The road to entrepreneurship – part 1: exploding the myths

“Kuch karna hai, yaar, bahut pak gaya…” – roughly translated from modern Hindi, and meaning, “I’m fed up, I need to do something (meaningful)…” an oft-repeated sentence by organization employees who want to start their own businesses, build their own organizations, and become the masters of their own fate (at least to a slightly greater extent, supposedly)!

Well, talking about entrepreneurship is like an addiction – I’ve been to quite a few panel discussions on topics ranging from B-school education to leadership, which have all finally devolved into an animated debate on what makes some startups succeed and others fail, what kind of education or work experience prepare you best to run a startup, what choices you need to make to succeed, the mindset and personality type you need and so on… many young (and not so young) working people spend hours of constructive day-dreaming and discussion to figure out how and when they must make the jump to entrepreneurship.

There are different startup models of course, ranging from intra-preneurial ventures spawned by large organizations with funding, clear business plans, product offerings and so on, to absolute bootstrap operations. This year, like each year, several startups will be founded by well qualified professionals with rich experience, powerful contacts, well-laid business plans and product ideas, and even sufficient funding. Several other (bootstrap) startups will begin without any of these advantages. Yet, within the next five years, many of the former type of startups will flounder and collapse, while several bootstrap startups will thrive and grow. What is the explanation behind this? To share some first hand observations, as well as actual experience to help deconstruct what it takes to make a startup succeed, I now present a multi-part series of write-ups on the “road to entrepreneurship”, which focus mostly on the latter type of startups mentioned above, i.e. pure bootstraps. These are the kind of startups I am most familiar with, and their success is proof of the ultimate litmus test for entrepreneurship – if you can survive and grow with a sustainable business model without external funding, you are indeed doing things right.

While I do not claim here that bootstrapping is the best way to start a business, I think there is a strong case for putting in perspective some realities about the entrepreneurial journey, and so my series begins with the explosion of a few popular myths:

Myth 1 – you need lots of money to start a business: not true unless you have already decided on a resource-heavy, capital-intensive venture. Many successful startups have been self-funded by entrepreneurs with moderate savings from a few years of work. You do need money, and the more the better, but that is to take care of essential expenses, which could be either business related, or just maintenance expenses for your personal lifestyle. My most recommended and safest way is, for a would-be entrepreneur to assess his savings and any other sources of funds, if he were to completely stop working in a regular job, estimate the amount of time for which he could stretch these savings without affecting his lifestyle (depending on whether he has a family to support, children to educate, house rent etc) and then get into a business which would take minimal investment. Today, there are huge possibilities for businesses you could set up with just a laptop and an internet connection as investment.

Myth 2 – you should not start a business without first having a clear business plan: A large proportion of successful startups have either not had much of a business plan, or have constantly changed it, especially in the earliest stages. Flexibility and opportunism are often far more important for the startup than the illusion of clear vision. As a piece of actual data from first hand experience: I started a business in 1997, and it was only in 2006 that we made a vision and mission statement, although the business was actually performing and growing well!

Myth 3 – you must have something unique to offer, to succeed in a startup: Well, this is a myth depending on what you mean by “something unique” – for instance, if you are a tech worker working in a neighbourhood of tech companies, and you decide to quit your job to start a coffee & snack stall because there isn’t a nice one in the area… now, the business itself may not be unique, but the fact that you have started it in an area with no competition could make it unique… at least for some time! My point is, entrepreneurial ideas do not have to be rocket science or nano-tech all the time… if you see a sustainable revenue stream which can be secured by providing a good product or service with quality achievable by you, then maybe you should just go for it!

Myth 4 – you must (or must NOT) start a business with partners: Even if you are young and relatively inexperienced, you can always find complementary help from your peer group or mentors, who are a growing breed. While it is good to have a like-minded fellow traveler to share the uncertainty, doubt, frustration and triumphs of the entrepreneurial journey, unless you are sure that an equal partnership creates value, which on the whole is, greater than the sum of the parts, go it alone. At least you will not have the added stress of managing a relationship internally, in addition to getting a foothold to survive and grow. Conversely, it is equally wrong to say “you must start a business without partners” – there are enough instances of highly successful startups, some of which have become monsters on the global scale, founded by partners who have an excellent understanding of working together.

Myth 5 – you cannot start a business unless you have some unique and exceptional skills, or experience: the job of an entrepreneur is to create value, and often, that happens by bringing together different inputs such as customer demand, an arbitrage opportunity, skilled manpower supply, a good environment to work and so on. If you are an excellent designer, software programmer, financial analyst or any other type of specialist or multi-specialist professional, that is a great platform to start a business on. But very soon, your role would change to putting together the work done by other specialists (unless you wish to be a freelance consultant, which is subtly different from being an entrepreneur). Therefore, while specialist skills may help you to start, paradoxically, the sooner you are able to grow beyond your own specialist skills, the faster you are likely to scale up as an entrepreneur. It is often the generalist with an open and flexible mindset, and not armed with decades of experience, who becomes the successful startup businessman, living to tell his tale!

Myth 6 – you should be in a big city to start: Not any more! Thanks to the internet and technology, you could provide products or services to customers far away. Thanks to incremental economic growth and evolving customer preferences in the hinterlands, at least in India, you could build very interesting businesses around service offerings not yet available in upcountry locations.

