The Entrepreneurial Code – Lessons Learned from a Failed Ivy League Entrepreneur

As a 21-year old college student at Wharton, the business school of the University of Pennsylvania, I embraced the ideals of entrepreneurship so whole-heartedly I started my own company. My classmates and I managed the company for two and a half years and it became our full time job after graduation. We wrote a business plan and believed we had a unique concept, a strong management team, and a viable “business model.”

Unfortunately, despite some initial success, my business eventually shut down. Our fate isn’t surprising when you consider the challenges faced by entrepreneurs starting new companies. Like many entrepreneurs, we lost a lot of money invested by friends and family. For two years, we lived in our offices, sleeping on the floors, working day and night with no personal lives. In the end it seemed as if those sacrifices had been for nothing.

Lessons Learned

I think the failure of my company can be attributed to inadequate leadership among its founders. After years of reflection, I’ve asked myself to define what being a “leader” means to me. My definition follows:

A Leader is someone with sound judgment, integrity, and a sense of responsibility for others. A leader motivates others towards common goals, provides hope and inspiration in times of uncertainty, and helps the organization to adapt to an ever-changing environment.

While some degree of technical competence is necessary, these attributes mostly stem from increased self-awareness. It was Sun Tzu who said, “Know your enemy and yourself and you will win 100 battles; know the enemy and not yourself and you will lose every time.” Unfortunately, as a first time entrepreneur, there was a lot about myself I didn’t know. While a lack of self-knowledge isn’t so unusual for someone in his early twenties, it’s a huge problem for an entrepreneur.

I have always found that a good acronym helps me to remember things. For example, “ROYGBIV” and “Please Excuse My Dear Aunt Sally” have locked the colors of the rainbow and the mathematical orders of operation into my brain since I was a high school student. As I was writing this manuscript, I wanted to create another mnemonic to help me remember the mistakes I made so I don’t repeat them in the future.

I have categorized these entrepreneurial mistakes into five elements (the “E CODE”). These five areas are as follows:

Egomania

Corporate Governance

Outlook (or Attitude)

Deeper Meaning

Emptiness

1. Egomania

As a college student, I heard stories how Michael Dell started his company from his college dorm room, and how Bill Gates dropped out of Harvard to start Microsoft, and how many of the wealthy benefactors of my university had been entrepreneurs. While I couldn’t possibly know the hardships and brushes with failure these men had, I latched on to their larger than life images of “success.” After all, I wanted to believe I could accomplish anything with my future. I wanted to believe in the unlimited potential of entrepreneurship.

In my mind’s eye, these tales were all that came close to meeting the “extraordinary expectations” I had of life. I was convinced that entrepreneurship was the single greatest wealth-building opportunity. At 21 years of age, I wanted to make my own decisions, to be my own boss, and to have a financial stake in the outcome of my work. At the same time, I didn’t want to spend 10 or 20 years slowly climbing the corporate ladder. By starting my business, growing it quickly, and selling it, I believed I could have my cake and eat it too.

It was Bill Walsh, former head coach of the San Francisco 49ers, who remarked that “ego” is a misused word in the United States. He said, “We Americans throw that around, using that one word to cover a broad spectrum of meanings: self-confidence, self-assurance, and assertiveness… But there is another side that can wreck a team…That is being distracted by your own importance… [It] ends up interfering with the real goal of any group .”

As a young entrepreneur, I considered it my right to serve my own self-interest. Since I was “taking the risk,” I believed I was entitled to the rewards. Therefore, I was very controlling about who I allowed to get involved in my business. Even if recruiting a larger team added benefits, I sometimes hesitated. After all, I viewed it as “my company,” so I didn’t want to share the upside with others unless it was absolutely necessary. If I had checked my ego, I would have been more likely to recognize my limitations and concentrate on assembling the right team of people, even if it meant slowing things down.

Unfortunately, my exorbitant expectations of entrepreneurship were difficult to meet. Soon, I became embarrassed to show people I worked in a small office with only a handful of employees. I wanted to live up to my lofty ideal of a “real entrepreneur.” So, I rushed to rent larger office space and expand my business prematurely. When the image I had in my head failed to live up to reality, I panicked. Why? Because I was far more excited to chase a “rags to riches” fairy tale than I was to hunker down and slowly build a business over a long period of time. I wanted results in a hurry, but it wasn’t going to happen that way. It was time for Peter Pan to grow up.

At the end of the day, an entrepreneur has the responsibility of stewarding his company and its many stakeholders, not just himself. There’s no room for large egos, because they lead to bad decisions. Entrepreneurship is not so different from other career paths as many of us would like to believe. It still takes many years to build a reputation and a strong client base. It still requires the founder to start at the bottom. If anything, it’s less glamorous, because there are fewer people around to help and a lot less resources at our disposal.

2. Corporate Governance

My partners and I had little corporate governance and no written policies or procedures. Oftentimes, we lacked the independent perspective necessary to critically evaluate our thinking. “GroupThink” was rampant, whereby everyone was entranced by the same views, so no one was thinking independently.

Although we didn’t think we needed advice, my company would have benefited from including independent directors on our Board. It would’ve forced us to share our assumptions with outside professionals. Inevitably, we would’ve had to test our theories, identify potential risks, and slow down our growth plans. At the very least, independent directors would have forced a system of checks and balances.

Although no entrepreneur wants to create bureaucracy, having some structure in place is essential to a healthy organization. Unfortunately, my partners and I thought the primary value of having independent directors was to tap into their business contacts. We weren’t concerned about corporate governance. Instead, we wanted directors to help us get financing or drum up new business. When it became difficult for us to recruit these “well-connected” people, we gave up looking.

