreneur is lifted up as the holy grail of how to be successful in business, and other business owners are taught to emulate them.

It’s not a good idea.

Market Focused owners need more outside help, are the worst at taking instruction, exhibit the most over-confidence, do the worst due diligence, and fail way more often than either of the other two owner profiles. When they succeed, they succeed big, usually by sheer luck and number of attempts. But just like the gambler, you only hear about that one big win. You never hear of the many losses that, in balance, make the entrepreneur the worst risk to bet your money on. Entrepreneurs are the business world’s big gamblers.

The Wikipedia definition is good – note that it doesn’t mention someone who is a great craftperson or artisan, or highly knowledgeable at making a product or delivering a service. Entrepreneurs are quite often not experts at all at what they’re hawking. They’re great at seeing the hole in the market, but their best bet is to hire someone else to patch the hole.

The carnage they leave behind can be appalling. At their worst, the entrepreneur is a dreamer who causes people to lose their entire life savings on future possibilities and well oiled get rich quick schemes that the entrepreneur is truly convinced is a “sure thing”.

At their best, a heavily Market Focused business owner understands how handicapped they are by their affinity for risk, their unwillingness to really master their craft, their desire to spread their companies too thin and do everything the market wants. The self-aware entrepreneur sees the clutter in their mind and on their desk, and their inability to finish an idea because they already have a newer and better one.

And this awareness leads them to put aside their inherent over-confidence and get help. When they finally get the Systems Focused and Product Focused owner profiles involved and get out of the way (entrepreneurs are classic control freaks), the possibility of success goes up big time.

Michael Gerber (E-Myth) and others correctly identified that most businesses are not started by entrepreneurs. But they then proceed to lift up the entrepreneur as the model for how the other profiles should do it. Good luck with that.

The Market Focused owner may have the most serious issues in building a business, but all three profiles are broken. There’s a fourth profile they all need to become that almost no one starts with – it’s call Business Owner, which is a healthy mix of the best from all three of the other profiles. But more on that at another time.

The purpose of this rant? To free up the overwhelming number of people who own businesses who think the holy grail is to emulate the entrepreneur. Trust me, it’s not something to be pursued. You’ll want to add some of their great strengths, but don’t drink the kool-aid and dive in wholesale in becoming one. It’s just not good for the economy (or for your pocket book, your spouse, your kids, your health…).

FYI – the next two weeks I won’t need to be nearly so hard on the other two profiles (Systems Focused and Product Focused) because they’re rarely so over-confident as the Market Focused owner. Fortunately very few business owners are actually Market Focused entrepreneurs. Be thankful if you’re not one of them, and if you are, get help focusing on Systems and Production so you can become a true Business Owner.

Deciding when your Business is Mature, and How To Pick a Date to get there.

As a business owner, Business Maturity isn’t about how big your business gets or how much revenue it generates. It’s about 1) your own ability to choose what to do with your time, and 2) the ability to walk away from your business for weeks or longer and have it still make money while you’re not there.

You could decide that it means that the leadership is completely turned over to others and the business is ready to be sold. But at a minimum, a business is not Mature if you are still necessary to the daily production of products/services (there is a difference between being necessary and being able to choose to personally produce.)

Here’s how to paint a good picture of what your Mature Business looks like:

  1. Know your Lifetime Goals. (Why are you doing this? To what end??)
  2. Calculate the cost of the Ideal Situation for living out those Lifetime Goals.
  3. Decide WHEN you want to be in that Ideal Situation. Stop reading here if you don’t want to put a date on when you get to your Ideal Situation. Growing a Mature Business won’t matter enough to you to actually do it.
  4. Decide what salary/cash you need to support your Ideal Situation.
  5. Make your best prediction of how much revenue your business will need to generate to allow you to pull the salary/cash you need to support your Ideal Situation.
  6. Make your best guess at how your business will do this. There are three ways to make money when you’re not around.
    1. Talent – The painter Renoir bought his massive French villa w/ two paintings, and his car with a pencil sketch. If you have unique talents then you can charge enough per hour to work very few hours. The problem with this approach is that it’s a crapshoot to have your talent recognized at this level, and your business really never matures because it still relies on you to produce. If you get sick or injured or worse, the revenue stream stops.
    2. Employees – this is the most common way to make money when you’re on vacation – buy someone else’s 40 hours a week at a discount, and resell it to your customers at a premium. The difference creates profit for you even when you’re not there.
    3. Products/Services – If you don’t want employees and you’re not über-talented, you can create products or services that you can license to others to produce. Or you can franchise your services for others to deliver, or create online software, products, or services that need very little maintenance.
  7. Paint as clear a picture as you can of what your Mature Business looks like in terms of the salary/cash it provides you, the time it allows you to use in other ways, and how the what will produce the revenue (Talent, Employees, or Products/Services), then
  8. Pick a Business Maturity Date – the single most important step in the process. If you don’t want to do this, don’t bother with Steps 1-7.

