Читать книгу The Entrepreneur's Paradox - Curtis Morley - Страница 8
ОглавлениеSeeing the Swamp and Not the Mountains
“If you don’t know where you are going, any road will get you there.”
—Lewis Carroll, author of Alice’s Adventures In Wonderland
I love seeing when the entrepreneurs I work with have the “light bulb moment.” This moment happens when, maybe for the first time, they begin to see past the swamp to the mountain range waiting to take them to new heights. Entrepreneur’s Island has always had mountains, but the monotonous and tiring daily drudge of wrestling alligators distracts entrepreneurs and keeps their attention focused on the swamp. Every start-up has a swamp full of alligators and every start-up has majestic mountains to conquer. The sad truth is that most entrepreneurs never make it past the swamp to begin their ascent. For the lucky ones who find the mountains on the island, they are able to take a completely different journey full of adventure. In the real world as I’ve worked with clients, I’ve heard this realization expressed countless times in more or less the same way: “I didn’t really think about what my company could eventually become because I’ve been so heads down this whole time.”
This is the first light bulb moment, when the entrepreneur sees the mountain and realizes that, if they are willing to completely change their identity and remove themselves from the swamp, they can achieve great things. The second big aha is when they realize their entire reality just shattered and now they have no idea where to start! But like my clients, if you’re willing to break free from the paradox and change your identity from service provider/product builder to business builder, you’re ready to chart a course forward while avoiding the common pitfalls along the way. Pitfall 1 is about seeing past the swamp and jungle thicket and discovering the exciting mountains waiting for you to climb.
Begin with the End in Mind by Picking Your Mountain Range
“Beginning with the End in Mind means to begin each day, task, or project with a clear vision of your desired direction and destination, and then continue by flexing your proactive muscles to make things happen.”2
When forming a start-up, most entrepreneurs don’t “begin with the end in mind” as the late Dr. Stephen R. Covey said. Instead, they start with the beginning in mind. What I mean by this is that most entrepreneurs want to create something cool, that has never been done before, and will change the world. But then what? What’s the next step after you create the next Facebook or TikTok? What do you do with your product or service after you create the idea?
Consider the history of the electric car. If I were to ask you the year, make, and inventor of the first electric car, what would you say? Elon Musk and the Tesla Roadster he released in 2008? How about Nissan and their electric Leaf? As it turns out, it was neither. The first production electric car was built in 1884 by Thomas Parker, a British inventor. Never heard of him? Don’t worry, no one ever has. Simply creating something revolutionary is not enough. Parker’s invention was groundbreaking and could have dramatically changed the world and the environment, if he had had the vision to go beyond the invention. Many people confuse being an inventor (or even an innovator) with being an entrepreneur. I certainly did in my first business. I thought if I built the most amazing, award-winning websites and interactive multimedia, the most revolutionary rich internet applications, or the best apps known to mankind, that would be enough. But being an inventor/innovator is not the same as being an entrepreneur. The paradox of focusing on the product and not the company kept me struggling in the swamp and wrestling alligators.
“S&P 500: The Standard & Poor’s 500 (S&P 500) Index is a grouping of the 500 largest US publicly traded companies. The index includes many high-tech and financial businesses.”
“IPO: Initial Public Offering (IPO), is the procedure a privately held company uses to ‘Go Public’ or start selling stock on the stock market or other exchange to outside investors. This highly regulated process is used to raise capital by selling shares of the company to the public. It is governed by the Securities and Exchange Commission (SEC).”
In the past, startups had the luxury to grow for decades in isolated markets, and the global economy was more of an idea than an actuality. The model had been built by names like Rockefeller and Buffett, and it required a mentor steeped in expertise to teach the secrets of building a successful company. But today the speed of business is accelerating at a rapid pace. For example, in 1935 the average lifespan of a company on the S&P 500 was ninety years. In 2020, the average lifespan of a company on the S&P 500 is only eighteen years. And it’s predicted that, by 2027, that number will drop to only twelve years and 75 percent of companies on the list in 2012 will be gone by 2027!
