The Entrepreneur's Mentor

Is Our World Real?

As often happens during the summer, I have immersed myself in the exploration of new subjects by reading as much as I can. I have become fascinated by the subject of the "synthetic worlds." Synthetic world are crafted places created by software designers that are designed to accommodate huge numbers of people. They put ordinary people in a strange environment, where they can act as they do in the real world, or in a totally different manner. And interestingly, what they do inside this world can gave effects outside of it.

The author that seems to have the best handle on this subject is Edward Castronova. He has written "Synthetic Worlds" and "Exodus to the Virtual World."  It is fascinating to read how thousands prefer their online world to the real one. For them, the online world is more real.

By analogy, some business leaders live in their own virtual world. They create their own reality  They bend the facts to their own view and perceive things in a way that satisfies them. The essentially create their own customized vision of what is going on. But their connection to the real world, the one unhabited by their companies and their employees, may be tenuous.

In my role as an entrepreneurial mentor, I have seen many company owners go through life thinking all is well. They have constructed their own stories - and they don't let the facts get in the way of their happy story. Is this any different from living in a virtual world where we fight dragons, conquer Black Knights and capture the heart of the damsel in distress?

Some CEOs don't even listen to direct evidencer that contradict their view. In retrospect, everyone can see that Bernie Madoff was running a scam. Why was everyone blind to it, even when evidence was so strong? We believe what we want to believe.

If you believe your employees love you and will be loyal forever, you will not listen to those who tell you they are not engaged or not productive. If you think your customers have a great personal relationship with you that can survive anything, you won't be on the lookout for dissatisfaction. You are living in a very dangerous world.

Business leaders have to test their assumptions and beliefs. They must be in touch with the facts. They must look at what is happening in the world and must question how that impacts them and their businesses. They must learn to accept that their virtual world is a nice aspiration but not the reality of paying the bills, feeding the family, building a nest egg and developing something great.

Rose colored glasses have their place. But that place is not in the day to day of running a business. Business leaders need to choose the real world for their business. They can exist in alternative realities in their time off, be they online or purely of the mind. An owner can not afford to be a guru on a mountaintop spouting visionary epithets unless there are others managing the business in reality and yet others translating the language of the alternate reality into something strategically or tactically based.

They used to say "pick your poison" in the old movies. Now it is "pick your reality." Choose well, because there is a lot at risk.

The Art of the Deal

Some entrepreneurs love making deals. To them, doing business is boring- it is doing deals that is exciting. The high is in buying and selling. I know one entrepreneur that used to walk into my office and basically say "You buy me or I'll buy you. It doesn't matter. Let's do a deal." To him it was a big, fun game, and he was pretty good at it. Not everyone is.

Transactions are full of pitfalls. While some entrepreneurs feel they have a sixth sense about reading people and sensing when a deal is right for them, they still need a team of experts around them to make sure all goes well. Taking the time to build such a team is hard for some who are "can do" folk and who believe in the Nike philosophy of "just do it." They view lawyers and accountants as obstacles rather than a support team.

Rather than the professionals being the obstacle, the entrepreneur's thought process is the real barrier. There is risk everywhere and it takes experts to steer around it or eliminate it. Great business sense does not make up for a lack of legal or accounting or tax or human resource or ERISA knowledge. Thousands or even millions of dollars can be involved in some key pre-purchase decisions. A transaction that "feels" right and looks superficially like a home run can turn into a disaster of huge proportion if all key areas are not explored. Proper due diligence can make or break a deal.

I bought one company without sufficient due diligence and with the wrong supprt team. What looked like a cheap deal on paper turned into a million dollar fiasco with far-reaching consequences. Those of us that can see opportunity everywhere need to re-orient ourselves. Instead of opportunity we should be thinking about our capabilities. We need not just our eyes on the deal but the eyes of those paid to protect us. These folks needn't be viewed as obstacles. Think instead of navigators, who will help us find a safe course through difficult waters.

Satisfy your deal urge. It is a great high. Just do it smartly- with the right guidance. Your team, your posse is worth every penny you pay them if you choose them well.

