Look Before You Leap: 7 Key Success Factors for Creating Your Own Business

There is no question about it the life of an entrepreneur is an exciting one! Now that you¡¦ve decided to take the leap there¡¦s a few things you should know. Although you can never fully prepare for the challenges and opportunities that lie ahead, you can go into your venture with your eyes open.

By Rachel E. Mickelson, Tom Starko American Venture Magazine

Here are 7 Key Success Factors (KSFs) for creating your own business:

KSF #1: Understand How Your New Venture Fits Into Your Overall Life Plan

You will do yourself, your family and friends a big favor if you take the time upfront to discover the real reason you want to go into business for yourself. Use the ¡§5 Whys¡¨ technique, for example:

Why do you want to start your own business?

I am tired of working hard for others and not seeing the benefits for myself; I want independence!

Why do you want independence?

I have my own ideas and I think I can bring them to market better than my current company.

Why do you think you can do it better

I have taken a look at the competition, and talked to two other great colleagues who are all set to come along with me as soon as I say the word.

Why are you willing to risk leaving a secure job?

I have dreamed for a long time of owning a company that contributes to the health and safety of American workers.

Why that kind of business?

Because I believe American workers are the backbone of our society and every worker deserves the best when it comes to their health and wellbeing. By starting this company, I think I can make a difference.

Make no mistake, for the first 5 years (or more) your business will take up the majority of your time if you want it to succeed. Be sure you are ready to make this sacrifice. Take the plunge to go into business for yourself ONLY if after careful examination of your life goals and desired contributions, you find a deep, compelling reason to go into business that touches the core of your life purpose and values.

KSF #2: Know Your Risk Tolerance

You probably inherently know your own level of tolerance when it comes to risk but it is very important to spell this out in detail not only to yourself but to your stakeholders. They say your odds are better in Las Vegas than succeeding at your own business. Obviously you can control a lot more at your business than you can gambling but there are significant risks associated with all businesses. Are the risks clear to you? to your spouse? to your family? to your backers? What are you prepared to put on the line? your savings? your home? your inheritance? There are no right answers here, just right questions.

As a young entrepreneur starting a business in the ¡¥90¡¦s, these questions were posed at one of our early board meetings. The plan was to go from start-up to $50M in 5 years and then sell. Venture capital money alone would not help us and would be far too expensive if we were to reach these expectations. How much personal risk were the current shareholders prepared to put on the line in order to hit our marks? The bank wanted personal guarantees on all borrowings. I recall one of our more senior directors, a successful business person, telling me his rule of thumb. He said ¡§Kid, sign all the personal guarantees that you want until you turn thirty; after that never sign another one!¡¨ I was twenty-nine.

KSF #3: Vision: Begin With The End In Mind

Once you get in touch with your lifelong goals (see KSF #1), you will have a much easier time deciding how your business fits into those plans. For example:

Is your business a growth or value investment?

Do you intend on passing it on to your children and making it part of your family’s legacy?

Do you want to try to maximize your return and sell the business?

Once the overall framework is set for where you want to take your business in the long run, it is solid business practice to envision the shorter term future for your business. Without a picture of what you want to build, your strategy will lack substance.

Ask yourself: In 5 years:

o What major accomplishments has the business achieved?

o What are we ¡¥known for¡¦ in the community?

o What do our customers and employees say about us?

o What innovations are we responsible for?

Create a picture of your desired future and make sure you involve those we will be responsible for achieving that vision.

KSF #4: You Can¡¦t Plan Enough

The majority of businesses lack a strategic plan. They do create one, but it ends up collecting dust or failing to get implemented in any meaningful way. Your strategic plan should be your best friend¡Xit¡¦s your roadmap to achieving your desired vision (KSF #3).

In light of your vision, there are four key strategic questions to ask yourself and your leadership team (note to editor: this could be a good side bar)

1. What core business should we be in?

2. Who should be our customers?

3. What products and/or services you should offer them?

4. How should we deliver them?

Most strategic plans stop here; however, to be successful at implementing your strategy you must build an organization that supports it. Therefore another key strategic question is:

5. What people, systems, processes and structures do we need in order to effectively implement our strategy?

From here you can begin to build your strategic plan and operational plans and budgets and rest assured that, for now, you know where you are headed.

KSF #5: Create Strong Governance Structures

I recall as a kid feeling quite sorry for myself when I had a brief stay in the hospital. My mother in her attempts to cheer me up said ¡§when you are in the hospital, it doesn¡¦t matter how sick you are as there is always someone sicker.¡¨ In business, it doesn¡¦t matter how smart you are because there is always someone smarter. That¡¦s why you need strong governance. The more smart ideas from the outside you can get, the more successful you will be. A board of advisors is a great way to start and it will be the cheapest advice you can receive. Conversely, they will prove to be a valuable resource in how your business is governed internally. The nice by-product of all of this is that equity and debt partners love to see this kind of thing and are much friendlier as a result!

Another fun question you may want to ask yourself as an investor is ¡§Who would you like to run this thing?¡¨ If you are not the best choice then check your ego at the door and start looking for someone who is!

KSF #6: Money Isn¡¦t Everything¡KBut It¡¦s Close

More businesses fail because of growth than lack thereof. Why? You can have the greatest idea, products, people and systems but if you can¡¦t afford to finance those increase in receivables, or inventories, or capital costs, or training, or anything else your business needs to grow, you are dead before you start. The sort of planning described in KSF #4 is critical to determining cash requirements for the next 1, 3 or 5 years. There are three givens in a start-up. You will underestimate your costs. You will never get all the financing you need. You will never be able to afford to do everything that you want or need.

Go in with deep pockets with further resources to dig deeper if you need to. And plan for some defeats before they happen. The world¡¦s greatest generals did not win every battle and they always had a line of retreat no matter what level of confidence they have. Your plans for contingency should be commensurate with your level of risk tolerance.

KSF #7: Passion is Everything

Passion is our most precious and unfortunately rarest of resources. In family or closely held businesses, it can be one of your greatest competitive advantages.
Passion in business starts at the leadership level. If you or your businesses leaders are not passionate about the product, service, customers, employees and shareholders then it¡¦s time for a leadership change. Once the leaders begin to embrace this zeal, you begin what we refer to as The Reciprocating Circle of Passion.

You will find most employees will naturally be swept up in this new found excitement. Why? Because passion is fun and most people are attracted to it. We spend a good part of our lives in the work environment and we want to make it the most pleasurable experience it can be. Soon this fervor will seep its way into the customer¡¦s realm. They will want to be part of an exciting value chain. They will realize a greater level of service and quality and will become addicted to it. With the proper mechanisms in place, your customers will provide feedback to the leaders about how to do it even better. That¡¦s the practical advantage of passion. It¡¦s the basis of continuous improvement and a striving towards a utopian relationship between the customer and the supplier.

No matter what kind of business venture you are creating, you will be on firmer ground if you pay close attention to these 7 Key Success Factors and ¡§look before you leap.¡¨

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