My latest book, The Entrepreneurial Attitude, updates our three decades of research on the fundamental practices of the world’s greatest entrepreneurs – and then brings those proven practices to life through interviews with seventy hi-achieving JA alumni across 35 countries. After mastering those fundamentals of entrepreneurship, there are just three more things aspiring entrepreneurs must have in place. Here they are.
What’s Really Required To Get Started
“The most successful businesses don’t do anything exotic or dramatic.
They do very simple things very well.”
Ron Doggett, Founder, GoodMark Foods
The good news is, the three start-up requirements are pretty simple and very practical. Ron Doggett, my long-time friend and fellow refugee from the Harvard Business School, said it best. Doing the simple things very well, over and over again, is how he took a small, money losing sausage business in Philadelphia named Slim Jim, and turned it into the largest meat snack company in the world. And he did it with quiet, good manners. So, in addition to doing simple things very well, Ron is also living proof that good guys can finish first in the entrepreneurial world. Here are the three specific requirements that Ron Doggett, and all successful entrepreneurs, must have in place when they start:
● A Bit Of Money.
“I started Microsoft for just $700. I was so excited that I didn’t think of it as being all that risky . . . the one thing that was scary to me was when I started hiring my friends, and they expected to be paid.”
Bill Gates, Co-founder, Microsoft
Many aspiring entrepreneurs never get started because they just can’t imagine themselves raising the necessary money to start their own business. Making it even more scary today, than perhaps Bill Gates’ worry about paying his friends, is all the media hype about record-setting IPOs and young Silicon Valley billionaires which has blown the public perception of start-up financial requirements out of all proportion. A dose of reality may help. Our research shows the average cost of starting a business in the USA today is about $15,000. That’s a pretty good deal for everyone when you consider the economic or social costs of other ways people can spend their time.
- Average business start-up $15,000
- A year on welfare $30,000
- A year at Harvard $50,000
- A year in prison $75,000
Imagine, we could fund five start-ups for the cost of keeping one person in prison for one year! Crazy comparisons aside, the average cost of starting up a business is modest. Indeed, there are thousands of new companies started every year for under $10,000. And to put your mind further at ease, there are many sources of start-up funding today. Here are the major ones, with the percentage of entrepreneurs who use each. The total adds up to more than 100% as many entrepreneurs use more than one source to finance their start-up.
- Personal savings 73 %
- Credit cards 27 %
- Loans from friends and relatives 14 %
- All other cash/income sources 14 %
- Loans against personal property 7 %
- Bank loans 5 % (many SBA secured)
- Equity investments 2 %
- Internet Crowd Funding 1 % (and growing rapidly!)
So, how much money will you need to get started as an entrepreneur? Probably, just ‘a bit.’ Especially if you follow a couple of entrepreneurial cash flow tactics; get a few customers to pay in advance and don’t quit your day job before you absolutely have to. While most entrepreneurs don’t need a lot of money to get started, they must all have one asset in spades – the knowledge to create a product or service the world needs and will buy. This brings us to the second requirement.
● A Bit Of Knowledge.
“General graduates of the university are twice as likely to start
their own businesses as the MBA graduates of Wharton.”
Ian MacMillan, Professor Emeritus, The Wharton School, University of Pennsylvania
If the bedrock essential of successful entrepreneurship is being able to come up with a great product or service the world needs, where are you going to learn how to do that? Apparently not at a business school, according to Ian MacMillan, the South African iconoclast who developed the first entrepreneurship program at a blue-chip business school. Wharton approved MacMillan’s radical pet project after his research clearly showed that students majoring in non-business subjects were much more likely to become entrepreneurs than the business majors in the MBA program. His mind-bending research, quoted above, stunned business school leaders everywhere.
