I want to become an entrepreneur, where do I start?
If I have to ask a question like this, do I even have it in me to become one?
Oliver Emberton, Founder of Silktide
Think of a company as a machine you design and build. Here’s McDonalds:
Your ‘machine’ always has certain parts. It sells something to someone, and re-invests some of that to help make more sales in future. What’s left over is profit for the owners. Here’s Google:
If you can design, build, own and care for such a machine, you can become very rich indeed. That doesn’t mean it’s easy, but most of the barriers that you think will stop you won’t. Interested?
Let’s talk about you
Are you young, poor, unqualified – a student, or hating your job? Maybe a touch rebellious? Perfect. You have no bad habits, and will work until your fingernails fall out and your eyeballs roll onto the desk. The world awaits you.
Older, wiser, bit of money saved, experienced with a stable job? Maybe a mortgage and kids? Your job is much harder. It can be done, but it might feel like you’re trying to dance backwards through quicksand.
The most important qualities of a good entrepreneur are energy and determination. It doesn’t hurt to be persuasive, but this can be learned. I started as a shy uber-nerd aged 21; I soon learned how to sell when it was the only way to feed myself.
Enough preamble. Let’s make you a bajillion dollars:
Please forget all of the terrible deluded nonsense you’ve heard about the value of ideas. Ideas are cheap, fleeting things; by itself a business idea is worth less than a half-eaten sandwich. At least you can eat the sandwich.
You do need an idea of course. But understand that even the most successful companies were not founded on wild or brilliant ideas. Starbucks chose the brazen path of selling coffee in Seattle. Facebook built a better MySpace. Google built a better Yahoo search. Microsoft copied Apple – who copied Xerox.
Original ideas are overrated. What isn’t overrated is timing. Google chose the perfect time to build a better search engine – good luck trying to do that now *cough* Bing *cough*. What you want, therefore, is an astute awareness of a need that is currently underrepresented in the market. You want to spot a product or service that can go places – original or not. It’s usually easier to refine an existing idea that isn’t fully realised than to create a wholly original one.
People fear setting up a business wherever there’s competition, but competition can be a good thing. The best place to setup a new restaurant is right next to another successful restaurant; they’ve kindly done the hard work for you of building an audience. Many a good business has ridden to success on the coattails of another – it is usually better to have some rivals over none. You just need to become 10% better.
I personally recommend trying to deliver something that you and your friends would buy in a heartbeat. You’ll know more about your field, you’ll understand your customers, and you’ll be passionate about what you do. If you can make your company about a why – not a what – you’ll inspire yourself and those around you. And to survive the next step, you need a fair sprinkle of inspiration:
Starting a company is a bit like parenting; everyone assumes you know what you’re doing, but babies and companies don’t come with instruction manuals. You stumble through it, learning as you go.
It’s at the start where you’re most likely to fail. Your aim is to build that magical money-making machine, but you probably don’t have all the parts and the ones that you need may cost more than you have. Your idea is probably at least half wrong too, but you won’t know which half yet. All of this is normal.
A big part of starting a company is convincing people to believe in you before they probably should. When Steve Jobs founded Apple, he had no money and no customers; what he did next is the hallmark of a great entrepreneur. First he convinced a local computer store to order his non-existent Apple computers, with payment on delivery. He then convinced a parts supplier to sell him the components he needed to build them – using the order he just obtained as proof he would be able to pay them back. Jobs and a small team worked in their garage to build the first computers, delivered them on time and made a tidy profit. Apple was born from nothing.
Most new entrepreneurs play a few gambits early on like this. If it sounds scary, that’s because it is. I once had to pay staff salaries on my heavily burdened credit cards when an early order fell through. You fake it until you make it.
While doing all this you need to juggle between making the perfect company (idealist) and paying your bills (realist) – an absence of either will eventually kill you. I believe it’s one reason why realist / idealist partnerships are so common in business.
Do not scale prematurely. Don’t try to be a big company early on – just aim to be one. Be slow to spend and to hire at first. Don’t waste time writing mission statements and policy documents. You’re small, nimble and on a mission. Make and sell things. There’ll be time for a HR department later.
Don’t be surprised if you change your company entirely. It’s a rare business that survives first contact with its customers. Try to avoid doing this more than once though, it doesn’t pay well.
Survive long enough, reinvest your meagre successes and compound them. Eventually, you can move on to:
This is the step most small businesses never accomplish.