As founders, we couldn’t afford to pay ourselves high salaries, so we were financially dependent on the value of our stock. While our ownership stakes were nearly worthless at the time, we assured ourselves that “equity” was the best motivational tool. Unfortunately, being solely dependent on the value of our shares made us more inclined to embrace riskier strategies. After all, our stock could never be worth less than zero. In that sense, it resembled a “call option,” so adding volatility to our business was a way to boost our equity value.

Ultimately, I grew so concerned with protecting my ownership that I turned away venture capital. Rather than selling a large chunk of my equity, I preferred to embrace a highly leveraged operating strategy. Now, I realize that anyone can bet his entire company on a risky financing strategy. The real whiz can capitalize his business in a way that doesn’t “sink the boat” if things take an unexpected turn for the worst.

I also realize that my company’s corporate culture lacked discipline. My partners and I were generally unkempt – we showered everyday at the gym and we slept on the floor of our office. We didn’t keep regular business hours and we had no planned schedules. As a result, the environment we created lacked professionalism. Unfortunately, our lack of discipline manifested itself in a negative way whenever we faced stressful situations.

Tense arguments between founders would turn into screaming matches. We became hotheaded and it spread into the way we managed our business. We were prone to knee-jerk reactions and quick changes of strategy. Although we viewed our nimbleness as a competitive advantage, we lacked the emotional intelligence to realize when we were behaving irrationally. Unfortunately, we lacked the balance in our culture to keep us grounded.

As founders, it was our job to mold the company’s values after our own beliefs. Unfortunately, we listed corporate values in our business plan, but they were just words on paper. Now I realize that corporate values are not pieces of PR fluff that companies put on their websites to appease investors. When these values are held deeply by managers, they help in making difficult decisions.

I think of the nationwide Tylenol recall by Johnson & Johnson whereby 7 people in the Chicago area died in 1982 because their Extra-Strength Tylenol had been laced with cyanide. J&J made a $100 million decision to do a nationwide recall and take its products off the shelves. J&J wanted to send a strong message to its stakeholders that customer safety came before profits. No doubt, it was a difficult decision, but senior management relied on the company’s corporate values to guide them through the crisis. At the end of the day, shared values are a much more reliable way to control behavior in unpredictable situations than are extrinsic controls.

Undoubtedly, part of the allure of self-employment had been the feeling of freedom from not having a boss to which I was accountable. However, the reality was that such freedom didn’t exist, because I was still accountable to my stakeholders. I couldn’t just behave however I wanted. Therefore, I needed to be willing to put checks and balances on my activities for the good of my company. That meant being clear about my company’s values, creating more structure in my organization, and including independent directors on our Board. In short, I needed to take corporate governance a lot more seriously and make it just as important of a goal as my quest for profits.

3. Outlook (or Attitude)

After becoming an entrepreneur, I often compared my life with those of friends who accepted the types of jobs I turned away. While I slept on the floor of my office, ate the cheapest thing on the menu, and was buried beneath a mountain of credit card debt, my peers had apartments in the city, corporate expense accounts, and were improving their credentials in the job market. I began to fear my friends were developing better resumes than I was, while I worked twice as hard for a fraction of the pay.

Comparing myself to others created a lot of unrest, because I was a competitive person and I didn’t want to feel like I was “falling behind.” Although I think it’s natural for entrepreneurs to contend with self-doubt, these emotions only impaired my judgment. They made me impatient, because I was scared of “wasting” years of my life as an entrepreneur, but never becoming “successful.”

After the initial excitement of writing a business plan and setting up my company, I was almost depressed to be sitting in my small office handing out debit cards to college students. I didn’t really have an appreciation for the work. In my mind, I had earned my degree from Wharton to become the manager of a tiny debit card office, but I probably didn’t need to go to college to do that. It made me feel as if I wasn’t living up to my “potential.” Therefore, I wanted to put my head down and focus on growing my business faster.

It sounds ridiculous, but a founder must train himself to find meaning in his daily toils, not just in the dream of his future victory. Otherwise, he’ll feel powerless every time the business takes an unexpected turn and leaves his prospects worse off than before. If a founder feels that he is powerless and at the whim of fate, his psyche can easily become easily damaged by the emotional roller coaster of potential failure and success. The stress can lead him to make bad decisions.

Experiencing failure is an inevitable part of success. Therefore, an entrepreneur has to view adversity as a necessary step that helps him to learn, to grow, and to become a stronger leader. In that regard, challenges and struggles can be hidden blessings, not curses. Entrepreneurs need to observe someone like Nelson Mandella, who survived many years of abuse and imprisonment, but never allowed the situation or his captors to break him. Rather, he used adversity as a tool to transform himself and grow stronger.

There are lots of stories of prisoners of war and concentration camp victims who use their experiences to their advantage. As Warren Bennis and Robert Thomas noted in their book, Geeks & Geezers, leaders often use periods of difficulty as opportunities for reflection that allow them to look deeper into themselves and make discoveries about their own character. It’s ironic, but without moments of desperation, many leaders would never have the opportunity to find their inner strength.

By looking at hardships as opportunities to conquer ego, an entrepreneur can mitigate the emotional swings. As Carlos Castaneda observed with his concept of the “petty tyrant,” life is filled with lots of petty obstacles and challenges, so we might as well learn to use them to our advantage and not allow them to drag us down. In fact, obstacles and hardship can teach entrepreneurs to keep a sense of humor about their plight. It can teach founders to laugh at life’s surprises, both good and bad.