Myth 7 – you should have strong educational qualifications to start: Good qualifications from premier institutions, or good grades for that matter, could be an asset if you have them. But, and I say this with full conviction, not having them cannot hold you back from becoming a successful entrepreneur. Most often, I have seen entrepreneurs who are graduates from reputed institutions, using this asset mostly for networking with batchmates, seniors, juniors and peers from similar institutions. Both globally and in India, there is no shortage of astonishing success stories of school and college dropouts starting the business institutions of the highest quality.

Myth 8 – for your new startup to survive and grow, you need LOTS of customers: I’ve heard this from many startup businessmen. When I was actively running my startup, friends and well-wishers would introduce me to more customers than I could handle. Actually, for a small, new, bootstrap startup with meager resources, one of the biggest costs is business development and marketing. Therefore, it is often beneficial to find one large customer organization and grow with it, until you have built the resources to build new relationships. Of course, you need to de-risk your business, but if your customer is large enough and professionally run, and your products or services are up to the mark, then de-risking by adding more customers is a distant problem, to be attended to much later. At the risk of making a sweeping statement, I would say – it is better for a small business to do business with the largest customers it can, at least until it is beyond the survival stage… avoid small businesses like your own, as customers :)

Myth 9 – to be a successful entrepreneur, you have to bend rules and ethics: Not so. In India itself, we are lucky to have a growing legion of role models in recent years to prove that you do not have to flout government laws, universally accepted business and personal ethics, and find shortcuts to all problems.

Myth 10 – to ensure that your startup grows, you have to create the illusion of size, pedigree, a sweet sounding address and so on: I have come across tiny sole proprietorships in Bangalore with MNC-sounding names containing words like “global solutions”, “Inc” and so on. Some of them also have an “India” for good measure, to suggest that they are part of some very large international network, with office addresses in different cities, countries, and avoiding even street names which may sound down-market. While I understand that in some situations a smart entrepreneur with sufficient panache may benefit from creating the illusion of size or pedigree, I think it is not sustainable. Customers, or any other stakeholders who matter, are too smart to be conned by window-dressing of this type, and anyway, if they want to do business with you, it is because of your value propositions and not your size. When you do achieve size, it will speak for itself. It is better to build a sustainable reputation as an honest entrepreneur with realistic claims, rather than one who tells tall tales.

Myth 11 – to build an organization, you have to be a stern, feared team manager (with whip in hand, perhaps): I’m not sure if that’s a good avatar even for a prison warden. For an entrepreneur, it most certainly is NOT. As a startup businessman, you are always trying to stretch your meager resources to get more for what you spend, and this goes for hiring of people as well. You should try to attract and hire people who are likely to get paid much more than what you would pay them, and that is possible only with inspiration, promises (which you will hopefully deliver on, one day) like stock options, profit sharing and so on. Now, human beings are pretty much the same, whether they are sweepers or vice presidents, and we need to respect their intelligence and sensitivity. Therefore, irrespective of level, it is better to trust, give responsibility, inspire and rely on, rather than enforce discipline. An inspired workforce will automatically be disciplined as well, if the leader serves as a live example. Also, out of necessity, the bootstrap entrepreneur must sometimes hire youngsters with little or no experience and give them high responsibility. If the quality of the entrepreneur’s leadership is good, he would seldom be disappointed by taking such risks.

Myth 12 – to manage cash flows in a startup, you should delay supplier payments as much as possible (and perhaps even more): There are times for startup business when suppliers are more important than customers. While prudent cash flow management is one of the most important aspects of startup management, it is unwise, unfriendly and unethical to squeeze suppliers beyond a point and default in their payments. As a corollary: to be a successful bootstrap entrepreneur, you do not have to be too tight-fisted, or hard-bargaining. A more sustainable mode to hit is to always seek a win-win, both on the sell-, as well as on the buy-side.

Myth 13 – the best way to start a business is to catch a large opportunity but in a temporary time window: While short-lived windows of opportunity sometimes look very compelling, I would strongly recommend against these, unless you really know what you are doing. Some years ago, a friend had suggested that we import a large number of hand-held computers from a US company which was closing down, to sell them in India for a high margin. Fortunately, I was so slow to move on the opportunity (partly because of lack of conviction and partly because of inertia!), that before we had put any money on the table, new products were launched by competition, which made the hand-held computers useless. If we had moved fast, rather than slow, we may have lost a lot of money and been stuck with useless inventory. The point is not it is better to be slow than fast, of course :), but that limited time opportunities are all the more risky for startups. Large corporations trying to leverage such opportunities would generally be able to write off any resulting losses without blinking!

Myth 14 – the most important objectives for bootstrap startups are profit, growth and brand-equity: For most bootstrap startups, all these come later. The most important objective is positive cash-flow, which means, are you receiving enough money to cover all your expenses, at the same (or better) speed? Many startups die because they run out of cash at the critical time, and not because their margins are small, or because their sales are low. Cash for a startup is like oxygen… everything else gets built on positive cash-flow!

Myth 15 (added 03-Aug-2010, a month after the original posting!) - most successful entrepreneurs are big risk takers: nothing can be further from the truth... in fact, most successful entrepreneurs never take bigger risks than those that they can write off - some risks that entrepreneurs take may seem big, but actually, they are either affordable in terms of cost in relative terms, or, they are so well calculated that the probability of failure is pretty low... which means, they are not large risks in reality. Most successful entrepreneurs are most likely to admit to taking calculated, incremental risks as they grow their business, but not to the level that the risk of loss exceeds the upside of gain.

So, if we go beyond these myths, then what does it take to actually succeed as an entrepreneur? If the critical factors for success are not capital, strong business plans, special skills, educational qualifications or large numbers of customers, than what are they? Well, you just need to wait a later part of my series – watch this space!