This article is a lesson in how to start a business the right way, based on a case study of my friend, Tom Mercaldo. I've known Tom since we were eight years old and we remain friends to this day. He started his entrepreneurial career later than I started mine, but his approach was dead-on. He now has a large and thriving organization and his career is a prototype for how to be successful in entrepreneurship.
Here are five key elements of how to succeed in starting and running your own business, supported by the details of Tom's success:
- Start a business in an industry that you know. After college, Tom worked in the human resources (HR) and recruiting field for approximately 8 to 10 years before starting his own recruiting company. He had deep domain knowledge of the industry and how it works. He learned about the thousands of small points that are necessary for success in that industry. Therefore, he did not have to make as many mistakes when he started out. He started out as an expert. All of the hyper-successful entrepreneurs that I know understand their industry and product backwards and forward. There is an expression "God lives in the details," and this is definitely true for the specific business that you choose. This does not mean that you cannot be successful in a business in an industry that you are not familiar with; it just means you increase your chances of success by knowing your business.
- Start a business from your home. Tom has developed a large and highly-regarded company, Aquinas Consulting, but he started from his house so that he had very low overhead. In fact, I may be mistaken on the exact number of years, but I believe he ran his business from his home for two to three years before he got an office. Compare this to people who go out and rent office space before they have a single dollar in revenue. Great entrepreneurs have an instinctual second sense that rightly tells them to spend money after they make money (and not before). There are a thousand ways you can spend money on things that are not important to getting customers and revenue when starting a business. Successful entrepreneurs resist those urges.
- Make profits early. If your fixed costs, which are your overhead, are zero, how much do you have to sell to break even? Nothing. By keeping overhead costs low, great entrepreneurs make profits early, and grow from profits, not from debt. Profits in a business are demonstrable and objective validation of the business model. Tom's business was cash flow positive very early, likely in the first year. The magic of compound interest also helps smart entrepreneurs. If you take a penny and double it every day for thirty days, you are a millionaire. The point is that you don't need to borrow a lot of money and buy a lot of stuff to quickly grow your enterprise. In fact, you shouldn't.
- If you're going to get married, marry well. There is so much risk and strife in starting a business that you need a certain amount of stability in your personal life to be able to survive. I am not saying that people with turbulent personal lives cannot be successful in business. But the probability of success is much higher when you have to fight on one front and not two fronts. Tom was fortunate to have a supportive family so that he could focus on the growth of his business. Once again, we are talking about increasing the odds of success, and this point is not meant to put anyone down.
- Be unassuming and humble. Even though Tom is one of the smartest people that I know, he is soft spoken, calm and does not draw attention to himself (attributes I wish that I possessed). Good entrepreneurs are effective at getting other people to help them, and people like to help those who don't have huge egos. I suppose Donald Trump defies this particular point. But the effective entrepreneurs that I know go pretty much under the radar.
What are the lessons here? To be a successful entrepreneur, focus on what is important, keep your overhead low, know your business cold and be a good person.