Health Care Costs as an Obstacle

The biggest example of health care costs impacting business has been General Motors. But smaller businesses are feeling the crunch just as much, if not more.  In some businesses, health care is the highest expense after salaries. To maintain these employer provided benefits, companies have had to forego vital expenditures like marketing, increased inventory levels, and improved technology. And they still have a hard time keeping up with the cost of health insurance. Ultimately, they have to start laying people off or refusing to pay for coverage any longer.  This is all very negative and can lead to progressive disintegration of businesses.

It is clear that the cost of health insurance has been tough for business to handle. But have we really thought about it as a deterrent to startups? In order to attract employees, companies must offer health coverage. But the cost of coverage makes employees too expensive. Catch 22!

If entrepreneurs have good ideas but can't support the people needed to help execute them, they are stymied. They want to maintain their independence and not take their ideas to big companies. They want to control their own destiny. But they can't get a company off the ground. Sure, there are independent contractors and freelancers out there. But will they bring the passion to the assignment that is needed? Will they align with the entrepreneur's vision and values? Will they willingly become a real part of a team?

There are enough obstacles in starting a business. This one is too much. If we are to encourage entrepreneurs to work their magic to help get the economy back on its feet, we have to come up with a solution to the health care situation.

Further Entrepreneurial Myths

In my last two posts I have discussed Scott Shane's book,The Illusions of Entrepreneurship. It is illuminating in any number of ways, as Shane shows that the average entrepreneur is not who we would expect him or her to be.

The typical start-up is an ordinary business, not an innovative game-changer. It is home-based, and it typically stays tiny. It is started by one person or two spouses and does not grow beyond that.

Most are not based on someone sifting through numerous ideas and opportunities. Rather, they are based on offering the same or similar service to the same or similar customers as their previous employers. I can think of at least five businesses that arose from ex-employees of my last business. Some try to capture a particular narrow niche. Some try to capture market share by offering lower prices. Some just think they can make more money on their own.

Here is where there is an intersection with another great book, The E-Myth by Michael Gerber. Gerber states that many people who think of themselves as entrepreneurs just trade one boss for another. Instead of working hard in the business of their employer, they end up working hard in their own business. Their life has not gotten better- they have not been liberated. Now, instead of just doing the job they may have done well, they are running a business that does that job, so on top of the "job", they are responsible for paying bills, doing accounting, selling, marketing and everything else. Talk about jumping from "the frying pan into the fire."

If many become entrepreneurs simply to avoid having to work for someone else, they need to consider what it would be like owning and running a business. It may be more than they think they want.

Some may be reluctant entrepreneurs. They lose a job or they are in a dead end job and are looking for a change. They may see no other options. They may succeed. They may grab at an opportunity and do well with it. Or they may fall on their faces.

Once the decision to be an entrepreneur is made, there needs to be thought and planning and budgeting.  No matter why one decides to start a business there are right ways and wrong ways to go about it. Doing the right things and doing them right increases the chances of success.

More Myths Busted

Scott Shane's book The Illusions of Entrepreneurship provides chapter after chapter of new insights.

As we listen to the talking heads on cable news talk about our financial crisis, they all speak to the entrepreneurial aspect of America and how we are so much different from Europe and other areas.

But Shane has some interesting facts that can be added as fuel to this fire.

• America is not becoming more and more entrepreneurial. In fact, entrepreneurialism is on the decline in the US.

• We are not even one of the most entrepreneurial countries. Turks are four times as likely to start their own business. Peruvians are three and one half times as likely to become entrepreneurs. The US is in the bottom third of countries when measure by the number of young businesses per capita.

• Silicon Valley and high-tech corridors are exceptions rather than the core of entrepreneurialism in the US. People are more apt to start businesses in poorer and more agricultural areas.

• Businesses are more likely to be started in areas of high unemployment than people in places with low unemployment. Unemployed people are more likely to start a business than those with jobs.

• Startups in an area tend to mirror businesses already in the area. That is because most people start businesses in the industries in which they are currently working and in the geographic areas where they live and work.

• Businesses do not start up in greater abundance in areas where there is a lot of capital available. Business does not follow capital. In fact, capital follows business. So capital tends to gravitate to areas where a number of businesses are starting.

The American entrepreneur looks pretty different from Donald Trump, Bill Gates and Steve Jobst. And while some of us would like to achieve what they have, most just want to make a living.