In his book, Man’s Search for Meaning, Victor Frankl describes how life demands things from us, not the other way around. Therefore, we should condition ourselves to find meaning in answering life’s daily callings and use them as opportunities to live with dignity and find meaning in every moment. Learning to enjoy the unpredictability of life can enable an entrepreneur to appreciate the path chosen rather than stress about the uncertainties of future outcomes.

It was John Keats who said the most important attribute of a leader is the ability to be in “uncertainties, mysteries, doubts, without any irritable reaching after fact and reason.” I wish I had a better sense of humor when I was an entrepreneur. Not only would I have had more fun, but I would have been less likely to feel sorry for myself when my company faced challenges. Instead of wasting my energy worrying, I would have been poking fun at my anxieties, strengthening my character, and living in the present. This outlook would have kept me more even keeled and better able to make good decisions.

4. Deeper Meaning

It was Benjamin Disraeli who said, “The secret of success is a constancy of purpose.” I believe an entrepreneur must choose a “cause” to which he’s willing to devote himself, even in the face of failure. It should be a broader purpose that’s worth the fight regardless of the outcome. After all, of the approximately 1.8 million new businesses incorporated every year in the United States, less than a few thousand receive venture funding and a fraction of those ever go public. Clearly, there are no guarantees of success, so a founder’s reasons for choosing his journey have to be about more than the allure of financial gains.

In fact, there is so much volatility embedded in entrepreneurship that it can be difficult for founders to stay motivated by the prospects of riches. Too often the company will be in peril and the founder will be forced to reinvent aspects of the business. If the entrepreneur is only motivated by financial success, then he’ll probably lack the necessary staying power. In fact, most new ventures would probably never get started if a founder’s motivations were based purely on the risk-adjusted economic merits of the project.

At the end of the day, I believe the motivation to pursue a business has to come from a genuine commitment to serving a cause that’s bigger than ourselves. There has to be a responsibility we feel to serve others in a certain way. From my experiences I learned that even the best business plan can become a burden if you don’t believe in what you are doing. Our motivation can’t just be about benefiting ourselves, because when the company’s prospects diminish, most of us will be inclined to quit and do something else.

History is filled with tales of people risking their lives for causes in which they believe. By comparison, very little is written about mercenaries performing such acts of courage. Those who perform the greatest feats do it for reasons which hold deeper meaning to them, not just for money and accolades. Therefore, an entrepreneur should choose a purpose for his business that comes from someplace deep inside of him. Unfortunately, that was not something I did. Rather, I was simply trying to make money, so I could “cash out” and move on to something else.

That’s why I believe an entrepreneur with a long-term dedication will ultimately reap the benefits of his commitment. The right opportunity will eventually present itself. The long-term players will weather the storms and be in better positions to take advantage of the new opportunities when the clouds finally part.

5. Emptiness

There is an interesting poem from the Tao Te Ching that I have come to appreciate since my experiences as an entrepreneur. It follows:

“With a wall all around

A clay bowl is molded;

But the use of the bowl

Will depend on the part

Of the bowl that is void.

Cut out windows and doors

In the house as you build;

But the use of the house

Will depend on the space

In the walls that is void.

So advantage is had

From whatever is there;

But usefulness arises

From whatever is not.

–The Tao Te Ching

Like the poem from the Tao Te Ching, entrepreneurs must see the importance of emptiness, which requires a different way of looking at the world. While emptiness can be uncertainty, it can also represent opportunity.

As an entrepreneur assembles the pieces of his business into place, there will inevitably come a time when the viability of his company is in doubt. New markets are difficult to break into, customer needs are always changing, and the threat of new competition always seems to be lurking about. Sometimes, it’s hard to look into the unknown and see opportunity. It’s easy to doubt ourselves and be scared.

As a 22-year old entrepreneur, I looked into the unknown and I saw only two possibilities. I saw the possibility for personal success or failure. Working at my desk until the early hours of the morning, my mind’s eye was able to craft detailed scenarios for each. Either sleeping on the office floor was going to be part of a story I would tell guests on my yacht one day or I was wasting my potential with a business that would never succeed.

Unfortunately, I didn’t understand there was more an entrepreneur could see in his unknown future if he focused on something other than his “personal success.” He might also see the opportunity to fight for a cause that inspires him, regardless if he wins or loses. Whether he becomes rich or not, the future represents an opportunity to make a difference in the world.

That’s why the true “fire in the belly” of an entrepreneur should come from a vision that the future, while uncertain, holds possibilities for each of us to make an impact on the lives of others. To have maximum power, our vision shouldn’t be just about our own success or failure. It’s not about personal greed. To be truly inspirational, we need to see how our efforts will benefit the lives of others. By sharing that vision, we’ll be able to influence those around us to join our cause.

Developing Self-Discipline For Starting Your Own Business

The American Dream

More than 50% of all Americans dream of starting their own business some day, but only 3% ever do, in their entire lifetimes. In our free market economy, where it is extremely easy to start and build your own business, and where there have never been more opportunities in all of human history than exist today, why is it that so few people follow their dreams into entrepreneurship and business building?

I have studied the subject of entrepreneurship, business and management for many years. I have started and built several successful multi-million dollar companies from scratch. I have read literally hundreds of books and thousands of articles over the years, and taken a masters degree in business and administration on the subject. I have worked with many thousands of entrepreneurs and business people in large and small organizations all over the country and all over the world. I have trained many tens of thousands of entrepreneurs, managers and executives on subjects ranging from sales and marketing through to strategic planning and finance.