This trend raises the question: why is the lifespan of companies on the S&P 500 decreasing? Why are they disappearing so quickly? It’s because the speed of business is increasing. Companies are able to reach profitability faster, capture market share sooner, and hit their stride earlier. Because of all this, they are becoming acquisition targets more speedily. All of these factors also mean the largest companies can be overtaken by new startups in ways that were never thought possible in the past. Startups are going public in fewer years and technology is advancing at an astonishing pace. Systems have been created that accelerate sales, marketing, customer relationship management, and finances, spinning the business life cycle faster and faster. You no longer have to be an apprentice to the titans of industry to become the next big thing. You just need to tap into the principles of entrepreneurship that have already been discovered and avoid the most common pitfalls.
To begin with the end in mind means deciding what kind of business you want to run. This comes down to a choice between the three mountain ranges found on Entrepreneur’s Island:
•The Lifestyle Range. Adorned by the smallest and most navigable mountains, this range is marked by small, typically one-shop businesses focused on earning enough cash to support a desired company culture and/or lifestyle. But there are plenty of pitfalls for the unwary: it looks deceptively easy (but it’s not). One of the greatest risks is a loss of passion.
-Real-world example: The Wasatch Range; Mt. Timpanogos.
•The Buy or Be Bought Range. Marked by significantly higher mountains with more technical paths to the summit, this range consists of entrepreneurs building businesses in preparation of an acquisition or a merger with another company. For many, the mountains found on the Buy or Be Bought Range represent the most compelling reward for the time and effort required to get to the top. Mountains found on this range can be exciting to tackle, as things take off quickly and it’s likely others around you will take note. Recognition and awards may come quickly, but climbing a mountain on this range requires a greater degree of preparation, team support, and leadership prowess.
-Real-world example: The Eastern Rift Mountains; Mt. Kilimanjaro
•The IPO / Private Offering Range. Home of the very highest and most technically demanding Public Offering mountains. This range is impossible to navigate without highly trained experts, careful planning and preparation, and a willingness to follow a very exacting route that allows little or no error. This is not a range for novices to attempt. It is fraught with pitfalls at practically every step. Making the final ascent to the summit, however, can be truly life changing.
-Real-world example: The Himalayas; Mt. Everest.
The need to start with the end in mind and determine where you want to take your business is essential to success—you simply cannot wait. So let’s take a closer look at the three types of businesses in more detail:
The Lifestyle Business
A lifestyle business is what you typically think of as the flower shop on the corner, the piano teacher, the blogger with wanderlust, or the local fruit stand—a typical “mom and pop” establishment or a freewheeling hipster traveling throughout the world. It’s about work/life balance without a pressing need to grow dramatically, grab market dominance, or have an incredible Initial Public Offering (IPO). Lifestyle businesses are not trying to get bought; they’re just doing what they do day in and day out and produce revenue. That doesn’t mean they have to be small, either. I know several multimillion-dollar lifestyle companies that go out of their way to build a culture that’s bigger than just what happens at the office.
It’s important to note that, while lifestyle businesses can succeed, of the three options, they are the hardest to sustain long-term. In today’s business climate, if a company’s not adequately growing, it’s slowly dying. For example, consider a lifestyle start-up that in year one, given their small niche, managed to earn $200,000 in revenue. Then, in year two, they realized $215,000, on track for $235,000 in year three (and so on). Although the numbers look positive, that won’t tell the entire story. The market growth might be 20 percent in their industry, so growing at less than 10 percent per year actually means they are losing market share. One of the risks in a lifestyle business is that, given today’s speed of business, a competitor could be eating up the market share. Or, market forces could have changed so rapidly, the product or service may be on its way to irrelevance—despite steady increases in top-line revenue.
In my experience, lifestyle businesses are the most difficult of the three. This isn’t to say a lifestyle business isn’t a viable option. In fact, if your focus is having more time or flexibility, and you love the satisfaction of the creative process, this can be a great goal. History suggests this is not the ideal route for producing extreme wealth, but some companies do achieve great results. One such company I’m familiar with is called TestOut. This is a company that does certification training for popular IT and computer technologies and has been able to attain and maintain a profitable business that provides a great lifestyle for the owner and employees. In fact, they are profitable enough that they have provided a yearly cruise for every employee and their significant other as a year-end bonus. You can imagine the expense of doing this. The founder, Noel Vallejo, has learned to navigate the mountain and avoid the pitfalls as outlined in this book.
