“I’m not sure I knew what an entrepreneur was when I was ten, but I knew that starting little businesses and trying to sell greeting cards or newspapers door-to-door or just vending machine kind of thing is… there’s just something very intriguing to me about that.”
-Steve Case, co-founder and former CEO of AOL
According to a 2006 study, approximately 2/3 of entrepreneurs claim it was their “innate drive” that inspired them to start their own business. In other words, they were born an entrepreneur.
Of the remaining entrepreneurs surveyed, 21% credited work experience as their motivation for taking the leap, and 16% said they were inspired by the success of others around them.
Forty-two percent of these entrepreneurs also said they started a childhood business venture, meaning that kid selling lemonade down the street might just be a future business owner.
Is a person born an entrepreneur, or is the entrepreneurial attitude created out of experience? Can it be either? Or maybe some combination of both?
Were you born an entrepreneur?
Entrepreneur.com has published an interestingarticle reporting that entrepreneurs are connecting with venturecapitalists on VCs’ blogs – and some start-ups are attracting funding throughthese new online relationships. For example, Paul Edmondson contacted Will Price of Hummer Winblad via his blog, and this communicationresulted in a $2 million investment in his online publishing company, HubPages.
Here’s another sign of theimportance of blogging in the venture capital world. When looking for a newanalyst, early stage VC and prolific blogger Fred Wilson specifically requested“no phone calls, no resumes, no emails” – candidates should only provide a linkto their web presence.
Social media is having – and willcontinue to have – a significant impact on the shape of venture capitaland angel investment in the months and years to come.
There have been many articles written on the subject of why businesses fail, and most of them point to the same reasons, such as:
-Lack of a well thought-out business plan
-Expanding too quickly
-Insufficient marketing or promotion
-Inability to adapt to a changing marketplace
-Failure to keep overhead costs low
These reasons are widespread and no doubt cause many businesses to fail. However, the reason for a company’s failure is not always something so obvious. Here are 6 lesser-known reasons why a business might fail.
Why do these reasons remain untold? Simple. Most of the time, the business owner doesn’t realize that these reasons are what caused their failure, and consultants generally don’t ask the kinds of questions that would identify them.
1) Focusing on Short-Term Profits Rather than Building Long-Term Value
It’s important to be profitable, but NOT when short-term profits come at the expense of the long-term value of the business and the lifetime value of the customer.
Here’s a real-life example: In the late 1990s, there was a franchise of a national smoothie shop located in West Los Angeles, CA. At this store, smoothies sold for about $4. They cost only around $1 to make, resulting in a solid profit. However, certain ingredients, like mangoes and berries, cost more than the other ingredients, such as juice and frozen yogurt. Since juice and frozen yogurt were cheap, the franchisee put more of these ingredients in their smoothies and less of the expensive ingredients. By doing this, their profit margin per smoothie grew by approximately 20 cents, which seemed great… on paper. Unfortunately for the store, customers weren’t satisfied with the taste of the lower cost smoothies, people stopped going there, and the store eventually went out of business.
As you can see here, it’s important to consider the lifetime value of a customer. Repeat business is way more valuable than short-term profits. Saving 20 cents on a smoothie today will cost you big in the long run.
(Another great example of this concept is Google giving preference to relevant ads in order to improve the user experience, even though there are less relevant advertisers willing to pay a higher price per click.)
2) Ego Business vs. Business Opportunity
The foundation of a good business is a good business opportunity. As an entrepreneur, you want to fill a need in the marketplace. Unfortunately, many businesses are started solely to fulfill an entrepreneur’s ego (or, to put it less harshly, to satisfy one of the entrepreneur’s interests).
This can often be seen in the restaurant & bar industry, where too many entrepreneurs open shop because it’s a “cool” thing to do. Such businesses rarely succeed.
3) Life distractions
The best ideas don’t always come between 9 and 5. A person might have a great idea while driving, or in the shower, or while working out. It’s moments like these when an entrepreneur leaves behind the day-to-day tasks of running a business and gains a better perspective of the big picture.