Up until now, your magical business machine almost certainly contains one irreplaceable part: you. If your background is accounts, you’re probably the head accountant. If you’re a programmer, you’re probably the best coder. Whatever you do, chances are you’ll feel essential and somewhat overworked.
Here’s the hard part: you need to make yourself redundant. If you dropped dead tomorrow, your business should carry on working just fine. All of your time needs to be spent working on your business, not for your business. The alternative is you’re basically self-employed with assistants.
Some businesses can’t escape this trap. If you’re a brilliant copywriter – say – you’ll struggle. It’s because what makes you a great company is you, and unless you can bottle up you into a business model, you can’t grow.
McDonalds built a business that works even if they hire almost entirely minimum wage workers. Their process makes it work: every burger is efficient and nearly indistinct, and nothing is left to chance. Their brand is so strong people line up worldwide to eat there. Your business may be radically different, but it should be similarly robust.
If you accomplish this, you now own something that is self-sustaining. You should be able to pull a good salary even if you never go into work. Your time is now free to tweak your business endlessly into something better. Now to conquer the world, all you need to do is:
The final step is a bit like playing Who Wants to Be A Millionaire. Each question you get right doubles your money, or you’re going home.
Do not make the naive mistake of assuming a big company is like a small one but bigger. Oh, nevermind. That’s like telling your kids to listen to you, really, drinking doesn’t make you cool. You’ll learn the hard way.
As a company grows the rules and your culture change completely. You may even find yourself disliking the company you created (many founders feel conflicted like this, eventually). If you’ve made it this far, you have many options: hire help, sell, or double-down and see where the ride takes you.
Remember no business can grow indefinitely. Most industries are more efficient at different sizes – it’s easy to be a two-man plumbing company, but near impossible to build a 1,000 man plumbing corporation. Know the limits of yours well in advance. Software is an example of an industry that scales exceedingly well, which is why it creates so many young billionaires.
It’s never been easier to start a company. You can create a killer product in your student dorm without even registering any paperwork – that was enough for Facebook.
I think entrepreneurship is a form of enlightened gambling. Skill and tenacity are big factors, but luck plays a big part. However, as long as you can keep picking yourself up when you get knocked down, try different things and keep learning, the odds are in your favour. You just have to dare to chance them.
1. Identify a problem/need in society.
2. Find a solution to this problem/need. Package this solution as your product or service.
3. Sell your product/service to those in step 1
Congratulation, you have become an entrepreneur provided that you do whatever you can to reach step 3.
1. If you complain at step 1 and find excuses to proceed to step 2, you are not an entrepreneur.
2. If you complain at step 2 and find excuses to proceed to step 3, you are not an entrepreneur.
1. You must know how to code/build
Knowing how to code/build is an advantage but it’s not a must. So, how do proceed with step 2? Hire a programmer or convince one to code for you
One very very important skill set you must develop from now:
1. Sorry, it’s not programming. It’s selling. Selling your products, selling your ideas to convince investors, selling your ideas to someone to do things for you when you don’t have money. That’s what Steve Jobs did with Wozniak when starting Apple. He convinced Woz to build for him. You get my point.
There are two basic choices. You can either become a Silicon Valley Style Capital-E Entrepreneur™ (SVSE), or a small-e entrepreneur. I won’t say anything about the former. I’ve said enough in other places, and there are many other good sources.
Now there is another style of entrepreneurship, known simply as entrepreneurship.No capital E unless you use the word in the beginning of a sentence.
How do you learn this kind? The secret is ridiculously simple. You’ll kick yourself once you hear it. I recommend you kick someone else near you instead; displacement of anger is a key skill to learn in entrepreneurship, and the fight that follows will do you good, since small-e entrepreneurship is very much like picking a fight.
Anyway, the secret is…
Fail to keep a real job.
That’s how I started. Failing to keep a real job. Actually, I started by failing to keep a job that was not even real: graduate student. I failed out of my first stab at doing a PhD and joined a non-SV startup as first employee. Then I went back and finished, failed again to get a real job and took a postdoc instead.
Finally, I got a real job, but four years later, I finally failed to keep it. Cleverly, I walked out on my own terms before somebody got sick enough of me to attempt to fire me.
So the formula is:
- Try to get a real job.
- If you fail, you’re done. You’re an entrepreneur.
- If you succeed, try to keep the job.
- If you fail, you’re done. You’re an entrepreneur.
Many of you young ‘uns are very lucky to be hitting the job market during a recession, it now easier than ever to get there in just 2 steps instead of the 4 it took people like me. If you fail to fail to keep a real job, keep trying till you are unemployable.