So entrepreneurial knowledge tip number one is to remember that there has never been a successful enterprise created by studying management theories and techniques – right up through the current fads of leadership and motivational training. If majoring in business won’t help, what kind of education do you need? This leads to entrepreneurial knowledge tip number two – that majoring in other disciplines like engineering, computer science, bio-technology, environmental studies, healthcare, agriculture or even the arts would all be terrific places to consider. Certainly, technical/vocational institutes and trade schools are also great places to learn how to make things the world needs – and in my view are real hotbeds for creating entrepreneurs. And finally, regardless of your formal education, there is always ‘on-the-job-training’ in existing organizations – which happens to be the number one source of product/service knowledge for today’s single largest group of new entrepreneurs – all those downsized and dismayed refugees from the corporate world.
Once you have acquired your ‘bit of money’ and your ‘bit of knowledge,’ you’re ready to face the final requirement – making sure you’re starting up in an ‘entrepreneur-friendly culture.’
● An Entrepreneur-Friendly Culture.
“When we appeared on Shark Tank, we received full offers of $725,000 from four of the five Sharks, and then turned them all down . . . We needed a phone, a computer, and our brains.
Those were the only three things we needed.”
Kim Kaupe, Co-founder, Zine-Pak
Kim Kaupe left her young career in publishing in New York City after coming up with the blockbuster idea of producing deluxe music and memorabilia packages for mega-stars like Taylor Swift, Justin Bieber and Katy Perry. She was 25, had no outside funding, and started the business in her apartment. Within months she had her innovative music packages in 3,000 Walmart stores! Her quote says it all. Keep things really simple. Stay super conservative about your financial needs. Make sure your brain-power and your knowledge are up to the task. And create an entrepreneur-friendly culture to work in. Kim had in place, everything start-ups require.
New entrepreneurs can do a lot about the immediate environment they choose to work in. From co-opting support from family and friends, to seeking out legal, financial, and business resources, to engaging with entrepreneurial networks and mentors, try to surround yourself with expert entrepreneurial advice and moral support. Perhaps the most valuable resources you can pursue, are the people, companies and universities who can help make you a true customer/product expert in your chosen field – to help you become the next Steve Jobs, Richard Branson, Elon Musk or Jack Ma of your industry.
Finally, the most difficult challenge will be to maintain an entrepreneur-friendly culture as your company begins to grow. Here are five golden rules to help you maintain an entrepreneurial culture as you grow bigger and older:
• Keep It Small: The great Johnson & Johnson company creates a new, separate company when any product hits $25 million in sales. They call it ‘growing big by staying small.’
• Keep It Personal: Soichiro Honda was the ‘car man’s man.’ He started life as an auto mechanic, he built Honda factories for disabled workers, he allowed no relatives or nepotism in the company, and was idolized by all employees.
• Keep It Honest: Unlike today’s $10 million a year CEOs, Ross Perot paid himself $69,000 a year, never took a raise, and all his senior managers had higher salaries than his. Employees loved it! He got rich the old-fa
shioned way; by selling EDS to GM for $2 billion, and then Perot Systems to Dell Computer for another billion.
• Keep It Simple: Norm Brinker, godfather of America’s chain restaurant industry and founder of five great brands including Chili’s was a big believer in annual bureaucracy audits to weed out unnecessary and outdated practices, procedures and forms. He claimed they were more important than the annual financial audit.
• Start Over With The Basics: Consider cleaning house every five years, really re-focusing on the basics of the enterprise and try running your big company like you ran your small start-up company.
So, beyond mastering the four fundamental practices of the world’s great entrepreneurs, as described in The Entrepreneurial Attitude book, all that’s left for you to do will be to acquire A Bit Of Money and A Bit Of Knowledge and create the most Entrepreneur-Friendly Culture you can. This is – “what’s really required to get started as an entrepreneur”!
The Farrell Company is the world’s leading firm for researching and teaching entrepreneurship. Over six million people, from universities, companies and governments, have attended the company’s programs. The Entrepreneurial Attitude is Larry’s fifth book. Peace Corps, Harvard Business School, columnist for The Conference Board Review in NY, advisor to Cambridge University’s Enterprise Solutions to Poverty project and China’s Vocational Education Association – Larry has personally taught entrepreneurship to more people than anyone in the world.