Sadly, there are a lot of things that can disrupt a person’s home life. Illness, death of a family member, divorce, relationship trouble, and problems with a child are just a few of the many issues that can affect a person’s mindset. When things like this occur, moments of clarity are replaced by stress and anxiety.
Many entrepreneurial ventures depend heavily on new ideas and creative thinking, and when an entrepreneur’s head isn’t clear, business can suffer.
4) Bad feedback & white lies
People like spending time with friends and family.
Unfortunately, when it comes to business, friends and family members don’t always give the best advice. This is especially true at the birth of a business. Nobody wants to be a buzz-kill. No one wants to tell an entrepreneur their idea is bad, or their location stinks, or anything else negative. Most people are conditioned to be supportive of their friends and family regardless of the situation.
Plus, nobody wants to be wrong. Imagine your friend has an idea that you think is terrible. You share your objections, but the friend goes ahead with the idea anyways, and it succeeds. Now you’ll always be the naysayer that never believed in them. Nobody wants to be that person.
That’s why you’ll rarely get honest, objective business advice from friends or family members. And yet, oftentimes friends and family are the first people entrepreneurs turn to for advice.
5) Maybe the owner is just a jerk
There are a lot of great people in the business world, but there are also some jerks. And these jerks sometimes start their own companies.
A jerk, in this case, is someone who a lot of people can’t get along with. Maybe it’s because they’re a super-perfectionist, or they yell a lot, or they demand that everything be done in a certain way, or they constantly complain. Or maybe they’re annoying in some other way.
The key is that nobody -- not employees, customers, partners, suppliers, clients, etc. -- wants to give 100% for a jerk. Clients and customers will be turned off, and employees will start cutting corners. Most people believe that life is too short, and don’t want to spend their time working with someone they can’t get along with.
6) The entrepreneur never took the full leap
In most new business attempts, the entrepreneur never leaves their day job, or they create a back-up plan, or they have a job lined up in case the new business fails. In these cases, failure IS an option, as the entrepreneur has a safety net to fall back on. In cases where failure is NOT an option, and the entrepreneur depends on the new business to provide food, shelter and clothing, the business has a greater chance of succeeding.
There’s a great example of this concept in this NY Times article. Xiang Yu was a third century (B.C.) General in the Chinese army. He led his troops into enemy territory by crossing the Yangtze River. Then, in order to inspire his troops, Xiang Yu took some unorthodox measures. He burned all of his troop’s ships and destroyed all of their cooking materials. This left the troops with only two options: Move forward and conquer the enemy, or perish. The maneuver did not make Xiang Yu very popular with his soldiers; nevertheless, the troops advanced and ultimately emerged victorious.
Xiang Yu’s methods might be a little drastic in this day and age, but the moral of the story is what’s important. Author Anita Roddick has said that entrepreneurship is a matter of survival, and the truth is, if you’re not totally committed to your business, your chances for success will be greatly diminished.
Since 1999, Growthink's professional business plan writers have assisted more than 1,500 clients in launching and growing their businesses, and raising more than $1 billion in growth financing.
Speak with a business plan consultant today!
After practicing with each of the clubs, Woods told Nike that he liked “the heaviest one.” The news came as a shock to Nike. Why? Because all of the clubs weighed exactly the same.
Nike had a team of engineers and the best equipment in the
world. What they needed was Tiger Woods’
intuition. Tiger Woods understands golf
as well as anyone on the planet, so his intuition is an invaluable resource to
Other interesting stories from around the web:
This past week saw several interesting blog entries, articles, and reports from the world of entrepreneurship, management, and venture capital.
Milton Hershey had a long path to the top of the chocolate industry. Hershey dropped out of school in the 4th grade and took an apprenticeship with a printer, only to be fired. He then became an apprentice to a candy-maker in Lancaster, PA. After studying the business for 4 years, Hershey started three unsuccessful candy companies in Philadelphia, Chicago and New York.
