8 tips for budding entrepreneurs
Last week Saint Petersburg hosted its International Economic Forum (SPIEF) with its usual focus on SOEs, mega-deals and bilateral cooperation opportunities. However, the last day of the Forum happened to fall on the Russian National Entrepreneurs Day. Together with The Graduate School of Management of Saint Petersburg State University I was invited to moderate a brainstorming session with the some rather promising Generation Z entrepreneurs to help them develop a more realistic sense of the venture capital and private equity industry and what it offers. During the session, 12 participants had to collaborate to try to find answers to questions that ranged from the challenges of starting up a business, attracting investments, and building a team for success, while reconciling personal friendships and workplace relations. In the end, we came up with a sort of cheat-sheet to help Gen Z entrepreneurs overcome some of the common challenges associated with launching a new business.
- Humbleness is a virtue.
Be realistic, do not overestimate (or overstate) your business idea or your personal ingenuity. Global VCs carefully created and are cultivating a myth around their ability to find and finance the most successful young companies. But the reality looks very different. Behind the success stories of Apple, Facebook and Google there are numbers showing that many more venture-backed start-ups fail than succeed. 99 out of 100 entrepreneurs do not raise the required funding, and 9 out of 10 go bust in the first two years. To be successful you need an honest answer to a question – why are you better than then everyone else? Why should investors want to invest in your company? And it’s better for you to be self-critical than to wait for someone else to come in and criticise you. Accepting your limitations helps you to understand how to achieve better results and how to succeed.
- Surround yourself with people who have the right skills and experience.
Try to form your team with people who can do what you cannot. A lack of relevant experience can be fatal for any business. It is no coincidence that the average age of people who attract finance is 30-35 years. People working in the PE industry are keen to see the necessary experience in the start ups approaching them for financing, and not just a fresh University diploma with theoretical knowledge. Employ experienced people you can delegate tasks to confidently and without worry. Because if you do so, you know the tasks will be competently completed (and hopefully on time as well).
- A good friendship does not necessarily make a good partnership.
John D. Rockefeller once said: “A friendship founded on business is better than a business founded on friendship”. What do you want to achieve: be surrounded with nice people with whom you can party or get great results in the workplace? Yes, sometimes you may not like your colleagues as much as your friends, but you employ them for their skills – and this is okay if you wish to succeed. It is fine to work with friends as long as they have the necessary competencies. But never choose friendship over the future of your business.
- How do you cash in on your investment?
From the very first day, you have to consider not only how you are going to attract investments but how you will subsequently cash in and divest your business? Do not put a lot of effort into a project without a future. Always question yourself, is your product good enough? Why would investors fund it? Is there demand for your supply? How are you going to monetise your business idea? Projects like Wikipedia may be exciting and entertaining, but they are unlikely to be profitable.
- Research the market.
Tony Hsieh, the founder of Zappos, once said: “Don’t play games you don’t understand, even if you see lots of other people making money from them”. Understanding your market, the business and regulatory environment is key to success. Porter’s Five Forces (a tool, created by Harvard Business School professor Michael Porter) is a simple but powerful weapon for understanding the competitiveness of your business environment and for identifying your strategy’s potential profitability. And do not forget to read, read and read. Adapt the experience of key market payers by reading their success stories. Make sure there is a gap for you to fill and an opportunity to make a profit.
- Sell your soul to your business (the devil).
One of the most important aspects of business success is commitment. If you are not 100 percent committed to your business you are going to find it very difficult to make progress. You have to believe in your business so much that you put everything into it. If you have not sold it to yourself, you will not sell it to others. Furthermore, any investor would prefer to invest in the business of someone whose eyes are on fire, who is not thinking about “just a 40 hour work week” and is fully involved in the operations. For you, it must be absolutely critical that your business is successful. Otherwise you and your business will be defeated by competitors.
- Learn how to take a punch.
Pick yourself up after you have fallen down. Be ready to fight for your ideas. Things might not always run smoothly, but you must carry on and persevere no matter what. You have to be strong enough to stand up for what you believe in. If Richard Branson quitted every time something went wrong, we would never witness the achievements of one of the most popular business leaders alive. You have to prepare yourself for the fact that during first 10 years you will experience failure after failure, crisis after crisis. This is why it is extremely important to answer the question – are you ready to have 10 years of disappointments and failures for a brighter future?
- Remember – nobody owes you anything.
If you want to achieve anything, work hard. Do not sit and wait until life serves you everything on a silver platter. Starting your business, you will compete with the same young and ambitious professionals, fighting for a place in the sun. And you are the only one who can influence your future results.
Being successful means learning from those who have already achieved their goals. I believe that events like this create a great networking space to collaborate and exchange knowledge and first-hand experience with Generation Z. The event showed how fledgling businesses could benefit from the experience of more established and larger ones.
Having 20+ years of PE experience I strongly suggest anyone considering launching a business to ask themselves – do you REALLY want it? There is big difference between daily exercise and sport. Daily exercise if good for you, it improves your health; sport – is not, with the traumas and fatigue you inevitably collect when doing competitive sport you are more likely to do more damage to your body then good. It is estimated that 60% of the global population does some form of a periodic exercise, but less than 1% does professional sport. Even in that 1% percent there is only one gold medal up for grabs, only one Wimbledon or Fastnet. And 99% percent of those who are engaged in professional sport will never get to the top spot on the podium. But they are still in there. Why? For the fight, for the challenge to expand one’s limitations.
There is exactly the same difference between opening and running a local corner convenience store and aspiring to launch a new ABBYY or Magnit out of your parents’ garage. The former is inevitably good for you, the latter – only, and only if this is what you really want!
I salute every entrepreneur who holds his or her breath and goes head first into starting their new business and I wish them every bit of luck. They will need it!