Guys – it is time to ditch the old ‘build a business and sell it for zillions’ goal!
Just as easy credit has passed into history so too have the dreams of becoming instant dot.com millionaires as a result of a few lucky breaks and some unknown buyer waving cheque books.
As most successful entrepreneurs know, it doesn’t really happen like that – unless you are incredibly lucky.
But, it is a common battle cry from entrepreneurs that they want to sell their business for ?5m in 3 years time – or some similar sort of goal.
This type of goal seems to be partly a response to the need to ask for funding – which inevitably invites the question ‘why would I fund your company’ to which the prepared reply can be ‘because I’ll make you rich and here is how…’
So, now that the old credit flows have dried up and we are living a more chastened business life, what kind of business goals should a successful entrepreneur set him or herself?
On the face of it, the UK Chancellor’s budget speech on Wednesday offered a reasonable boost to small businesses and entrepreneurs.
The budget, the last before the general election, has therefore been largely welcomed by the business community although some claim it still does not go far enough in its support for entrepreneurial and fast-growing businesses.
In particular, the decisions to keep Capital gains tax at 18 per cent and to double Entrepreneurs’ Relief to 2 million have been widely welcomed. This last move is particularly interesting as it is likely to lead entrepreneurs to seek to sell their entire business – thereby realising a capital gain – rather than selling the assets, which would be taxed as profits.
The Chancellor also announced a range of initiatives designed to increase access to finance for small businesses and entrepreneurs, including:
A new national investment corporation to improve Government help to small and medium-sized enterprises
A new Growth Capital Fund to provide fast-growing companies with private capital – commercial banks have so far agreed to contribute over ?100 million but the target is ?500 million
The provision over the next year by RBS and Lloyds of a total of 94 billion in new business loans, nearly half of which will go to smaller companies.
Successful entrepreneurs are constantly asking three key questions –
‘what isn’t working’
‘why isn’t it working’ and
‘can I do anything about it’?
These three questions are the most important questions in the entrepreneurs vocabluary and a lifetime can be spent on developing the skills and abilities to answer those as successfully as possible.
So, what might these questions mean in practice? Let’s have a look…
Well, you might say that the European labour market isn’t working. That is, unemployment levels are much higher than in Asian countries or the US and the long term unemployment rates are far higher too. Why isn’t employment working? Well, mainly due to taxes, costs and the bureacratic burden of employees.
But is there anything you can do about this? Well, taxes are political – so let’s not go there – but knowing how the structure of the labour market works means that companies would be attracted to simple and cost efficient ways to hire staff. So, the freelance and contractor sectors of employment are the growth areas. And, therefore, can you build a business to meet this increasing demand?
Another typical complaint – house prices – might lead to a different answer. That is, house prices in the UK are very high – relative to earnings - and therefore it is hard to sell your property and move to another. This has all sorts of macro-economic disadvantages, but leaving those aside, it has lead many entrepreneurs to believe that the solution lies in either a direct sale approach to house sales (ie. cut out the agent) or a digital online database (property portals).
We have a recruitment interview Breakdown – 86% of interviews fail to pick the right person for the job.
According to a Michigan State University study on predictors of performance,
Some 90 per cent of hiring decisions are made as the result of the interview, but interviewing is only 14 per cent accurate
During an interview candidates are naturally on their best behaviour, acting to impress. However, it’s their true behavioural patterns you should focus on.
Studies of the recruitment interviews show that the typical outcomes are:
- 15% pick the right person
- 30% pick someone who can do the job
- 45% pick someone who fails
Okay, as an entrepreneur you need to make a choice. Either your new enterprise wants the best people and is committed to excellence in all that you do, in which case getting the right person into the right job is an absolute must or you are willing to get anyone so long as they can ‘start right away’.
I’ve been asked to advise Liverpool John Moores University entrepreneur students on getting finance for their new businesses.
Controversially, my view on finance for young entrepreneurs would be, don’t.
Here’s what I would recommend:
- a) avoid finance if at all possible and always for as long as possible – learn to beg, borrow and barter
- b) focus on the ability to implement – not the idea
- c) no one will invest in your idea unless you can sell – so what proof do you have of sales skills?
The only exception are silicon valley type VCs which invest heavily in ideas from untested entrepreneurs. If this is the kind of project and experience that you offer, then your best bet would be to catch a plane to San Francisco as this is extreme high risk investing and most investors are not willing to do this.
The essence here is that you have to be offering to create not only new customers (the standard definition of entrepreneurship) but also a new industry. But be careful, this is not as easy as it sounds – and many young entrepreneurs fall for this mistake. (See the business parable of the Rock that Wouldn’t Budge).
New industries don’t come along often, so, a VC is going to expect a high risk (or potentially very high risk) to the enterprise in return for a huge ‘google’ like return.