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What else do you need besides a good idea and a bit of money? A
lot, it turns out.
So just what does it take to be an entrepreneur? It turns out
that the skillset required to be an entrepreneur is similar to most business
skillsets — it requires excellent analytic capacities as well as an
understanding of how organizations and economies work.
But the most important thing is the ability to appreciate and
evaluate risk.
Just what does it mean to be able to evaluate risk?
Today, we'll look at skills possessed by many entrepreneurs, and
explain how risk assessment fits into each one. Sound like a risk you're
willing to take? Read on.
They look for smart money
Most people consider starting
their own business at some point in their life, be it mowing lawns or building
a new tech company from the ground up. They might seem very different, but all
business ideas have one thing in common: Start-ups need capital to get started.
For most entrepreneurs, this
means finding an investor. And if they're lucky, they'll find an angel investor.
Unfortunately, the primary goal
of many entrepreneurs is securing funds as quickly as possible. In their haste,
they often strike a deal with the first investor that comes their way — this is
not smart money.
Risk factor: If you're able to properly assess risk, you'll feel
confident passing over risky investors while you wait for an investor whose
skills, connections, and resources fit your company.
They have an exit plan
One of the best ways to impress an investor is to show that
you're already thinking about an exit plan. There are two exit strategies for
start-ups: being bought by a bigger company or going public.
It's important to keep in mind that it's extremely rare for a
young company to go public.
So effectively, having an exit strategy means that you've
already found a target company that could be interested in purchasing your
start-up, and that you've created the conditions necessary for the acquisition
to take place, such as having transparent and organized financial records.
For an investor, an exit strategy is one of the primary reasons
to invest in your start-up in the first place! Just like you, investors are in
the game to make money. Thus it's natural for them to want a clear exit
strategy from the start as proof that you're taking their interests into
account as well.
Risk factor: Minimize
risk perception for your investors by showing you've planned for your company's
future.
They understand expected value
Entrepreneurs deal directly with visible risks. They may not
make an immediate profit, but they acquire skills and create systems and can
change them if they don't produce the desired results.
In other words, they enjoy unlimited control and unlimited
variables, and the possibility for growth is vast. Most of the entrepreneurs
the author talked with would actually be disappointed with a growth rate of 20 percent
per annum.
Much like poker players, entrepreneurs understand the concept of expected
value. This is the average value in a series of repetitions of a
random variable.
Say you're playing a hand in a poker game and it'll cost you
$1,000 to view the final card. You know there's a 20 percent chance you'll win
$20,000 for the whole hand. So you're coughing up $1,000 for an expected value
of $4,000, which is 20 percent of $20,000. If you place this bet enough times,
you're guaranteed to come out on top. It's no surprise, then, that many poker
players end up being entrepreneurs.
Risk factor: expected
value is just a fancy way of quantifying risk. It can help you with everything
from buying used cars to buying lottery tickets.
They’re data-informed, not data-driven
As an entrepreneur, you'll need to stay informed about data.
Data, in addition to guiding you along your journey, makes it hard to delude
yourself. If you run a media site, for example, you'll need data about ad-click
numbers. If you're an investor, you'll need to know all the figures about your
investment's return.
One reason that data is so crucial is that entrepreneurs often
lie to themselves a bit when assessing their success. After all, they often
need to convince other people (like investors!) of their ideas without having
any hard evidence that these ideas will actually work.
However, if you believe too much in your dreams, your
start-up probably won't survive. You need to stay grounded in reality – and
that's where data comes in.
Data is the antidote to self-delusion. By allowing you to
soberly measure your success, it keeps you on track: you'll know exactly where
you stand as you work toward your goal.
You shouldn't become a robot that just follows the numbers,
however. Your personal judgment is important too! You don't want to be data-driven;
instead, stay data-informed.
Imagine, for example, that you run a website, and your data
shows that pictures of scantily clad women increase your click-through rate. If
you just blindly follow that by filling your page with models in bikinis, you
might undermine your business's image or integrity.
So don't become a slave to your metrics. Remember: data is
ultimately just another tool.
Risk factor: it's
important to believe in your startup, but not to the point of blindness.
Focusing on data makes you better able to interpret and moderate risks.
They focus the most effort on one metric that matters
One of the keys to achieving success in your start-up is staying
focused. This is not new to you. In fact, it's pretty obvious. But here's a
twist: focus, as an entrepreneur, means that you need to concentrate on the
single metric that's most critical to whatever stage you're going through.
At any given time, you should always know what your most
important metric is. As a start-up founder, you'll have to keep track of
multiple figures, like revenue per customer or customer satisfaction. Some of
these numbers will matter immediately, and some you'll store for future use –
when you present your company's history to an investor, for example.
One Metric That Matters, or OMTM. Your OMTM helps you set clear
goals and measure your success along the way.
In the restaurant industry, for example, the ratio of staff costs
to gross revenue is a great OMTM. It's simple, immediate, actionable and
comparable: it's a single number you can generate every night; you can adapt
your costs to it quickly; and you can easily track it over time and compare it
with other restaurants.
You could set a clear goal by aiming for a ratio of 0.25, for
instance. That would mean that each of your staff costs should produce four
times the gross revenue. If you're below, maybe you're under-serving your
customers. If you're close to this figure, you probably have a good balance
between customer service and customer profitability.
Risk factor: minimize
risk by focusing your efforts where they will be most effective.
They look for generalists
Just as not everyone has what it takes to be an entrepreneur,
not everyone is fit to be a start-up employee. Which sort of person, then, will
make the cut?
Surprisingly, it's the
generalists, not the specialists, who are the treasures. Start-ups in the early
stages require a fluid strategy to cope with the ups and downs of a new
business, thus employee roles should be equally fluid to manage these rises and
falls.
Indeed your very first employees may move quickly through
radically different positions at the start. Considering this, a specialist may
struggle with this constant shifting. Imagine asking a lifelong accountant to
start handling Facebook posts, for instance!
Your ideal start-up employee should also come with experience
working in small companies as opposed to large corporations.
Frank Addante of StrongMail learned this lesson the hard way.
He hired a qualified vice
president of sales who had previously worked for IBM and Oracle. Though the
candidate looked great on paper, he was near useless for the first three
months. The reason?
He wasn't comfortable with the responsibility of building a
system from scratch.
Being able to start small and work from the ground up requires a
whole host of skills that a person often doesn't gain from working in established
systems. This also applies to managing people.
Teamwork is crucial in start-ups, as everybody has to
contribute! You might find that you just need people who can work
independently, and can do without managers at the start.
Risk factor: When you
don't understand the exact challenges you will face, hedge your bets by
preparing for a wide range of eventualities.
Understand risk to limit your exposure to it
Without a robust understanding of
risk, an entrepreneur (and her projects) won't be around for long. Indeed, an
entrepreneur's success hinges on that entrepreneur's own ability to assess and
understand risk.
Though it's commonly said that
investing is like gambling, it's distinctly different from going to a casino:
if gamblers really understood risk and probability, they'd be entrepreneurs!
Original Article: Ways Entrepreneurs Are Different
Original Article: Ways Entrepreneurs Are Different