In my home state is a majestic mountain called Mount Timpanogos, my real-world equivalent to a Lifestyle Mountain on Entrepreneur’s Island. The mountain is named after a beautiful American Indian princess, and if you look closely, the ridge of the mountain outlines the resting maiden’s form. This peak rises from the valley floor to a height of 11,752 feet. To get to the top of the mountain, you hike along a well-worn trail traveled by many others, which is beautifully adorned with wildflowers. It’s common to see herds of mountain goats, bighorn sheep, and maybe even an elk or moose. The hike begins just above the famous Sundance ski resort and is seven and a half miles one-way (fifteen round trip) with an elevation gain of 4,580 feet. Many will embark in the early twilight hours to reach the summit in time for the sunrise. The hike is not easy, but it’s also not hard. Children make the trip as well as eighty-year-olds. In order to make it up, one requires a good set of lungs, a couple liters of water, a nice peanut butter and jelly sandwich (or two), and enough time to get up and back. People do this hike in nice hiking sandals and shorts, and some people even run the entire trail! If that sounds like the metaphorical equivalent to the kind of mountains you want to climb as an entrepreneur, the lifestyle business model may be the one for you.
The Buy or Be Bought Business
Most entrepreneurs dream about this end. In today’s economy, many companies are seeing successful exits through acquisition. Some haven’t even reached profitability, yet they’re still being acquired by either investment firms, private equity, strategic buyers, or competitors. One advantage of the “Buy or Be Bought” strategy is that in order to buy other companies, a start-up either has enough profit to fund the acquisition themselves or they have an investor who believes in their business model and execution enough to give them cash to purchase other companies. My most recent company, eLearning Brothers, was one of these companies, and has purchased eight other companies in the last six years. At first, the acquisitions were small. But as the company grew, the acquisitions grew and became more strategic. If the two original brothers who founded eLearning Brothers hadn’t decided on a buy or be bought mountain climb, such acquisitions would have never happened.
The real-world equivalent to the Buy or Be Bought Mountains is Mt. Kilimanjaro, the largest freestanding mountain in the world. It towers over the African continent at 19,341 feet and is a behemoth not to be taken lightly. It requires both physical training and altitude training before embarking on the expedition. Climbing is a multi-day trip, and the governments of Tanzania and Zimbabwe require guides and porters be hired to lead adventurers along the way. Much like Timpanogos, the climb can be started in shorts, with an average temperature of around eighty-four at the base of the mountain. But at the top it can drop to a frigid negative twenty degrees! There are five different climate zones on the mountain and multiple sets of clothes and gear are required. Base camp for this mountain is 3,678 feet above the peak of Timpanogos, and the climb takes much more food than a few peanut butter and jelly sandwiches and a protein bar. The necessity for water is such that no CamelBak will hold enough, and it must be collected and filtered along the route. Hypoxia (altitude sickness) is just one of several life-threatening risks involved with making the climb. But once you summit, the views from the top are breathtaking. If that sounds like the metaphorical equivalent to the kind of mountains you want to climb as an entrepreneur, the buy or be bought model may be the one for you.
The IPO Business
“Private Equity: Private equity is an investment vehicle to get funding. Private equity can come from funds, investment groups and direct private investors often called Angel Investors.”
“Unicorn: A privately held start-up with a valuation higher than one billion dollars.”
The last option is to create a company that does an initial public (or private) offering. An IPO is a large and public way for a start-up founder to receive a significant payday. Unfortunately, most entrepreneurs don’t see the company from the start to an IPO as they need to hit specific revenue numbers, require a private equity group backing them, and fail to overcome the other complexities, investments, regulations, and legalities necessary to succeed. But there are some amazing entrepreneurs, like Aaron Skonnard of the unicorn company, Pluralsight, a video training company, who stuck with the company from inception to investment to IPO. Pluralsight was founded by three partners who literally climbed a mountain in the Himalayan range and read books on investment strategies. The Pluralsight IPO raised $310.5 million and priced 20.7 million shares at fifteen dollars per share. With more than 14,000 business customers, 695,000 end-users, and 6,700 on-demand online courses, they are an example of an IPO success. Even though the company valuation is now over four billion dollars, they started out like most entrepreneurs, with a dream and desire to make it work.