Hershey was not about to give up, so he moved back to Lancaster and began the Lancaster Caramel Company. His unique caramel recipe, which he had come across during his earlier travels, was a huge success. Hershey, who was always looking ahead, believed that chocolate products had a much greater future than caramel. He sold the Lancaster Caramel Company for $1 million in 1900 (nearly $25 million in 2008 dollars) and started the Hershey Company, which brought milk chocolate -- previously a Swiss delicacy -- to the masses.
Not only did Hershey overcome failure and accomplish his goals, but he also managed to do it close to home. Hershey created hundreds of jobs for Pennsylvanians. He also used some of his money to build houses, churches, and schools, cementing his status as a legend in the Keystone State.
Persistence is key. But it also helps if you have a solid business plan from the beginning. If you need assistance with your business plan, contact a Growthink business plan writer today.
You always hear about a “long road to the top,” but perseverance isn’t limited to the early stages of a person’s career. Oftentimes, failure can occur after a long period of success.
Steve Jobs achieved great success at a young age. When he was 20 years old, Jobs started Apple in his parents’ garage, and within a decade the company blossomed into a $2 billion empire. However, at age 30, Apple’s Board of Directors decided to take the business in a different direction, and Jobs was fired from the company he created. Jobs found himself unemployed, but treated it as a freedom rather than a curse. In fact, he later said that getting fired from Apple was the best thing to ever happen to him, because it allowed him to think more creatively and re-experience the joys of starting a company.
Jobs went on to found NeXT, a software company, and Pixar, the company that produces animated movies such as Finding Nemo. NeXT was subsequently purchased by Apple. Not only did Jobs go back to his former company, but he helped launch Apple’s current resurgence in popularity. Jobs claims that his career success and his strong relationship with his family are both results of his termination from Apple.
Are you building the next Pixar or Apple? Get expert business planning advice from a Growthink business plan consultant.
Nowadays, Simon Cowell is a pop icon and a very wealthy man. But early in life, Cowell faced his fair share of struggles. At age 15, Cowell dropped out of school and bounced around jobs. He eventually landed a job in the mail room of EMI Music Publishing. Cowell worked his way up to the A&R department, and then went on to form his own publishing company, E&S Music.
Unfortunately, E&S folded in its first year. Cowell ended up with a lot of debt, and was forced to move back in with his parents. But he never gave up on his dream of working in the music industry, and eventually landed a job with a small company called Fanfare Records. He worked there for 8 years and helped the company become a very successful label. From there, Cowell spent years signing talent and working behind-the-scenes before launching the “American Idol” and “X-Factor” franchises that made him famous.
Even though he is rich and successful, Cowell continues to work on new projects. This kind of dedication no doubt helped him overcome his early roadblocks.
When he was a young boy, Thomas Edison’s parents pulled him out of school after teachers called him “stupid” and “unteachable.” Edison spent his teenage years working and being fired from various jobs, culminating in his termination from a telegraph company at age 21. Despite these setbacks, Edison never deterred from his true passion, inventing. Throughout his career, Edison obtained 1,093 patents. And while many of these inventions -- such as the light bulb, stock printer, phonograph and alkaline battery -- were groundbreaking, even more of them were unsuccessful. Edison is famous for saying that genius is “1% inspiration and 99% perspiration.”
One of Edison’s greatest stories of perseverance occurred after he was already wildly successful. After inventing the light bulb, Edison began a quest to find an inexpensive light bulb filament. At the time, ore was mined in the Midwest, and shipping costs were incredibly high. To combat this, Edison opened his own ore-mining plant in Ogdensburg, New Jersey. For roughly a decade, Edison devoted all his time and money to the plant. He also obtained 47 patents for inventions designed to make the plant run more smoothly. And after all of that, Edison’s project still failed thanks to the low quality ore on the East Coast.