This is rather like the formula for learning how to fly in Douglas Adams’ Hitchhiker’s Guide to the Galaxy. The key there was to jump from a high place and miss the ground. Failing to keep a real job is approximately as difficult. Employment is like gravity. Others have compared it to crack cocaine. Drags you back.
Once you’ve failed to keep a real job, you have to keep failing at it. This takes enormous grit.
So good, now that you’re an entrepreneur, how do you become a successful one?
You just have to keep failing to keep a real job till you die.
Whether you die proud owner of an apple cart or a billion dollar company, you still get to call yourself an entrepreneur on your deathbed. So long as you can claim with a straight face that you never learned to keep any real job.
What does this continuous failure to keep a real job teach you?
In order, the longer you keep at it, the more of this list of things it teaches you, byforcing you to do them:
- Dollar Number One: Congrats, you’ve failed to keep a job. Make money by any means necessary, other than getting a job (in the US, there is a preliminary step called “get health insurance by any means necessary). A shocking number of people with entrepreneurial ambitions have never made a non-paycheck dollar. Do it now. I am not setting a high target. Just ONE dollar that’s not from a paycheck. “Making money” is a very different activity from “earning a paycheck.” For one thing, it’s like P. T. Barnum’s definition of PR. In a job, if you do nothing for long enough, somebody might eventually notice and get rid of you. Even if they do, you might actually be able to stay (cf: Wally of Dilbert, or Melville’s Bartleby the Scrivener). But there’s a good chance they won’t even notice until you’re ready to retire, and they have to think of something nice to say about you. And you’ll still get paid all the way. Surprisingly, they won’t make you give the money back when they notice you haven’t been doing anything. But as an entrepreneur, if you do nothing, a very scary thing happens. NOTHING. And when nothing continues to happen for exactly one month after you use up your savings, you are out on the streets. There’s nowhere to hide. You default to destitution.
- Revenue: Once you’ve made your first buck by any means necessary, you make your next buck. Then your next buck. And so on. You’ll notice something very strange about your Rate of Incoming Bucks (RIB). It is very, very uncertain.So you have to learn a strange kind of arithmetic known as book-keeping just to figure out whether or not you are financially alive. In a paycheck job, you keep track of money with the formula: Paycheck – Expenses = Retirement Savings. As an entrepreneur, you keep track with the formula: Vague Money-Making Activities – Expenses = Varying Levels of Anxiety.
- Operating Cash Flow Positive: If you’re lucky, you’ll keep surviving one rent-check at a time, so you can continue to “fail to get/keep a job” one month at a time. This is like when Mr. Miyagi teaches Daniel San to punch while standing on the sides of a dinghy in the Karate Kid (original version). The punches are your rent checks. The dinghy is your revenue. Mr. Miyagi shaking the boat is also known as VUCA: Volatility, Uncertainty, Complexity and Ambiguity. The ability to keep doing this no matter how hard Mr. Miyagi rocks the boat, is calledcash flow generation. Falling into the water and NOT clambering back into the dinghy immediately is called “failing to fail to keep a job.” It is necessary for, but not the same as “keeping a job.” Keeping a job is an entirely different skill that maps, in our convoluted metaphor, to learning to swim. So if you fall into the water, you either keep climbing back into the dinghy, or you learn to swim, or you DROWN. If you manage to stay on the dinghy for more than two quarters in a row, congrats. You are “operating cash flow positive.”
- Vision: Now, once you can keep your footing on the shaky dinghy and keep punching well enough that you can dare to actually look around, you’ll notice stuff around you in the universe that is NOT a rocking dinghy or punches or Mr. Miyagi. It’s called the “environment.” You probably noticed it before, but you never really noticed it. You cannot really see see the environment for what it is unless you are throwing punches while standing on a wobbly boat. Seeing the environment while throwing punches on a rocking boat has a special term to describe it: vision. Any idiot can look around while standing on firm ground. It is also easy to look around while swimming (it’s called the back stroke).
