By Shay Houser
I’ve often joked that people hear about successful businesses creating tremendous wealth and value, and they wonder how it happened and why they didn’t do it themselves. The secret, of course, is that for most people, the idea of quitting a job, taking no salary, and risking almost everything sounds insane…and understandably so. Entrepreneurship is a scary, stressful, and risky proposition. It takes tremendous perseverance, determination and, frankly, a lot of luck. Entrepreneurship is the lifeblood of millions of jobs across our great country and, now on my fourth company, I’ve learned some key criteria that are critical, regardless of your industry, for any start up.
- Capital Formation – Having a realistic plan on how to finance your business is, without doubt, absolutely critical. You can’t simply start a business with no capital, and since banks don’t lend to early-stage businesses, you are dependent on friends, family, and angels. The general rule of thumb—and I have always found it to be true—you will need twice as much money as you think and it will take twice as long as you think to reach your revenue and profitability goals. These two issues are tied at the hip. I’ve seen scores of business plans that indicate the company is going to grow faster than Google or Facebook, but that’s completely unrealistic without a few hundred million dollars in the bank. Building a high-growth business takes capital to have a realistic shot at success. Don’t just assume the money will come.
- Hire the Best – I can’t count how many times I’ve heard entrepreneurs say they can’t afford the best employees. Well, the reality is that you can’t afford to not hire the best. It’s an absolute requirement of building a high-growth business. You need people every bit as fired up and focused as you are. And you need a lot of them. And you need to properly incent them. Don’t penny pinch over an extra $5k in salary. That money won’t mean anything in the long run, but if that’s the difference between hiring a good employee and a great one, you’d better come up with the extra $5k.
- Don’t Believe Your Own Baloney – Entrepreneurs tend to get tunnel vision. It’s virtually impossible not to, particularly during the first few years where they are laser-focused on the tiniest of details. This laser focus can create a distorted view of the particular product or service. This is bad. Entrepreneurs need a realistic understanding of their product or service, including who the target customers are, and which customers are willing to pay for that product or service. Failure to achieve this clear understanding can be a business-killer. Entrepreneurs must be honest with themselves, and that sometimes conflicts with their positive nature.
- Be Wary of the Spreadsheets – Okay, so this is the silent killer, with the potential to be the cancer of a start-up businesses. This might sound counter-intuitive, but the power and simplicity of spreadsheets can create another distorted view. Entrepreneurs cannot help themselves from building spreadsheets that demonstrate the outcomes they desire. This is just human nature. But spreadsheets can cause a disconnect between projections and reality and this will likely lead to a working capital shortfall. This is when having great employees around you—ones that are free to call you to the carpet—is integral to success.
- Pivot – There will be numerous times when, no matter what you do, it just doesn’t work. Maybe customers aren’t signing up fast enough, maybe your product isn’t cutting it, or maybe customers won’t pay what you anticipated. You have a choice to make: Keep pounding your head against the wall, or develop a different strategy. An entrepreneur’s ability to quickly sense the need to change course, and rapidly make that change, requires awareness and acceptance. Making that change is called a pivot. Learning to pivot quickly can be the final make-or-break point for an early-stage company. It won’t always work the way you expect it to, so when it becomes obvious that a change must be made, you have to fully commit to it without ever looking back.
Although there are many more hard lessons that I’ve learned over the years, these five points are universal with every startup. Starting a business is tough, and all entrepreneurs need to work together to help and support each another, as each of us will face many difficult decisions leading to tremendous opportunities.
Shay Houser is founder and CEO of Greenville-based Green Cloud Technologies. This column is part of a continuing series written by executives with South Carolina’s 25 Fastest Growing Companies.