Don’t torture this – you’ll know you have a good enough picture when you’re excitement level for getting there has gone way up. If you have an Objective that is motivating enough, you will figure out the steps required along the way to get there.

Do you know what Business Maturity looks like for your business? Are you completely committed to a Business Maturity Date that you’ve gone public with? If so, welcome to the 3to5Club (see earlier posts)! Describe your Mature Business and your Business Maturity Date here – let’s get moving together!


How we got on the business treadmill and why we can’t get off.

Our business trains us to focus on the wrong thing. And we buy into the lie.

There are Seven Stages in the Maturity of a business. Today we’ll focus on the first four, because they tell us what happened that screwed up our understanding of how to grow a business and why we can’t get off the treadmill.

In Stage 1 (Concept and Startup), we need money. To get money, we need clients. So a Stage 1 business teaches us that it’s all about making money via Sales.

In Stage 2 (Survival), we’ve been mucking along for a while and the outside funding is beginning to dry up. We need money even worse. To get money, we need clients. So a Stage 2 business confirms to us that it’s even more important to focus on making money via Sales.

In Stage 3 (Subsistence) we finally have done enough sales to get enough clients to break even. But we have to produce for these clients, because if we don’t produce, we don’t get paid, and we need money. So a Stage 3 business teaches us that we have to focus on making money via production, or our Craft.

And finally, a Stage 4 business (Stability by Hands-On, focused on the producing the “Craft”)) allows us to buy a hot tub and go on vacation a couple weeks a year, confirming to us that the owner’s purpose is to make money.

But what our business taught us in these first four stages is exactly what keeps us on the treadmill for 30 years and never lets us off. Our business taught us that we should make money, and it is that misconception that keeps us from building a business that makes money when we’re on vacation. We’re on the treadmill of making money.

Unfortunately our bias toward the treadmill of making money is confirmed as we look around and see most other businesses stuck in Stage 4 as well. So quiet desperation sets in – this must be all there is. And to add insult to injury, at some point we realize that if we had stayed at IBM, we could still have bought a hot tub and gone on vacation a couple times a year, except in that case we would not have lost money while on vacation or had to wake up nights wondering how we’ll pay off the debt we incurred in Stages 1 and 2.

Why did we do this? How was it worth the trouble and the responsibility we’ve taken on? Why did we decide to buy a job and become employees of ourselves?

We did it because 1) our business taught us to make money, and 2) we see that most other small businesses have gotten stuck on Stage 3 or 4, confirming that this is actually normal.

Stage 3 and 4 are not normal at all, they are merely average. Most businesses have stalled there, but the normal business will break through to Stages 5-7 and make money for the owner when the owner is not there.

Stop being an employee of yourself, get off the treadmill, and get back to the passionate that brought you into business in the first place. Next week we’ll talk about the clear simple actions that will allow us to do just that.

You’re almost certainly a hostage of your business and don’t know it.

During the Iranian hostage crisis in 1980, I listened to an expert describe why being a hostage for a short period of time was exponentially worse then being sentenced to prison for many years.

A hostage lives without clear rules, never knowing what each day might bring – anything from death to freedom, from promises for release to wondering if they will ever be free. The most damaging thing is the lack of a definitive ending date – it could go on forever. A prisoner on the other hand, knows very clearly what the rules are for daily living, and most importantly, there is a clear end date leading to freedom.

When you know the daily rules and there is a clock leading to freedom, it’s immeasurably easier to stay encouraged and work toward that end date.

If you don’t have a clear Strategic Plan, or a Business Maturity Date for when you’re business will make money without you being around, you are a hostage of your business; no clear rules, no end in site. Thoreau said “Most men lead lives of quiet desperation.” Is it any wonder why we feel we’re on a “quiet desperation” treadmill? We’re so busy making money that it never dawns on us to do the things that will help us build a business that makes money.

I’m no longer a hostage to my business. I have clear daily rules (my 12-month rolling Strategic Plan) and a clear end in site (My Business Maturity Date: Friday, February 18, 2011, 10:00am). It makes the journey itself a whole lot more exciting and meaningful. And as a result, quiet desperation has become quiet resolve.

Are you a hostage to your business, experiencing quiet desperation on the treadmill? Or do you have a Strategic Plan that runs your business, and a Business Maturity Date? Get off the treadmill and get back to the passion that brought you into business in the first place.

Get a clear Business Maturity Date (the day your business will start making money when you’renot around) and a clear Strategic Plan for getting there. You’ll make more money in less time.