Even today, with all of this experience, I really don’t consider myself to be an expert. However, I am a little bit more knowledgeable than the average person and I have some very definite ideas on what you can do to start and build a successful business.

You May Not Get Rich

First of all, why would you want to start a business in the first place? Most people think that the reason for starting your own business is so that you can make a lot of money and retire rich. This is a great idea but it is not the real reason that people take the risks of entrepreneurship.

The number one reason, ahead of all the others, is for the personal freedom offered by owning your own business. There is a little joke that says that when you start your own business, you only have to work half days; and you get to decide whichever 12 hour period you prefer.

In my work with entrepreneurs over the years, I have found that, although they do not necessarily become rich, they do become happier, more self-confident and more self-reliant. Very few entrepreneurs would ever go back to a salaried job. Even though they don’t make an enormous amount of money, they love the freedom so much that they could not imagine turning their destiny over to anyone else.

You Can Do It Too

Someone once said that you can only be a successful author if you cannot not write. You can only be a successful entrepreneur under the same conditions. You can only be successful starting and building your own business if you cannot not do it. The starting point of success as an independent business person is a burning desire for independence, freedom and opportunity. It is the desire to be your own boss and not be controlled or dictated to by anyone else.

But let’s go back to the first question. Why is it that so few people actually start their own businesses? And the primary reasons are fear and ignorance. Fear and ignorance are and always have been the greatest enemies of human success.

Don’t Be Ignorant

Fear blows even the slightest risks out of proportion and paralyzes the person, holding him or her back from ever taking that giant leap of faith into the uncertainty of entrepreneurial business activity. And fear thrives on ignorance. The less you know about anything important or risky, the greater is your level of fear and the lower is your likelihood that you will ever take any action at all.

The good news is that when you begin to chip away at your ignorance, your levels of fear and hesitancy decline at the same rate. When you become thoroughly knowledgeable about what it is that you want to do, you will find yourself with far more confidence and courage than you have fear and doubt. And from that point on, you can begin to make some real progress.

Three Types of Businesses

More than one million men and women start their own businesses every year in America. More people are starting more businesses, selling more products and services today, than at any other time in human history. Remember, there are three types of businesses that you can form. They are corporations, a sole proprietorship and a partnership. Only corporations are registered and the registration is running at over 850,000 per year. The number of sole proprietorships are in the hundreds of thousands. Nobody really knows., You can start one by simply deciding to, this very minute as you listen to this tape, without even registering it, The number of partnerships is also in the hundreds of thousands, maybe even millions every year.

Because so many hundreds of thousands of men and women are starting various business organizations each year, this means that you can as well. Maybe one or two of these people are smarter or better than you, but you can be sure that hundreds of thousands of them have far more problems and obstacles in their lives than you could ever dream of. In other words, there is no reason whatsoever for you to be afraid of starting your own business.

The key is to make your business a low-risk operation at the beginning with a high possibility for success later on. And these are what you will learn here.

You are the President

By the way, you are already the president of your own company, whether you know it or not. You are the president of an entrepreneurial company with only one employee, yourself. Your company has only one product to sell on the marketplace, your personal services. So, you are the head of your own personal services corporation. And if you name your company after yourself, you don’t even have to register it to protect the name. You can go out and print business cards with your name, John Jones Enterprises or John Jones and Associates, and your title, “John Jones – President” with your home and address phone number. The next time you are out with someone and they ask you what you do, you can tell them that you are the president of your own company. When they say that they thought you worked for such and such a company, you can reply by saying that, “Yes, I do work there. They are my best clients right now.”

As the President of your own company, you decide how much you earn. Maybe not in the short term, but over the long term, by the things that you do, or fail to do, you determine your own income. If you want to earn more money, go to the nearest mirror and negotiate with your “boss.” Your raise will become effective when you do.

Two Categories of Business Owners

You have heard it said that most businesses fail in the first two years. But this is not entirely accurate. If you divide businesses into two categories, those started by people with extensive knowledge and experience and those started by people with no knowledge or experience at all, you get two totally different failure rates.

Businesses started by people who have done what I will tell you about in this session have a success rate in excess of 90%. Businesses started by inexperienced people who have not done their homework have a failure rate of more than 90%. And even if your business fails initially, it is only by failing in business that you eventually learn to succeed greatly. As Phil Knight of Nike once said, “You only have to succeed the last time.”

On the David Susskind show many years ago, they interviewed four young entrepreneurs, each of whom was a self-made millionaire by the age of 30. David asked them to calculate how many different business start-ups they had been involved in before they found the business that enabled them to make more than a million dollars. The average was 17 businesses per person! But they had not been failing while their businesses had been failing. They had been becoming smarter and smarter as time passed until finally they were so knowledgeable and experienced that the very next business opportunity put them over the top. And this can happen to you as well.

Special Disciplines

To start and build your own successful business you need special disciplines; disciplines that are practiced by all successful entrepreneurs and self-made business millionaires. You can either learn and practice these disciplines early in your entrepreneurial career or you can learn and practice them later. Sooner or later you must become knowledgeable and skilled in each of these seven areas if you are going to build a successful enterprise. And the longer it takes you to master these seven areas, the longer it will take and the more it will cost, before you eventually achieve your financial and business goals.