But as it turned out, one of the aforementioned 47 inventions (a newly-designed crushing machine) revolutionized the cement industry and earned Edison back nearly all of the money he lost. In addition, Henry Ford would later credit Edison’s Ogdensburg project as the main inspiration for his Model T Ford assembly line, and many believe that Edison paved the way for modern-day industrial laboratories. Edison’s foray into ore-mining proves that dedication and commitment can pay off even in a losing venture.
Are you starting a new business? Get expert strategic advice from Growthink's professional business plan consultants.
Before “The Boss” assumed ownership of the New York Yankees, he owned a basketball franchise called the Cleveland Pipers. The Pipers were part of the American Basketball League, and in 1960, under Steinbrenner’s helm, the franchise went bankrupt.
When he eventually took over the Yankees, Steinbrenner’s struggles didn’t end. Most baseball fans will remember the team’s drought in the 1980s and early 1990s. As the team suffered, Steinbrenner was often criticized for his executive decisions, which included questionable trades and frequent changes to the Manager position. Though his methods were controversial, Steinbrenner stuck to his guns, and it paid off. The Yankees made an impressive six World Series appearances from 1996-2003, and remain Major League Baseball’s most profitable team year after year.
Steinbrenner is known for his shrewd business tactics, but he’s also not afraid to put his money where his mouth is. The Yankees have the highest payroll in baseball, and they’ve been in contention every year since the mid-90s. Even when the Cleveland Pipers went bankrupt, Steinbrenner offered to pay back the team’s investors, a promise he eventually made good on.
Steinbrenner has been quoted as saying, "I never wanted anybody to say ‘I went down a path with George Steinbrenner and lost money.’"
J.K. Rowling, author of the Harry Potter books, is currently the second-richest female entertainer on the planet, behind Oprah. However, when Rowling wrote the first Harry Potter book in 1995, it was rejected by twelve different publishers. Even Bloomsbury, the small publishing house that finally purchased Rowling’s manuscript, told the author to “get a day job.”
At the time when Rowling was writing the original Harry Potter book, her life was a self-described mess. She was going through a divorce and living in a tiny flat with her daughter. Rowling was surviving on government subsidies, and her mother had just passed away from multiple sclerosis. J.K. turned these negatives into a positive by devoting most of her free time to the Harry Potter series. She also drew from her bad personal experiences when writing. The result is a brand name currently worth nearly $15 billion.
What about you? Are you starting a new business? If you need help with your business plan, contact Growthink's professional business plan writers.
As a young man, Walt Disney was fired from the Kansas City Star Newspaper because his boss thought he lacked creativity. He went on to form an animation company called Laugh-O-Gram Films in 1921. Using his natural salesmanship abilities, Disney was able to raise $15,000 for the company ($181,000 in 2008 dollars). However, he made a deal with a New York distributor, and when the distributor went out of business, Disney was forced to shut Laugh-O-Gram down. He could barely pay his rent and even resorted to eating dog food.
Broke but not defeated, Disney spent his last few dollars on a train ticket to Hollywood. Unfortunately his troubles were not over. In 1926, Disney created a cartoon character named Oswald the Rabbit. When he attempted to negotiate a better deal with Universal Studios -- the cartoon’s distributor -- Disney discovered that Universal had secretly patented the Oswald character. Universal then hired Disney’s artists away from him, and continued the cartoon without Disney’s input (and without paying him).
As if that wasn’t enough, Disney also struggled to release some of his now-classic films. He was told Mickey Mouse would fail because the mouse would “terrify women.” Distributors rejected The Three Little Pigs, saying it needed more characters. Pinocchio was shut down during production and Disney had to rewrite the entire storyline. Other films, like Bambi, Pollyanna and Fantasia, were misunderstood by audiences at the time of their release, only to become favorites later on.
