Carol Roth's new book, The Entrepreneur Equation: Evaluating the Realities, Risks, and Rewards of Having Your Own Business
, is the truth serum needed by anyone interested in starting their own company. For some, it might be slightly bitter to taste, but the healing effects go a long way in the battle against blindly following passion into financial ruin and crushed dreams.
Literally energized by her book, I immediately sent her a few questions. Her responses offer a glimpse into the book that should be considered mandatory for anyone considering their own venture.
What is the hardest question someone must ask themselves when starting a business?
It seems like most aspiring entrepreneurs start with "Can I start a business?" when they really need to be asking themselves "Should I start a business right now"? We tend to make the assumption that entrepreneurship is the path that is going to work the best for everyone and that it's one-size-fits-all. However, we all have very different definitions of success, objectives and circumstances-- which change over the course of our lives-- so we have to evaluate entrepreneurship personally.
Even if you can start a business, ask yourself if it is going to lead you down the best path to reach your own version of success? Being successful as an entrepreneur is very much about being the right person pursuing the right opportunity at the right time with the right preparation- all evaluated against your own success definition.
What is the main reason that 90% of startups fail within 5 years?
I think failure ties back to having unrealistic expectations and lack of preparation from the start. The moniker failure is a bit vague- it combines financial failure (aka bankruptcy or running out of money), as well as entrepreneurs who have given up and gotten out of the business- so it may be more accurate to label it as "failure to succeed".
Without enough preparation, entrepreneurs end up relying on emotions. Like the entrepreneurs who are "business beer goggling"; they are so intoxicated by a new idea that they think it looks a lot better than it is in reality. Then they give up after they have sobered up to the reality that it is very difficult to execute on a day-in, day-out basis over long periods of time.
Another good analogy is marriage. How many people do you know that have their entire wedding day planned out (what they are serving, what band will play, what the bride will wear) and assume that after the honeymoon they will live "happily ever after"? Well, the real work in a marriage begins after the honeymoon is over. The same thing goes with a business. The launch is the wedding and honeymoon and that's where the focus is. The hard part is the part everyone forgets about!
Emotion also means that entrepreneurs usually are not doing enough to stack the odds of success in their favor before they begin. They jump in too soon without financial preparation, enough research or experience and ignoring their responsibilities and circumstances.
Finally, most aspiring entrepreneurs (and some seasoned entrepreneurs too) don't understand the "Rule of 3" in business: everything takes 3 times longer than you have anticipated, costs 3 times as much and is 3 times more difficult to do. Underestimation of these areas sets up the perfect storm for failure.
What makes the 10% that succeed so unique?
It's more difficult to draw comparisons amongst the successes than it is amongst failures. You know the phrase "history repeats itself"? That's always about bad things, rarely good ones!
I do think that execution is key; which encompasses such factors as:
-Preparation: It's been shown that businesses with business plans succeed at a higher rate than those that do not have them
-Perseverance: Passion is great when things are going well, but you need to be able to push through the tough and uncertain times (of which there are a lot!)
-Smart work: It's not just hard work, because there are a lot of people who work hard but not smart. Smart work is hard work plus strategy, prioritization, scrappiness and hustle
-Timing: There's a sprinkle of luck and the stars aligning that often goes into success stories as well. Hopefully, you will make a lot of your own luck, but you need timing on your side as well. Starbucks may not have taken off if it was started 10 years earlier.
How can the jobs people want to escape help them prepare for working for themselves?
If you currently have a job, make a mindset shift to view your current situation not as a job, but as a detective case (it may sound strange, but go with me here...). Investigate the inner-workings of not just what you do, but everyone around you and really dissect how the business is being run. Do informational interviews with the owner and managers and ask them questions that you would want to know as a business owner.
If your current job is too far removed from what you want to do, put your ego aside and be willing to take another job that will prepare you better for investigating entrepreneurship in a similar type of business to the one you want to start. You may even have to take a pay cut, but the opportunity to learn on someone else's dime before you risk your own money is priceless.
Also, keep in mind that you can be entrepreneurial without having to become an entrepreneur. A lot of entrepreneurs aren't driven in full (or at all really) by getting rich. They want to make a difference or an impact. They want to think outside of the box and unleash creativity. They want recognition as much as dollars. Approach your employer (or another one if yours is closed-minded) with your ideas and perhaps find a way to share in the upside (financially, recognition-wise or otherwise). You still have to take a risk professionally to pursue your venture, but you won't be risking your savings. Plus, you may get a jump start by having access to the resources and reputation of a more established company. This could be a great interim step or even a long-term solution for satisfying your entrepreneurial desires.
Carol Roth is a business strategist, deal maker and author of the New York Times, Wall Street Journal and USA Today bestselling book, The Entrepreneur Equation
. She has helped her clients, ranging from solopreneurs to multinational corporations, raise more than $1 billion in capital, complete hundreds of millions of dollars in M&A transactions, secure high-profile licensing and partnership deals, create brand loyalty programs and more.
Carol is a frequent radio, television and print media contributor on the topics of business and entrepreneurship, having appeared on Fox News, MSNBC, Fox Business, WGN TV Chicago and more. Additionally, Carol's Unsolicited Business Advice blog at CarolRoth.com was recently named as one of the Top 10 small business blogs online.