The first discipline is the discipline of market analysis. This is where most entrepreneurs fail. They start off with a great idea, and often don’t want to tell anybody about it; for fear that someone will steal their idea. So they go off half-cocked into the marketplace with a product or service that has not been thought through properly and they are amazed when it fails.

The fact is that people are far too busy to steal your idea. 99 out of 100 new business ideas fail anyway. People who are operating their own businesses are far, far too busy to have even a minute of time to “steal” your idea, whatever it is.

Ask People’s Opinion

In fact, if you have an idea for a product or service in a particular industry, you should go to someone who is already in that industry and ask for their opinion. If you are really smart, you will get in touch with as many people in that industry as possible and lay out your idea to them in full and ask for their candid comments.

What you are looking for is “negative thinking.” A negative thinker is someone who will point out the holes and flaws in your plan. If you cannot patch the holes or fix the flaws in your plan for a new business, that is probably a pretty good indicator that your business is not going to succeed.

Beware of “Positive Thinkers”

The most dangerous people you can talk to are “positive thinkers.” These are people who will tell you that your business idea is wonderful and that you should “go for it!” They will tell you that this is a great time to start a business and that you will be a great success. Often these are your friends and relatives. But don’t get carried away. The only advice that is of any value to you is advice from people who are thoroughly knowledgeable and experienced in the area that you wish to start a business. Anyone else may be well-meaning but their advice is not worth much.

If you had a sore stomach, you wouldn’t ask your coworker if you should have surgery or whether or not he thinks that you have cancer. This is not the right person to talk to. For something as important as this, you need a specialist.

The discipline of market analysis requires that you thoroughly examine every detail of your market segment before you commit your time and money to offering your product or service there.

The Law of Three

Every new business starts with an idea to serve customers with a product or service that is faster, newer or better in some way. In fact there is a Law of Three that applies to a new business start up. Whatever you are offering, it must be better by a factor of three than anything else currently being offered to the same customers.

It must be a little faster, a little cheaper and a little bit more effective. It must have at least three benefits that competing products do not offer. If it has only one or two, you will probably fail in the long run.

Market analysis means that you find out if there is a real market for your product or service. How big is the market? Where is the market concentrated? Is the market concentrated sufficiently so that you can reach it effectively with advertising and sales? Who are your competitors in the marketplace? Why are your prospective customers buying from your competitors today?

Give People a Reason to Buy

And here’s the most important question: “Why should someone switch from their existing supplier of a similar product or service and buy from you?” The failure to ask and accurately answer this question has been the downfall of many small businesses. You have no idea how hard it is to get a customer to switch from a known supplier to an unknown supplier.

When I started one of my businesses, I thought that people would buy from me because it was me! I thought that because I was so positive, enthusiastic and convinced in the value and quality of my product, that customers would find my enthusiasm contagious and would buy it and use it in high quantities. What I found was that customers were not interested in switching at all. I had to call on customers over and over again before I could even get them to test my new product.

Eventually, I had to give my product away free, and give guarantees before people would even test it. Once I had given away free products with absolute guarantees of satisfaction, and people tested and used my product, I finally began to sell it. And I began to sell it just in time to avoid going broke completely.

What inducements will you have to give to your prospective customers to get them to switch from what they are doing to buy from you? How will you be able to describe your product or service in such a way that customers will be willing to give up the “devil they know,” for the devil they don’t?

Plan, Plan, Plan

The second discipline that you must become very good at is the discipline of planning. What this means, at the bare minimum, is that you must take the time to prepare a complete business plan before you start operations. Most entrepreneurs fail to do this, for a variety of reasons. And this is the reason that most entrepreneurs go broke.

The purpose of a business plan is not to acts as a road map or as a precise guide to the future. The purpose of creating a business plan is that the preparation of the plan forces you to think through every single critical issue that you will deal with in the future.

The very best and smartest business people are those who have already given a lot of thought to the various things that could happen and to the various things they might have to do, should those things happen. The least successful business people are those who have given no thought at all.

When you prepare a business plan, you are forced to sit down and carefully analyze and justify every single penny in it, first of all to yourself and then second of all to anyone from whom you are trying to raise money.

Three Parts to a Business Plan

A business plan consists of three main parts. The first part is the top line. This is the quantity of your product that you intend to sell on a monthly basis, projected forward 12to 18 months. Your ability to accurately project your sales is a key measure of your intelligence and your business ability. Once you have conservatively estimated your likely sales, you should cut that number in half to get the number that will turn out to be closer to reality once you begin business activities.

Remember the great rule of entrepreneurship is that everything costs twice as much and takes three times as long. I have shared this idea with thousands of entrepreneurs who have then told me that they were going to violate this principle and prove that it was too conservative. They came back shattered, like survivors of a battle, with their tails between their legs, finally admitting that the two times, three times rule was extremely realistic.

The middle line of your business plan includes every single expense that you can possibly imagine incurring in order to achieve your top line. You must deduct the total costs of the goods or services you plan to sell. You must deduct expenses like rent, telephone, utilities, printing, stationery, stamps, photo copiers, fax and Federal Express, staff costs, furniture costs and every other single detailed cost that you can imagine. These are called the “Costs of doing business.”

Once you have added up all the costs, you then take the total and add another 20% as a fudge factor to get a more realistic estimate of your final costs. Your ability to budget and project your sales and your costs accurately is the true measure of your business acumen. Leave nothing to chance. Go over every detail again and again.

When I prepare business statements, I will go through and estimate every number. I will then do a complete assessment, with documents, research, estimates, and actual proposals to justify every number in the business plan.