Disney’s greatest example of perseverance occurred when he tried to make the book Mary Poppins into a film. In 1944, at the suggestion of his daughter, Disney decided to adapt the Pamela Travers novel into a screenplay. However, Travers had absolutely no interest in selling Mary Poppins to Hollywood. To win her over, Disney visited Travers at her England home repeatedly for the next 16 years. After more than a decade-and-a-half of persuasion, Travers was overcome by Disney’s charm and vision for the film, and finally gave him permission to bring Mary Poppins to the big screen. The result is a timeless classic.
In a fitting twist of fate, The Disney Company went on to purchase ABC in 1996. At the time, ABC was owner of the Kansas City Star, meaning the newspaper that once fired Disney had become part of the empire he created. And all thanks to his creativity (and a lot of perseverance).
Are you starting a business, or looking to grow your business?
The first step to success is to create your business plan.
The U.S. Hispanic market, combined with the number of successful small businesses in Los Angeles, means that regardless of the fluctuations of the stock exchanges, opportunities continue to germinate on our doorstep.
Companies that create products and services for the U.S. Hispanic Consumers will continue to enjoy impressive growth, increasing revenues and expanding markets.
Our optimism on the potential of U.S. Hispanic consumers to be promising partners to enterprises astute enough to provide a range of solutions—from credit cards to Internet connectivity—which embrace the needs and aspirations of U.S. Hispanics, is based on three powerful trends which have transformed 44.3 million U.S. Hispanics from a group long ignored by the majority of American businesses into an empowered and emerging market.
1. The U.S. Hispanic Economy – An Emerging Market Right Here At Home
Together, 44.3 million U.S. Hispanics constitute their own sizeable, secure and financially empowered domestic emerging market that the 245,000 businesses based in greater Los Angeles businesses should be serving today. U.S. Hispanic consumers possess several important advantages typically seen in consumers in foreign emerging markets: rapidly rising incomes, which are fueling a surge in demand for consumer goods and services.
The average age of U.S. Hispanics is a young 27.4 years, giving this group the advantage of time to build wealth—and for companies to develop lifelong loyal customer bases – loyalty being a hallmark of the Hispanic consumer. In 2007, Hispanic consumers will spend $800 billion dollars, a figure that is on track to reach $1.5 trillion by 2012.
And this particular emerging market enjoys an additional asset that consumers in foreign emerging markets can as of now, only dream about: U.S. Hispanics are creating economic opportunity in a nation where laws governing employment, financial transactions, private and intellectual property are strongly enforced. These advantages provide entrepreneurs with a level of security crucial to making investment decisions, which develop new products, expand capacity and provide high levels of services to their customers.
Clearly all companies—here in Los Angeles and throughout the U.S—must develop strategies and services appealing to a group, which is moving en masse, from aspiration to affluence.
2. Capital: The Cornerstone of Success
Providing entrepreneurs who are leading early and middle stage companies with access to the appropriate types of investment capital – especially in the $2 million to $5 million range – and the advice critical to building successful businesses — rather than a slowdown in consumer spending—presents the greatest challenge to growth.
Even those beginning stage companies with deep and proven knowledge of their markets have difficulty raising the investment capital needed for establishing a strong consumer presence and market share. Growthink’s expertise in providing capital and counsel to early and expansion stage companies has been vital to the success of Los Angeles-based, early stage enterprises such as Authenticlick, a developer of fraud detection software and Xcom Wireless, a creator of wireless routing technologies.
Growthink’s involvement with both companies was comprehensive. First we helped each enterprise identify a profitable but unrecognized opportunity to serve their target markets. Then, working with their leadership teams, we developed a business structure adaptable to potential changes in the target market and a range of capital solutions, which transformed Authenticlick and Xcom from promising ideas into thriving, venture-backed enterprises.
3. Plan and Prosper Now
Between 2005 and 2006, fifty-percent of the people added to the U.S. population were of Hispanic origin. Today 13.1 million Hispanics call California home. By 2050 Hispanics will make up twenty-four percent of America’s population.
