Recently, I spoke with one of my long-time mentors and successful serial entrepreneurs, Jim Hazboun, who is also a top C-Level executive at a large global company. He and I talked about two critical things no one ever tells you about becoming an entrepreneur, specifically the importance of having a compelling "why" for what you are doing as well as doing an honest assessment of yourself, what you are good at, and where you have gaps.
Even if you pass through both of those hoops successfully, being an entrepreneur isn't for the faint of heart. So why do some entrepreneurial ventures fail where others succeed and grow in a sustainable way?
I followed up with Jim and asked him what he sees as the most common reasons for entrepreneurial failure and the key things every entrepreneur needs to do to have a fighting chance at success.
The Three Most Common Reasons For Failure
Here is what Jim sees all the time that causes otherwise good ventures to fail:
1. Poor execution
You might have the best idea in the world, but you still have to execute well to get results. Innovation and execution are very different skill sets, and sometimes we think that having one means we'll be good at the other.
2. Poor financial management
Entrepreneurs need to know their financials and numbers backwards and forwards. Many businesses fail because of poor financial management. Even if your company is growing, you can still fail if you don't manage the cash flows and have enough working capital.
As another mentor of mine used to say to me:
"At this point in the game, who cares how good your P&L looks. If your cash flow isn't good, you're done."
3. Lack of core entrepreneurial competencies
Many fail due to lack of work ethic, selling skills, and people (EQ) skills. Many also don't have the emotional fortitude or patience to stay the course during hard times. Lastly, pride or hubris have led many to failure.
I then asked Jim about for advice about how to get started in a way that mitigates those three common pitfalls.
The Five Things You Must Do
Here are the five really important strategies he imparted:
1. Launch your business intelligently
This advice isn't glamorous and may even run counter to what you may hear from others who may say that if you really believe in it sell everything you have to fund it.
Jim told me in no uncertain terms:
"Never mortgage your house!"
Today, more than ever, there are a number of funding options available to the true entrepreneur. Jim prefers bootstrapping or using lower risk sources like SBA loans or crowd funding sites, such as GoFundMe or KickStarter. While you must go "all in" emotionally, Jim talks about how important it is to be wise and prepare for both success and failure financially.
Many entrepreneurs helped successfully launch their business as a side business. I personally did it this way. Moonlighting is a great way to help mitigate risk. Jim is a strong champion of starting your business while working for someone else. The key is to avoid conflicts of interest and ensure you are delivering exceptional value to your employer at the same time.
3. Do your homework
While starting a business is risky, good preparation helps reduce the risk and helps position you for success. Here is where Jim says something of great importance:
"If you have a new business idea that no one else is doing, that should actually cause you some concern."
That may sound counter-intuitive and like it flies in the face of the spirit of innovation and ingenuity. Here is what Jim says about it, though.
"Unless you've patented a brilliant new technology or product, you will want to see that other entrepreneurs are already doing well in the business you are considering. If you follow the adoption curve, you ideally want to be an early adopter or fast follower.
There is always a danger with being the innovator. Innovators don't always survive because they expend all of their fuel trying to help consumers understand the 'new thing.'
Look at some of the greatest business successes like Google, Apple, and Facebook. They weren't the innovators. There were other search engines, computer companies, and social networks. These guys were the fast followers that fine-tuned the idea and executed against it better than anyone else."
4. Take the time to build a strong business plan
Put in the time to go through a comprehensive business plan. Going through this process will help you address the key areas needed to successfully launch and run your business. It will also force you to confront any confirmation bias you may have - that psychological thing we all do where we believe what we want to believe and disregard the rest.
5. Surround yourself with others who believe in you but who will also give you honest encouragement
You don't want to surround yourself with just "yes" people. But you also don't want to be surrounded by negative and toxic people. Surround yourself with people that you can trust.