For example, if a person says to you, how did you estimate these costs for postage? You should be able to say that you estimated a certain number of letters of a certain weight going out on a daily basis over a one month, two month, three month and 12 month period to come up with an average postage cost of the amount that is in your business plan. Don’t ever let yourself be caught flat footed.

The Bottom Line

The bottom line is the amount of profit or loss that you expect to experience on a monthly basis. You then accumulate this amount along the bottom of the page so that you know how far ahead or behind you are on a monthly basis according to your projections.

You should probably expect to lose money for the first three, six or nine months. The minimum rule is that you should have six months of operating expenses set aside before you launch your new enterprise. You should assume that you will not make a single sale for six months. This may be conservative, but it is much better than the alternative of finding yourself broke and wiped out because you did not plan well enough.

The Discipline of Money

The third discipline you need for starting your own business is that of money. As I just mentioned, you need six full months of operating costs, in the bank, before you go into business. If you are thinking of starting a second income business, you can usually start with a small capital investment and use “sweat equity” instead of actual financial capital. Many people have become extremely successful in life starting from a low base and growing based on cash flow and profits from selling a product or service.

There are an enormous number of successful multi-level marketing businesses nationwide and throughout the world. If you start a multilevel marketing business, your first consideration should be an extremely low up-front cash investment in inventory and sales materials. After that, all your expenditure should be for products that you have already sold at a mark-up from the price at which you are buying them.

Many multi-level marketing companies allow you to start up as an independent wholesale distributor for as little as sixty dollars. In a case like this, you invest your time and your energy rather than your cash, and you keep your full time job while you are getting your feet solidly under you.

If you need money to start your own business, you should be aware that 99% of all start-up money is called “love money.” This is money that people give you because they love you, or money that you provide yourself by taking out a second mortgage on your home, selling everything that you have that you don’t need, and even borrowing cash against your credit cards.

Don’t Count On Banks

Banks simply do not lend money to new business start-ups. The failure rate is too high. Banks are not in the business of taking risks. Banks are in the business of making good, solid loans that they know will be paid back on a timely basis. Banks then make the margin between what they can borrow the money for and what they can lend it to you at.

Banks typically require three times, four times or five times collateralization to lend you any money at all. This means that no matter who you are or what your background, a bank will want proof that you have five dollars in liquid assets that they can seize and sell for every dollar you want to borrow from them. They will look at your business plan and listen attentively to your business ideas. But they won’t lend you any money.

Be an Outstanding Salesperson

The fourth discipline you require is the discipline of selling. You must be an absolutely outstanding salesperson for your product or service before you open your doors or you should not bother opening your doors at all.

The fact is that all successful businesses are started and built by someone who has a remarkable capacity to sell the product in a competitive market. The biggest mistake you can ever make is to think that someone else is going to do your selling for you.

The second biggest mistake you can make is to think that advertising or direct mail is going to sell your product or service for you. The only way that you are going to sell your product or service is by going out and getting face-to-face with critical, skeptical, cautious customers who can buy it if you can convince them of its value. Don’t waste a cent on advertising when you start up. That is one of the fastest ways to go broke sooner rather than later.

Listen to every audio program on selling that you can get a hold of. Read the books on selling written by people in your same industry. Attend sales training seminars and courses and then see as many customers as you can, all day, every day until you begin to bring in sales in excess of your costs of operation. The discipline of selling is the heartbeat of your business and the way you deal with this discipline will determine your success or failure.

The discipline of managing is something that you learn as your business begins to grow. There are thousands of books and hundreds of university degrees on management, including entrepreneurial management. Your ability to plan, organize, staff, delegate, supervise, measure and report is absolutely essential to being a good manager. Fortunately, you can learn these skills by study and practice. And always remember, your weakest important skill in management will set the limit on your success in your business. Whenever you are having problems of any kind, resolve to learn what you need to learn to become very competent in that area.

e Secrets of Power Negotiating

The sixth discipline is the discipline of negotiating. There is perhaps no better program to teach you negotiating than Roger Dawson’s The Secrets of Power Negotiating.

You learn how to negotiate by first of all studying the process of negotiating, and then second, practicing negotiating at every opportunity. You negotiate for better prices for your products and services when you are buying. You negotiate for higher prices and earlier payments for your products and services when you are selling. You negotiate for extended payment terms from your suppliers. You negotiate for better loan terms and interest rates from your bankers.

With regard to money and negotiating, the rule is that you preserve cash at all costs. You never buy when you can lease and never lease when you can rent. You never rent when you can borrow and you never get anything new if you can get it second hand. Negotiating for and protecting your sources of cash flow is the most important thing that you can do for a small business. If you run out of cash, you’re dead. Cash is to a small business as blood and oxygen is to the brain. You must fight, scramble, negotiate and do everything possible to assure that you always have cash reserves.

It has been said that every new business start-up is a race against time. It is a race to find a way to generate cash in excess of your costs before your cash runs out altogether. You stay in business to the degree to which you bring in enough money to pay for your mistakes until you are finally generating excess cash.

Become Resilient

The final discipline is the discipline of resilience. It is the ability to bounce back from the inevitable setbacks and disappointments that you will experience virtually every single day in starting and building your own business.

One of the marks of the superior entrepreneur is that he or she is always looking into the future and considering the worst possible thing that could happen in every area of the business. This is the mark of the superior leader as well.

I call this “Crisis Anticipation.” There are many books and articles on it. What it means is that you are constantly scanning the horizon and asking yourself, “What is the worst possible thing that could happen?” In your sales; with your staff; with your cash; and with your business? And then you think through and decide what you would do if that were to occur.