- Innovation: Now once you’ve got the vision thing down, you’ll start noticing tempting, alluring, attractive flying fish occasionally jumping out of the water. These are of the species called slipperius opportunitus, otherwise known as “opportunities.” But if you try to reach out and grab any of them, you’ll most likely fall into the water. Then you get back in (unless you accidentally learn to swim), find your footing again, get going with the punching again. Eventually after enough falls, you’ll notice that you can catch some opportunity-fish withoutfalling into the water. Once you get a fish into the boat while continuing punching, congratulate yourself. You’ve risen above merely making rent. You just learned a skill known as “innovation.” Some people just get tired of falling into the water and switch to just excitedly yelling out each time, “there’s an opportunity, and THERE goes another one.” This is not innovation. This is an activity that looks superficially similar called “R&D.” These people eventually fail to fail to keep a job, fall into the water, and learn to swim. Many go on to win Olympic gold medals in the back stroke.
- Marketing: Eventually you’ll notice that certain things you do — certain combinations of wobbly punches — seem to actually create opportunities (=flying fish, remember). This is called “marketing.” You’ll notice that these opportunities tend to be better than those you randomly catch flying around. The more of this voodoo behavior called “marketing” you do, the more such opportunities are created. Unlike “grab ‘em as they fly by” opportunities, created opportunities are an autocatalytic thing. The more you create and grab, the more show up. Yeah, those fish are kinda dumb that way. This is called “creating a customer.” Once you’re past this step, and have learned a few of these voodoo patterns, feel free to make and print out a certificate declaring yourself “Drucker-Certified Real Businessperson.” You get this because you just learned innovation and marketing and have “created a customer” rather than simply paid yet another rent check. Your life now has Business Meaning. It is doing more than just surviving and failing to keep a job.
- Doctrine: Now, many people stop here. They just grab all opportunities as they fly by, and dump ‘em in the boat, where they thrash around until they jump back into the water accidentally. This is like unintentional catch-and-release fishing. If you stall here, there’s only one useful thing you can do, which is to tag the fish with RFID chips before they escape, a weird kind of evil anti-business known as “patent trolling.” There’s a famous, smart and rich guy named Nathan Myrhvold who is really good at this. But he’s still a troll. You later make money by blackmailing the people who do manage to keep those specific tagged fish from wriggling away. Anyway, getting back to our story, at this point, you can only progress further if you learn a REALLY neat trick: knowing when to quit. You’ll find that you can only hold on to some fish longer if you actively throw out other fish faster than they wriggle away naturally.When you are able to quit effectively and intuitively, and without recourse to things like patent trolling, and can state with precision your principles for holding on or letting go, you’ve learned the business skill known as doctrine. You Now Know What You Believe.
- Strategy: (sometimes spelled “strategery”): At this point, you’re standing on a wobbly boat, catching fish without falling off, doing not-too-evil things that make more fish jump out at you, and deciding which fish to keep and which fish to throw back into the water. But you still haven’t learned the master trick required to avoid learning how to swim long-term. At some point, you’ll recognize that having certain fish in your boat is even better at attracting more fish than your voodoo punch combinations that we identified earlier as “marketing.” You keep the opportunity-fish that most increase the rate at which MORE opportunities jump out at you, constantly trading up along the way. This is called “getting inside the tempo of the market” for people who believe in a mysterious business religion called OODA. When more fish start jumping out at you than you can catch, you’ve hit a state called Product-Market Fit. At this point, you are in danger of your boat sinking due to too many fish in there. Getting yourself a bigger boat that can hold more fish is known as SCALING (hehehehehe! this whole answer was an exercise in getting to this one pun). You can also scale by getting some good swimmers to swim alongside your dinghy, throwing them dead fish to eat, so they can concentrate on swimming. In return, they do various useful things for you that will really push the limits of this metaphor.
At this point the punching-on-a-wobbly-boat metaphor fails.
If you do all these 8 steps correctly, you’ll be an entrepreneur. And remember, all along you still have to have the grit to continue failing to keep a real job. That task never ends. There is ALWAYS a danger that you’ll accidentally learn how to swim.
The journey actually goes on beyond point 8 (it’s called “building a company”) but I won’t get into that. That’s a different question.
And just to round out the metaphor:
1. Retirement is swimming to the shore quickly enough to enjoy a few hours on the beach before you die.
2. Inherited wealth is finding yourself on the beach at adulthood, rather than on a wobbly boat.
As a first step to becoming an entrepreneur, you can look at the image below and try to make a list of things that combine what you love to do, what you are really good at doing and what can bring you money.
Entrepreneurship is not exclusively about starting a company, it is about approaching your career in a different way. Embracing this philosophy of entrepreneurship will help unlock your potential and allow you to make the greatest impact in your professional life.
