The X Factor
There's a certain quality that entrepreneurs must have to succeed in business, and it can't be taught or learned.
I like to think it's possible to teach people everything they need to know about starting and growing a business. Not that every start-up will become a viable company, but there are certain principles you can follow that will maximize your chances of success and minimize your losses in case of failure. What's more, anybody can learn what those principles are.
From time to time, however, I'm reminded that there's another critical factor in start-up success -- something that can't be taught or learned. It's a character trait more than a skill, and it lies deep within a person, hidden from view. I'm not even sure that the people who have it are aware of it until they're put to the test.
But recognized or not, the quality I'm talking about is real, and it allows certain people to accomplish things that no one else would think they were capable of doing.
Let me tell you about Malki, whom I met through my wife, Elaine, about five years ago. A divorced mother of three, Malki was supporting herself at the time by tutoring, teaching, and doing clerical work. She wasn't happy, however. Her dream was to have her own day-care center for infants and toddlers. She talked to Elaine about it, and Elaine brought her to me.
Now, it so happens that a day-care center is an extremely tough business to start in the state of New York unless you have a lot of money, and Malki didn't. Before you can accept your first child, you need a state license, and it takes a year to obtain one. You can obtain a license, moreover, only by passing a lot of inspections, which means you need a space that's been built out to conform to all the applicable fire, safety, and health codes. So you're paying rent and construction costs for an extended period, without any income, while your application is pending. If you don't get the license, you lose your investment. And even if you do get the license, that's only the beginning. You still have to go through the process of building the business.
After my first meeting with Malki, it was clear to me that she had little chance of succeeding -- a one-in-10-chance at best. She had no money, no business experience, no partner to give her support. She'd never had an employee or a customer. She'd never negotiated a deal. She would have had a struggle establishing any type of business. A day-care center seemed completely out of her reach.
But I hate to discourage people from pursuing their dreams, and Malki was determined. So I agreed to advise her.
We began by figuring out what it would take to open the day-care center for business. The obstacles were daunting. To minimize the financial risk, we decided, Malki would probably be better off buying her space than renting it. That way if she failed to get her license, she could sell the property and she wouldn't be stuck with a long-term lease.
So somehow Malki had to find a property, work out a deal to acquire it, make the necessary renovations, cover the mortgage payments, and still do everything else required to launch the business successfully when -- or rather, if -- the license came through. I'm talking about doing market research, raising working capital, figuring out her pricing, and so on. What's more, she had to do it all in her spare time. She couldn't afford to stop working.
I thought Malki would quit when she realized what was involved, but I was wrong. She immediately threw herself into the market research, checking out all the day-care centers in the area. She befriended an experienced day-care operator in another state who gave her tons of invaluable advice. She obtained the various licensing-application forms that she needed and figured out the steps she had to go through to become licensed. Meanwhile she worked her Rolodex tirelessly to come up with the funds she needed, eventually raising about $150,000, almost all of it from family and friends.
But Malki's biggest coup was her real estate deal. She located a building that was in the process of being vacated. The guys who owned it were moving to another building and needed some flexibility on the closing date. Malki could give them plenty of flexibility. What she needed was time. With no business history she couldn't get a mortgage right away, and she could afford only a small down payment, but she thought she'd be in a better position after the day-care center had been running for a while.
It's easy to get overwhelmed by the flood of problems you encounter when you first go into business. The typical reaction is PANIC. To be successful you have to get over your panic. How? By getting caught up in the excitement of finding solutions.
So they made a deal: Malki would assume the current mortgage on the property and pay a small amount toward the asking price. The sellers would then give her a second mortgage to cover the balance. After a certain period Malki would refinance the building and pay off the second mortgage. In addition, she and the sellers agreed on a closing date that allowed her to begin the licensing process long before she had to start making payments. As a result her costs during the pre-start-up phase were much lower than we'd anticipated.
In the end it took two years for Malki to put all the pieces in place. She stuck with it, and her day-care center opened for business in July 1999. It was a tremendous accomplishment. Malki felt as though she'd finally reached her goal. But in fact her biggest challenge lay ahead.
Why? Because everything changes when you open your doors and start making sales. There's a new kind of pressure and an increased sense of urgency about dealing with problems. Before you have customers, after all, a delay is not a disaster. If a piece of equipment is delivered late, you may be annoyed and frustrated, but the consequences aren't all that serious.
It's a different story when you're open for business and employees don't show up for work or customers demand things you can't provide. Decisions have to be made. Actions have to be taken. Suddenly, you find yourself inundated with problems, and they all demand immediate answers. If you're a first-time entrepreneur, you tend to greet each problem with the same reaction: panic. It doesn't matter that the vast majority of the problems are actually quite manageable. To you, they all look like catastrophes.
To be successful you have to get over your panic. Not only must you develop confidence in your ability to handle problems, but your whole way of thinking about them has to change as well. You have to accept a never-ending flood of complications as a normal part of the business process, and you have to learn to enjoy that process. How? By getting caught up in the fun and excitement of finding solutions.
Some people can't make that transition, and I thought Malki was probably one of them. For one thing, she felt uncomfortable making decisions. She liked to get a lot of opinions and mull them over. That trait may be a virtue in some circumstances, but it doesn't make the start-up process any easier.
In fact, Malki seemed miserable for the first few months. She was frustrated. She was overwhelmed. She didn't know how to deal with the parents. She thought she'd never find the employees she needed. The ones she did find came in late or left early, forcing her to scramble to get replacements so that the ratio of adults to children remained in compliance with state regulations. Every roadblock appeared to be impassable. Every problem felt like the last straw.
After having overcome so many obstacles to open the center, Malki was discouraged to find she had more problems than ever. I figured she simply wasn't cut out for business. Fortunately, we'd designed an escape hatch for her. Malki could still sell the place and move on to something else without any dire financial consequences, as Elaine reminded her at one point.
But Malki kept going, and little by little her way of thinking began to change. I could see the change in the way she presented issues to Elaine and me. Instead of focusing on how bad a problem was, she started coming to us with possible solutions, asking what we thought. Meanwhile her business was growing and so she had more problems than ever, but her sense of panic continued to dissipate. By the end of the first year, she was clearly in control.
Malki's day-care center is now in its third year of operation and going strong. Enrollment is at about 80% of capacity -- a level Malki has reached ahead of schedule. Before long there will be a waiting list to get in. As for Malki, she's enjoying the business process more than ever.
She admits that she hated it at first. There were moments when she wondered if she could last. But she held on, and her attitude gradually changed as she began to realize she could handle whatever challenges came along. Was there a turning point? "Yes," Malki says. "It was when Elaine told me I could quit."
Malki doesn't know what kept her going, and neither do I. Call it passion, tenacity, stick-to-itiveness, true grit, or just plain stubbornness. Whatever it is and wherever it comes from, it's the most important quality an entrepreneur can have. Ultimately, it determines whether we succeed or fail.
Norm Brodsky is a veteran entrepreneur whose six businesses include an Inc 100 company and a three-time Inc 500 company. This column was coauthored by Bo Burlingham. Previous Street Smarts columns are available online at www.inc.com/incmagazine/columns/streetsmarts.
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NORM BRODSKY | Columnist
Street Smarts columnist and senior contributing editor Norm Brodsky is a veteran entrepreneur who has founded and expanded six businesses.