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 | A young budding entrepreneur asked me to identify the most critical factors contributing to the success of a business, especially relating to start-ups. The subject has been studied by many academic researches and written in many business books | ||||
(Handout from a lecture on Entrepreneurship at Tongji University (Shanghai) on 11 July 2009) A young budding entrepreneur asked me to identify the most critical factors contributing to the success of a business, especially relating to start-ups. The subject has been studied by many academic researches and written in many business books. I don’t think I would be able to add much insight, especially for those who want serious scientific data and specific case studies. However, the young friend was insistent since he was impressed by my 40-year plus credentials, by my involvement in countless successes and failures, including many of my own undertaking. I obliged by crystallizing the contributing factors into the most essential, summarized for easy reading and ranked them according to the importance I personally graded. These 6 factors include 4 internal catalysts (desire, work, health and attitude) and 2 external influencers (connections and luck).
You often heard of the phrase “ideas are dime a dozen”. Yet, all business starts with an idea, or several ideas which go through a process of transformation and crystallization, not unlike the iron bar in the huge baking oven. Many people love business and many have wonderful, innovative idea about business. However, most ideas or plans die along the long journey. The biggest difference between the ideas that succeed and the ideas that die prematurely is the fire, the insatiable desire and passion to succeed no matter what cost. The fire inside is what ignites the beginning of an idea, and the ongoing nurture of the little seed until it becomes a giant tree. Without the relentless passion to spur on the battle, any entrepreneur, big or small, will quit after a series of setbacks. Setbacks are as natural as the bad weather: the rain or the storm will come despite how many sunny days you experience. Without a desperate desire to succeed, the encountered problems will be too big for the heart and the will to go on.
During my 40-plus years of doing business in many industries, I haven’t met a lazy, successful business person. Even if some tried to impress upon you that they succeeded without working hard; in reality and retrospect, they really had to spend a lot of time to get any business off the ground and grinding it through many obstacles. There is no such thing as a 40-hour work week for a successful entrepreneur. The minimum I have ever seen a business owner works is 10 hours a day, 7 days a week. That was not even the case when he just started the company up. By then, the 14-hour days were routine. There is no substitute for hard work, period. People talk about the balance between work and life. The awful truth: there is no such thing. If you are trying to raise a family with young kids and starting a business at the same time, you would have no time to sleep and the resulting insanity would drive you to the mental house faster than you think. Even if you are lucky enough to afford a high price for an already-successful business, you are still required to spend a lot of time attending to a whole range of issues that need quick decisions on a daily basis. Now you know why the previous owner was so anxious to sell the cash flow stream to you so he could enjoy the golfing and the fishing. The works involved are not the exciting stuff you’ve often read in biographies or business schools. Many of them are mundane boring things that you would have never thought of doing before you become a business owner. During the start-up phase when the business was short of money and resources, the owner must be willing to work as a janitor or a handy man, especially during weekends.
The third most important factor that an entrepreneur must possess is the ability to absorb stress at an extremely high level. Stress comes from all directions: from your creditors first of all, then from all the so-called stakeholders (partners, shareholders, suppliers, employees, taxmen, regulators, family, society…). The personal fear of failure will also contribute a fair amount of personal stress. There is no escape from it, even when you are asleep or on a vacation. Stress will definitely take a heavy toll on your health. Without a strong body and a healthy heart, you are taking serious risks to your health. A complete medical check-up before embarking on any venture is most recommended. One should note here that people with Type-A personality (easy to get upset, angry or excited) are most vulnerable; yet, they are often the ones who want to be a business owner. However, dealing with stress is a process you could learn by practicing certain mental exercise. If you are paying attention to this problem and seriously want to overcome, you could do it.
Every business involves risk, even the so-called too big to fail conglomerates. Many names like Continental Railroad, Carnegie Steel disappeared into the history dustbin; and recent casualties of the global financial crisis claimed such venerable victims like Lehman Brothers, or Bear & Sterns. Imagine the type of risks facing the small to medium business owners. There are macro risks from the economic environment and industry trends. There are micro risks from the employee mistakes and owner miscalculation. A logical mind of a math professor would never understand the odd of business venture. If your risk appetite is small, you would never think that anyone with a right mind would leave the port in a small boat facing a storm. The attitude of a true entrepreneur is different: riding the wave with all the gusto of someone who believes that somehow he will conquer the challenges and bring home the trophy. It’s the all-or-nothing mindset of a desperate gambler. There are a lot to lose in a failed venture: life savings, family security, personal reputation and maybe on-going debts. A fund manager for an estate portfolio of a conservative bank would never understand the magnitude of the risks undertaken by any business owner. Most statistical data from government and university indicated a failure rate of over 70% for all start-ups. Without the clear understanding and the willingness to take on huge risks in advance, the entrepreneur would be discouraged and buried at the first sight of trouble.
Another big factor that would help the success of a business is a management team who has the 3 keys to open the shut doors during the journey. They are the experience of running a business, both successfully and unsuccessfully; the connection or networking required to obtain the necessary assistance; and the extensive knowledge of the industry and its players to avoid stupid mistakes. The experience in business success and failure would give the entrepreneur a road map of the journey. Difficult as it is, it would be thousands times more challenging if you don’t know the road, the high and low, the curve and the intersection. The connection to other professionals would shorten the learning process of the entrepreneur. Knowing the professionals who could advise you on legal issues and the tax requirements of your business would save plenty of unnecessary headaches. Having the help of financial professionals to raise funds or to monitor cash flow would be a must for any management. Connecting to important players in the industry to secure sales and supplies are very valuable in any growth prospect. Finally, the extensive knowledge of the industry is the fatal difference between a novice and a professional. Any business model, even a simple retail store, contains many operational secrets and hidden techniques that only insiders are privileged to discover. Mistakes are always expensive. Reducing this cost is an important undertaking.
Of all the factors contributing to business success, luck and timing is the most difficult to quantify and could cause problems to even the most experienced and sophisticated entrepreneurs. Like the Greeks used to say, “when you go against the Gods…” Most Chinese entrepreneurs believe in feng shui, in astrology, in selecting the right day for business opening. There is not much an entrepreneur could do regarding luck; but the conventional wisdom is the harder you try, the luckier you become. Many business owners also possess the “gut” feeling, the uncanny timing when the right opportunity arrives. FINAL WORDS… As I indicated at the beginning, these influencing factors are common in a normal, competitive business setting facing a budding entrepreneur in a true market economy. However, there are always exceptions and outliers; and in many emerging countries, irregularities and irrationalities might be the norm. In places like China, Viet Nam or Burma, an ambitious opportunist would do much better than an entrepreneur who plays by the rules. However, whether you are an entrepreneur or an opportunist, creating a sustainable business is never an easy task, like getting a degree from a university. You can pass all the courses in flying colors by working hard and doing all the right things; but in the real world of business, the outcome is always uncertain. One word of encouragement: a recent survey from Forbes magazine revealed that 32% of new fortunes (over US$1 billion) in the last 20 years belonged to a crowd of under-35 entrepreneurs. The brave new world of IT, Internet and finance does indeed bear the imprint of young people. It’s a great time to be young. | |||||
| Alan Phan, Ph.D, DBA | |||||