An eye on the horizon

HSBC Private Bank (UK) Limited - October 2009

"The last two decades have seen an explosion of entrepreneurial ventures that would never have been thought of as career opportunities in the past. A friend recently asked what advice I would give to their son who was thinking of setting up his own business and, having a son of my own of twenty-one, I thought it was an interesting question and have tried below to summarise some of my thoughts."

While this is far from a manual on how to start and build a business, I have tried to include some of the principles that I believe are common to all successful entrepreneurial endeavours.

Firstly, the big idea…how good is it? Discuss it with all the people whose opinions you respect, and get as much feedback as you can. Listening is essential, the old expression that you have two ears and one mouth, and that they should be used in that proportion, is never truer than in business. It is a matter of somehow combining the humility to be endlessly learning, with the confidence necessary to know that your idea is going to work. Having said that, there are always ten reasons not to do something and the great entrepreneurs are always people who do things that other people said they couldn’t.

Is anybody else doing what you plan to do? If not, there is more than likely a very good reason for it: it’s much better, in principle, to take an existing idea and improve it. You will probably find, anyway, that the business you eventually end up succeeding in has little resemblance to your initial vision. Try and gain as much experience as possible by working for a really good company in the sector in which you plan to establish your business. There is so much to learn so you might as well do it at someone else’s expense rather than your own. Learn from others mistakes, as well as your own. Mistakes are fine – but only once and preferably not at your expense.

How big can the business ever be? This may not matter if you are looking to build a ‘lifestyle business’, but matters a lot if you want to sell it eventually. While this may seem an obvious question, it is surprising how many people start a business and are so keen to get it going that little thought is given to its potential growth. Does the idea have scale? How much money is needed to get it going, and critically, where is the break-even point? You can break-even forever, but only lose money for a very finite period of time. And on the subject of the eventual sale, try to avoid using your own name as the business name – when it comes to passing on the running of it to your management team, or finally selling, you are in danger of being seen as too much of a figurehead by clients.

Drive and common sense are the two primary qualifications needed to be an entrepreneur. Neither is much use without the other; drive with no common sense will have you going round in circles in no time (a reasonably common sight in my experience). Common sense without drive will have you knowing how the world works, but doing nothing about it.

Assuming the above characteristics are in good working order, then at all times remember KISS – Keep It Simple Stupid. It is staggering how speedily business (and life) can become complicated, and also how complicated many people seem to like their lives to be. They are easy to spot; generally by the amount of times they declare that ‘there are never enough hours in the day’. There is a book I would recommend to any aspiring entrepreneur who intends to go into manufacturing, although the lessons can be applied across most businesses; The Goal by Eliyahu Goldratt. This takes the KISS rule down to its most basic interpretation: in everything you do, are you moving towards, or away from, your goal? It’s a great 'sense checker'. The other principle message in the book is: where is the bottleneck in your business? What is the one area of your business that is holding up the progress of the rest? By occasionally looking at your business in such simple terms, it is surprising how effective it can be in getting your priorities in order.

Write down your goals – what do you want your company to become? If it succeeds, what benefits will you hope to enjoy? This is quite separate from sales forecasts and so on, but should act as a great motivator, as well as an occasional reminder of why you set off on this reckless course in the first place. Things are somehow much more likely to happen once committed to paper. Writing a review of your progress every three months or so can also be extremely powerful. When things are busy, it’s easy to lose sight of progress, and taking a little time out to sit down and write down what you have achieved over the past few months can act as a real boost.

The majority of issues most businesses face come down to people. Staff need to be directed, motivated, disciplined, cajoled, consoled, incentivised… and paid. Good leadership involves clarity of vision and an unshakeable belief in, and enthusiasm for, the business as well as for the people in it. This should prove infectious. Try and 'catch people doing things right'. Recognition and appreciation are very often much more powerful than simply paying someone more. As Mark Twain put it 'I can go two months on a good compliment'.

Staff are critical. There is a limit to how much you will ever achieve by yourself. All of the roles in your company are important and all staff should be treated accordingly. A good example of this culture is the story of a man with a broom being approached at NASA and asked what he did. His answer was ‘I’m helping to put a man on the moon’. Everyone in the company should know what its goals are and how it is progressing towards those goals. Make sure you have people suited to their roles and don’t be afraid to change those roles if appropriate. It is amazing how people can blossom once they are doing a job they are comfortable in (quite often not the one you recruited them for). Asking someone what they are best at can elicit a coy response.

It is sometimes easier to ask what aspect of their job they most enjoy – and it is in this area they will generally excel. This question has been part of our three monthly reviews for years. If you have established that someone is not suited to working in your company, deal with it as soon as possible and don’t give in to any temptation to put it off.

Employ the best you can get and don’t worry if they have bigger brains, or salaries, than yours. Remember that they are adding value to your business, not theirs. If possible offer options rather than shares to key staff as a way of giving them equity. It makes things much cleaner should they leave for any reason. Retain control at all costs. Question everything, and encourage all your staff to do the same. Every member of your team must believe that every single aspect of the business can be improved – all the time. A business is like water in a pond. If it’s not moving, it goes stagnant. For this reason, it needs to continue to grow. You cannot set a target for a certain profit, and then hope to cruise at that altitude once you’ve hit it. It’s a living, breathing thing, and dies without constant attention.

10% is what happens to you, and 90% is how you respond to it. Running your own business will never be without its challenges – a so much better word than problems – and how you react to those challenges will set the tone for those around you. Unfortunately, as the boss, you’re not allowed an ‘off’ day – that’s just part of the deal, so get used to it and be in the habit of being positive, regardless of the sick feeling in the pit of your stomach that you will inevitably feel. Having read many business books and heard countless motivational speakers, the absolute common message, when everything else is stripped away, is to be positive. Easier said than done maybe, but there are ways to train your brain that are coming out of the dynamic science of neurology – so use them. Best tip in a nutshell? During troubled times keep your eye on the horizon. It is all too easy to get bogged down navel-gazing when things are not going well, but it’s rarely constructive and is a luxury you can’t afford. Once you’re back in the positive zone, you will be in a much better position to deal with any issues that were concerning you.

Spread your risk. Try and avoid any one client having more than 25% of your total business. Much more than that and you have in effect become an employee of that client and are dancing to their tune and not yours.

Control costs with a vengeance – why bother struggling to get money coming through the front door, and allowing it to trickle its way through the back door. That being said, treat your suppliers with as much respect as your clients, always pay on time and treat them as you would like your clients to treat you: you all need each other. Work out the minimum margins you are prepared to work to and stick to them. Don’t be afraid to say no to new business if it is below those margins – there are enough busy fools out there already.

In business, as in life, timing is critical. Many is the business that has been set up for all the right reasons, and by the right people, but the timing has been wrong and cash has run out. One of the main advantages of starting with a low cost base and break-even point is that you can afford to wait longer for the timing to be right – 10 years in our case. This leads onto the one additional element that is critical and the most unpredictable of all, but we all need it whether we admit it or not: a very healthy slice of luck.

Listen to your gut feel. It is a subconscious summary of all your experience to date and so as valid a guide as you will ever have. Have fun; and try and make sure those you work with also have fun. Balance is important; though at times impossible to achieve. Make sure you enjoy the fruits of your labours; after all it’s why you set off down this crazy path in the first place.