Our real-world equivalent to this Entrepreneur’s Island mountain range would have to be Mt. Everest itself. Rising 29,029 feet into the clouds, Base Camp-1 is nearly as high as the summit of Kilimanjaro! The summit requires multiple trips up and down to various camps to acclimatize to the altitude and can push even experienced climbers emotionally and physically. This is the mountain of all mountains, and includes a technical climb using ladders to span crevasses in the ice at the Khumbu Icefall, as well other specialized equipment. Many who have attempted the climb have not made it back. It’s long, it’s far, it’s hard, it’s expensive, and it’s the penultimate adventure. Oxygen is expected in the Death Zone above 26,000 feet and sherpas are not optional; they are required to make it back alive. If that sounds like the metaphorical equivalent to the kind of mountains you want to climb as an entrepreneur (and you acknowledge you’re not a novice and can navigate the various perils of such a climb), then the IPO model may be the one for you.
Pick Your Destination: What Is Your “End in Mind”?
Regardless of which mountain range you choose, each will provide an incredible adventure with amazing rewards. In addition, each range will require a very different set of actions, supplies, training, and help as you ultimately pick your individual mountain within that range and begin the climb to the summit. The key at this point is to pick one, because once you know where you want to go, you will start to naturally align your time and energy toward it. And because of such a focus, once you put it out into the universe, it’s almost as if the universe conspires to make it come true. Consult the chart below as a final review as you weigh your options and decide which mountain range (business type) you will chart a course toward:
| Lifestyle Business | Buy or Be Bought (Merger and Acquisition) | IPO | |
| Focus | Profitability | Rapid Growth | Beating financial projections |
| Acceptable Growth Rates | Any amount of growth | Rapid Growth is paramount | Beat current market growth |
| Corporate Structure | Sole proprietorship, partnership, S-Corp | LLC or S-Corp | C-Corp |
| Revenue | Typically smaller dollars, from a few hundred thousand to a couple million | Increasing revenue in the mid to high eight to nine figure range | Hundreds of millions to billions in revenue |
| Profitability | Key Focus over growth: lifestyle companies done right can spin off much profit | Not the primary concern if revenue and customer growth is high | Balanced with growth |
| Lifestyle | Extremely flexible and unfettered | High demand yet flexible | High demand and market pressure |
| Market share | Not a concern | Grab market share as fast as possible sometimes at the expense of profit | Focused effort to capture market share but not at the expense of profitability |
| Revenue per employee | Enough to cover costs and have a small return | Flexible number based on growth and hiring patterns | One of the key metrics for evaluating company health |
| Lifestyle Business | Buy or Be Bought (Merger and Acquisition) | IPO | |
| Headcount | Few to no employees | Several hundred to thousands | Thousands to tens of thousands |
| Financing | Loans, Internal financing, friends and family | Venture capital, debt financing | Private equity and stock market |
| Regulations | Minimal regulations | Minimal regulations | Highly regulated |
Overcoming Pitfall 1: Move Past the Swamp and Pick Your Mountain
•Pick a mountain. Decide whether you want to run a lifestyle business, have an acquisition strategy, or work toward an IPO.
•If you are having trouble deciding, go to the website and take the survey to guide you through: EntrepreneursParadox.com/MountainSurvey.
•Read more case studies on the different business types. EntrepreneursParadox.com/CaseStudies.
•Based on which path you choose, research the story of three to five companies that took a similar path. If there are local companies that have climbed similar mountains in your area, invite the founder to lunch. If the founder is different from the current CEO, schedule a lunch with the CEO as well and ask them to share their experience.
2 Habit 2: Begin with End in Mind. (n.d.). Retrieved September 07, 2020, from www.franklincovey.com/the-7-habits/habit-2.html.