Can you name one business that succeeded by ignoring one-quarter of its potential customers? Neither can we.
For Los Angeles businesses, Hispanic consumers present a rich opportunity for growth—and a vital shelter from the possibility of recession we’re seeing in the statistics and signals coming from Washington and Wall Street. Business cycles are a natural component of free markets. But so is opportunity. And the opportunities available to Los Angeles companies embracing the potential of the domestic U.S. Hispanic market will only grow stronger, more diverse and profitable.
We're told that every successful business starts with a great idea. That's a half-truth. Our nine-year track record of transforming exceptional entrepreneurs into successful CEOs shows us that great companies start with great ideas — and a great business plan.
We've written more than 1,000 business plans for a diverse array of companies who have gone on to raise more than $1 billion. (Dakim is the most recent example). Our clients, early stage and middle market companies, just like yours, are engaged in every type of business, from building boutique hotels to wifi-hotspots.
The following five concepts, based on a recent Business Week Online interview with Growthink partner Dave Lavinsky, (see the interview here), are critical to building a successful business plan — and most importantly — a successful business:
1. Why You Need a Business Plan
A business plan is the marketing document telling the story of your company: its purpose, achievements and objectives. A business plan helps you obtain investment capital. Ideally, your business plan should be 15-25 pages long and it should include an executive summary of between 2-4 pages, depending on the complexity of the business and the purpose of the plan, which answers the two questions asked by every experienced investor::
Your business plan should also include an operating plan. In addition to other components, the operating plan contains milestones — the list of business objectives your company will achieve by a certain date.
Research, Research, Research
Research, Research, Research
Entrepreneurs of the world: do your homework. Investors reading your business plan want to see that you've thought long and hard about the potential promise — and pitfalls — of starting or expanding your company. Your dutiful due diligence must supply answers to these questions potential investors are asking themselves — and willask you:
Here's the blunt bottom line: If your business plan doesn't include research that helps you present a clear, compelling case to potential investors, why should anyone trust you with their money?
Here's the blunt bottom line: If your business plan doesn't include research that helps you present a clear, compelling case to potential investors, why should anyone trust you with their money?
3. Investor Insight: Experience Over Speed
Ah, the days of 1999, when we believed that First Mover Advantage, like Venture Incubators, was the key to success. Well, we've been burned and we've learned that, for a range of ventures, from e-tailing (Boo.comanyone?) to streaming networks (Quokka.com, RIP), that being first doesn't mean finishing first among your competitors.
Many investors now want to see a track record — for example,a history of revenue and customers. Have you been running your business for awhile or is it still just a great idea, looking for capital? This change in investor strategy makes for longer funding cycles: that period between presenting your business plan to potential investors and receiving an initial round of funding. Longer funding cycles are frustrating for emerging stage business owners who need investment capital sooner, rather than later.
Seek Specialist Funding
Seek Specialist Funding
Does your company generate annual revenues over $1 million dollars? Are you an early stage company or a pre-revenue concern that owns its intellectual property? Well, there are investors seeking to fund companies justlike yours. Growthink's capital partners represent a wide range of investment mandates. Thousands of companies have come to Growthink for the capital and counsel critical to their success.
Get Great Advisors — And Listen To Them
Get Great Advisors — And Listen To Them
Your business plan should include the creation of an advisory board. The advisory board is a group of external experts who are not involved with the day to day business operations. A good advisory board helps keep your team on track towards achieving the milestones contained in your operating plan and alerts you to the changes and opportunities occurring in your target market.
6. Have Questions? We Have The Answers
Founded in 1999, Growthink is a leading business plan consulting firm and middle market investment bank. Our professional business plan writers and investment bankers have assisted more than 1,500 clients in launching and growing their businesses, and raising more than $1 billion in growth financing.
Need assistance with your business plan?
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Speak with our private placement memorandum experts.
Or, if you're creating your own PPM, save time and money with Growthink's sample private placement memorandum.