Monday, April 05, 2010

A dose of Reality - Planning not to fail

Lynne Murray and Graham Spittle - National suc...Image by Birmingham City University via Flickr
This post is inspired by one of my friends. He's been a business person for a very long time - He's dabbled in many businesses and never been able to get a business off the ground. He's very well connected and has amazing drive and energy but ends up never being able to really build a business. Whenever I discuss him with common friends, the view is the same - he's always perceived as a trader or a wheeler dealer. I thought I should write about a few basic principles in life which could probably help those who struggle or find themselves in similar situations.

1. Develop Competence. Competence comes from knowing stuff really really well. Much better than anyone else. Knowledge that can just not be found in books or on the internet. Competence so deep that it requires years of study and focus and perspective.

2. Build relationships. People do business with people they are comfortable with. Don't look at every person and think "How can I make some money from the 30 mins that I am spending with this person?" Recognize that you and the other person were doing other things before the meeting and have probably a schedule planned out already for things to do after this meeting. It is possible that one out of 500 people you meet may discuss something that is mind blowingly amazing and you would want to drop everything and focus on the same, but if that becomes 40 or 50 out of 100 people you meet, you are probably not reacting rationally.

3. Understand that building a real business takes time, energy and people. All of these are in short supply. The money comes if you are lucky when a dedicated team is provided the necessary resources and kept motivated and incentivized to attack a truly great market. It is not possible for you to attack multiple such markets simultaneously.

4. Recognize that you as someone who knows the customer is unimportant. A company who has real competence and has an acclaimed product most probably is known to customers. Even if they did not know the decision maker, they could easily get a meeting by displaying their credentials. You cannot make money without the assistance of their brand. You don't have credibility without the company who owns the product.

5. Recognize the business that you are in. Very few people have the balls to be 'traders' - A trader is one who makes money by using capital. He buys lows and sells high (f he is astute). A distributor is one who makes money by acquiring rights to a product and distributing it to individual buyers. If you are not paying money upfront or taking a bet on the actual movement of the price of what you are selling you most probably are a distributor. A stock broker is a distributor. A stock trader who is buying / selling to generate money is a trader. If you are a distributor, focus on building your distribution network. Don't try to or expect trader margins in the distributor model.

6. Don't bullshit / Go into Hyperbole. The world is small. Your shit will hit the fan and you will look like an idiot.

and last and more importantly

7. Take baby steps. Decisions makers unfortunately have to tolerate lots of bullshitters. Decide on the one thing you want to do and take baby steps towards your goal. Celebrate the small wins and build competence and your team so that you can take larger steps in the future. Winning small battles early will help you in laying the foundation of a profitable quality oriented business - fundamentals that will hold you in good stead in the future.

If not debt, then equity?

Given that my last post discourages entrepreneurs from raising debt apart from a few specific cases namely:- 1. Very high ROCE low risk bus...