And finally, once you have determined the worst possible outcome and decided what you would do, you focus all of your energies on making sure that the worst possible thing does not happen, under any circumstances. You become resilient to the degree to which you have thought through what might happen and prepared yourself against any eventuality

Sometimes, a small setback can seem almost overwhelming if you’ve allowed yourself to get tired and run down. You become resilient to the degree to which you get lots of rest when you are starting and building your own business. As Vince Lombardi once said, “Fatigue doth make cowards of us all.”

You develop resilience by resolving to persist in the face of any difficulties, no matter what happens. Be clear about your goals but be flexible about the means of attaining those goals. If one thing doesn’t work, try something else. Be willing to be flexible and adaptable in the face of a changing market.

Remember, as they say in the military, no plans survives first contact with the enemy. No business plan survives first contact with the marketplace. Be willing to chop, change and try something else. Just make a decision in advance, that no matter what happens, you will keep on keeping on.

You have within you, right now, the ability to start and build a successful business. Millions of people have done it in the past, and millions more people will do it in the future. These people are not smarter or better than you are. They have simply learned what they needed to learn and then practiced it, over and over until it became second nature. And so can you. And when you learn how to start and build a successful business within our economic system, your future will be unlimited.

Five Ways Small Businesses Leaders Can Create a Positive Work Culture

Starting a business is a uniquely risky endeavor. When you are so invested in a single idea that you feel compelled to create a full business-model around it, you’ll find yourself making decisions as a leader you never envisioned yourself making.

A leadership role can seem both empowering and overwhelming, but it’s important to create an inviting atmosphere where people want to work for you, without sacrificing your position of control. Once you do get your business off the ground, it’s critical to convey your mission and vision for the company that leaves little room for misunderstanding. If employees or clients are incompatible with the shared vision of your business, they are most likely ill suited for the environment you create. Here are five tips for building a successful work culture and growing your company along the way.

Communicate

Whether your business is made up of one employee or one hundred, communication is key. Clients don’t like to be kept in the dark and transparency goes a long way towards keeping people happy. In fact, the more articulate and honest you are with those in your professional circle, the more likely they will be to reciprocate. Finally, ask questions. Figure out what employees want and do your best to offer those perks. If worker compensation is at its limit, for example, try providing alternative benefits that don’t affect your bottom line.

Be Humble

As a manager, it can be difficult to ask for help, but don’t assume you always know best. Have no shame if you don’t know how to do something. Consult experts. Talk to friends. Google it. Compare conflicting theories/models and inform yourself before making important decisions. Though confidence and strong personal beliefs are essential to garnering the respect of your colleagues, humility and curiosity are invaluable traits of many successful leaders.

Do Your Research

Some companies are known for their flexible business models and productive, loyal workers. Ask yourself: What successful company would you most like to emulate? What are they doing right? How can you incorporate aspects of their business practices into your own? Read up on these institutions and decide what you can realistically implement for your business and what should be saved for later.

Form Reliable Partnerships

Work with reliable contractors and service providers who you can trust. Outsourcing materials or relying on others to handle a portion of your work can be nerve-wracking so choose credible businesses with quality credentials and a history of customer satisfaction. You shouldn’t always align your business with the loudest or most accomplished firm, but rather, choose to work with people you like and admire.

Budget Wisely

Don’t spend beyond your means. Create a plan from day one that helps your business stay adaptable and (as much as possible) profitable. A financially strapped company is not conducive to an efficient workspace.

By following these five tips, you’ll be well on your way to creating a positive work culture your team can thrive in.

Slowdown – Is it the Economy Or You?

Economy was in boom. You could sell anything to anybody. You didn’t even need to own it yourself. As long as you worked, or even went to work, you made money. Then there was a storm. A storm brought about by the negative attitudes and acts of people; A storm very destructive.

It first struck and made its signs apparent in the stock market. Then lightening struck everywhere. After that there were more rough seas as the financial hurricane struck and continued to strike with all its fury.

Sounds familiar!

Am sure it does. Though, am not talking 2008. Am talking October 1929, a storm termed the Great Depression. Black Tuesday the 29th was the day that the stock market crashed.

Isn’t it intriguing though, how similar it all is.

It is true that the environment has changed. It is true that everyone will feel the impact of this in their work, in their business. It is true that the papers were then, and will be now, filled with daily stories of tragedy. It is true that incomes will drop. There is one truth that is even stranger though – if your business or sales are dropping, they are because of you and not the ‘recession’.

I’ll narrate a bit of a story here. A few years ago – when there was no recession – in the middle of a boom actually – Fifth Quadrant (my company) was feeling a bit of heat. The business was down. The volume was down. Sales were lower. People were low on inspiration. For those few months it was depressing. We weren’t crashing. BUT We weren’t growing. I couldn’t understand – why? We were doing the same things that have been successful for years. There is no program or training program – better than ours – we have so many past clients. Why aren’t we selling?

One day we had a meeting. We decided that whatever we are doing to get additional clients isn’t working. So lets stop it. We decided to focus only on existing work at hand. And not worry about growth.

I took a three month holiday. I worked in between but only executing programs.

I kept travelling for three months. All over India. I was in this place up North called Kasauni – close to Nainital. I was reading a book and came across this line in it:

Because man is a product of his environment, he should purposely choose that which develops him best towards his objectives.

And then I endeavored to do just this.