Things to keep in mind:
1. Invest in yourself- you may want to learn to code, but don’t learn to code if your heart is somewhere else.
2. Discover how you are different and better than other people.
3. Adapt to changes in the marketplace. Have a plan, but always be revising it.
4. Be thoughtful, but unafraid of risk and failure.
5. Read The Startup of You.
Approaching life this way will enable you to discover the best way to apply your skills and aspirations to the marketplace.
- Why? Where does my passion lie? Where do my unique strengths and skills lie?
- Often customer pain points. Steve Blank has an interesting model he’s put together with Eric Reis, which may be able to help you make that determination. The book Startup Owners Manual has a number of checklists to help you go through that early process. (I believe the textbook on the Entrepreneurial Mindset by McGrath may handle similar issues via checklist). I would probably start with the Startup Owners Manual, however.
- I also like Seth’s method of opportunity identification–he has a list of 10. Thats kind of the formal name in the entrepreneurial business books to talk about the process you are inquiring about. Here is his Ten Step Idea Evaluation Worksheet:
- The Idea – brief description
- Problem Solved – what is broken that the idea fixes?
- Who Has This Problem? – market size, characteristics, just me?
- How Resolved? – is the resolution economical, practical, technologically feasible?
- Business Model – how can I make money solving this problem for the identified audience? How much money can I make?
- Competition – which competitors will prove to be the most formidable? What potential competitors might arise – can they be converted to partners? NOTE: competitors validate your idea, if you lose heart after one Google search, you are not sufficiently passionate about the idea.
- Differentiation – what color are my elephant’s sunglasses, how I will beat the competition? To what extent are the points of differentiation sustainable?
- Challenges – what potential pitfalls that could cause the idea to fail?
- Resources – what contacts, capital, facilities and other assets will be required to execute the idea?
- Fit – do I have the appropriate skills and passion to successfully execute this idea?
The question of will the customer pay to have this problem solved and how much they pay should probably be #11. However, you probably need to talk to customers to fully validate this assumption.
As you will notice #10 is basically the why question combined with your strengths & skills.
One way to solve some of the challenges you might encounter is partnerships.
One other question to consider is cash flow versus speed to market. How long will it take me to build my product? Or how can I partner with someone so that I can amp up my speed to market in an economical way?
Update: The Business Model Canvas is also helpful: Business Model Generation – Canvas
Think of each of the core components as an assumption or hypothesis–and test the key components. Also, iteratively (or cyclically) improve your product to meet the needs, wants, and expectations of your customer base.
The very fact that you mentioned this in the end at least gives you a half of the answer.
Entrepreneurs see opportunities where others sees problems so you have to start by seeing an opportunity. When you see it, just grab it and invent a system that makes money out of that opportunity. But before that you need to have the right attitude and here are some advice for your mindset:
1) even a brilliant idea values almost zero if the execution fail. So first advice: the idea itself have much less value than the execution itself.
2) expect the worst case scenario as plan A not plan B. At least if something bad happen you won’t be depressed or discouraged and possibly you will have the power to move on with another idea in the future.
3) if plan A happens (meaning fail) then move on to another opportunity. The secret is to not lose all your money and energy in the first or second business idea
4) setup your mind to prepare for confrontations with workmates, partners, customers, and people you borrowed money from :-)
5) expect to contact 100 leads and sign with only one in the beginning
6) expect that one to cancel the cooperation after a while…The first 1 to 10 or 100 customers are the secret if your business will succeed or fail. After you hit the first 20 or 100 customers, more than half of your startup problems disappear and you enter in the stage of “after-startup” phase with other kind/set of problems…
7) the successful entrepreneurs/founders on Forbes/Inc cover magazines represent a maximum of 1-3% of total entrepreneurs. The rest of them don’t own big boats or villas in Saint Tropez or Hawaii, they are just too “insipid” for the media even though they create the majority of the jobs…
8) expect to make LESS money in the first 1-3 years than you would have made if you were in your initial job
9) have at least one partner/co-founder. If you have one co-founder don’t split the equity 50-50 only if you have a VERY DETAILED set of written/signed instructions of how you will govern when problems occur. You know the saying: “an animal with more than one head is a monster”
10) have some savings to cover your life expenses for at least 6 to 12 months when you begin. I know it could be pretty difficult to have this money accumulated in savings but otherwise the pressure of “I need my food/mortgage money soon or I will be doomed” will be so big that you will tend to drop your venture not when you really need to exit from it, but when you don’t have money to survive and need a job…And this could be pity because as I said even a good idea needs months of work until you reach your first customers.