There is a great statement: Almost anything can be found in a book.

I realized instantly that ‘the three months’ were a result of change in environment. I had moved to Delhi. I didn’t like it AT ALL. I was uninspired. I had also succeeded in de-motivating my colleagues.

That day my holiday ended. I took a decision to move back to Bangalore. Almost did that overnight. I changed the environment. It changed everything.

At Fifth Quadrant in financial year 2006-2007. We only worked six months. Inspired by my holiday – everyone took one. Can you believe it?

However – our sales in six months alone were more than they were in 12 months of 2005.

In seeking the right environment – several things happened. Many disadvantages were turned into advantages. Because I was on a holiday and all the people engaged in sales were told not to sell and had free time. They were writing training manuals for new programs. These manuals last year has fetched more money than any program could. These were programs, we could never execute. Someone else could. And is now.

You see, am trying to make a very valid point here. We are products of our environment. We see so much of publicized negativity. We somehow cannot ignore it and it creeps into our environment. We MUST choose the environment that will best develop us toward our objective. Analyze your ‘performance’ in these times in terms of the environment you have created in your office, your work surroundings. Are the things (people, talks, voices, mails, news, discussions) around you helping you toward success – or are they holding you back?

There is nothing to fear but the fear itself. This statement by the president of United States symbolized changed from negative to positive attitude on part of government, newspapers, radio, business leaders…. …. People… And with this began new life, new strength and new progress.

Over the weekend I was analyzing – I was thinking – Why didn’t Fifth Quadrant see a slow down in sales last year? Why were we successful in selling training when people were cutting budgets and saving cash? Why were we successful in selling to people who may be negative and already decided on not availing our services? Here’s the answer – All of you in Sales – please write it and paste it on your walls and read it every single day.

Success In Sales IS Contingent On The Attitude of The Seller – Not of the Prospect or The Buyer.

There is an old story of a man named Floyd Patterson – the world heavyweight champion.

One time in the ring, seconds later, Floyd crashed and was no longer the heavyweight champion. Ingemar Johannssen was crowned.

No heavyweight champion in history had ever won back the crown. Floyd was written off by every expert. But Floyd made public statement – “I will do it.” He said.

He took the help of former champion Joe Louis who said, “To win you have to change your mental attitude. The way to get Ingemar is to get him to miss. Then step inside. Control your urge to hit. Practice.”

Floyd Patterson made him miss. He didn’t take a proper shot till the fifth round. He won.

The reason am telling you this story is a statement Patterson made to the press before the bout, when they were clicking pictures. He said The most important thing you can’t get any picture of; because the most important thing for me is my mental attitude.

Floyd had changed his negative attitude to right attitude. Thus his future was ahead of him.

Is your future ahead of you or behind you? Are you guided by the environment or guiding the environment?

It takes a lot less effort to succeed than to not. Because to not succeed, you have to call 1929 and 2008 – A depression. Being depressed consumes more energy than being positive. That is matter of character. Floyd Patterson had character. He didn’t have greater skill. By no means and history testifies this.

Good luck or bad luck – recession or growth – as the days pass into weeks – success or failure as the weeks pass into months or years – which will it be for you? The choice is yours. YOU – are the environment.

But Why do some people like Floyd create an environment, while others fall accept what they get?

Why do some organizations thrive on competition, while others are crushed?

Why does one entrepreneur beat unfathomable odds, while others give up?

Why do some parents rear children who are good citizens in neighborhoods riddled with violence and drugs?

Why does an individual beat the odds, overcoming an abusive childhood when most do not?

Only one in seven people attempting to climb Mt. Everest, actually succeeds! What is so special about him?

Why do so many gifted or high IQ people fall far short of their potential?

I myself seek answers to these, however, I invite you read through this quote John Greenleaf Whittier, Maud Muller, 1856, Stanza 53

For of all sad words of tongue or pen,

The saddest are these, “It might have been!”

Not only the saddest, also the most convenient.

Lou Holtz, Notre Dame football coaching legend, has no tolerance for excuses or inaction. Holtz had a miserably poor childhood. He was a social misfit with a terrible lisp. He feared public speaking so violently that he would skip class on days of oral presentations.

One day he learned the power of setting goals. He set 107 goals, including dining with the President of the United States, rafting the Snake River, meeting the Pope, skydiving, coaching Notre Dame, winning Coach of the Year, and winning a national championship.

As of last count, he has accomplished 98 of his 107 goals. Holtz has earned fame as a man who creates the capacity to win and talks about what can be, not why it can’t be.

I believe the answer to all these questions is very simple. Some people choose not to quit! They adapt. They move.

Look, no one can promise that life is fair. Some assume it should be. Hence keep quitting in search for a fair life. Sometimes we think the unfairness is a price we must pay for reaping rewards. So we start to persist. Though somewhere down the line, we’ll rationalize risk, life, responsibilities and say ‘enough is enough’. Yet there are few who understand that adversity is a part of life – by avoiding adversity you avoid life.

In the end I think, it ‘s about as philosopher put it – “God is a good God. Those who believe this achieve the strangest of results in the most adverse circumstances. Those who don’t believe, have a God to blame, it’s as simple.”

The economy is slowing down.. Alright!! I can guarantee though that on the brink of revival of this crisis – you will hear stories aplenty of people who grew, who didn’t fetter, who blossomed even then… However it is very convenient to ‘crib’ and ‘slow down’ in the name of economy. You have a reason.

An Unquestionable one. The Majority one. The self-defeatist one.

Yours,

Chetan Walia