Here are a few thoughts about starting a growing business along with a bit of life-advice from someone that's been there.
- Look for a market that is too small for the VCs (venture capitalists) to be interested in. You don't want to be competing against the kind of money and expertise they can bring to your competitors. Once they notice that you are starting to succeed they will fund a startup to crush you. This would limit the market size of your new startup to somewhere less than $200M. VCs need large markets to make their business model work.
- Smaller boring markets can be some of the best opportunities. The guy that invented the little plastic dental floss holders, you know what he’s worth? Before he made it big I’m sure it sounded silly at parties saying what company he was starting. Sexy markets mean lots of competitors.
- Make sure you’re doing something you would do without being paid. If you don’t have a passion for your company, if you don’t believe that you’re making a real difference in the world, you will burn out.
- Don’t take any money from VCs. They have a business plan to invest in 10 companies, have 8 fail, and have the other 2 be outrageous successes. This is great from them, not so much for you. They want to push you to either fail or to grow to a billion dollar company. Once you take VC money you've sold your company whether you know it or not.
- Look for a market that is served by one main company and a few smaller competitors. Markets that have an entrenched number 1 and 2 are much harder to break into than a market that has no defined number 2 company. Your job is to become that number 2 company and make life hard for the number 1 until they either buy you out or make a mistake and you become the number 1 in that market.
- Give your employees skin in the game. This means giving them an ownership stake in the company. This does NOT mean giving them voting shares in the company. The more they feel they have a large payout at the end the harder and smarter they will work for you. Don’t be cheap! They will help you make your millions, as long as they get 7 figures as well. And they will be breaking down your door after you sell to start another company with you.
- Keep a majority voting block of the company for yourself. You can issue different types of shares in the company, voting and non-voting. Make sure you have 51% of the voting shares. You don’t want to create a company that is paralyzed by a few partners that cannot agree with each other. You need to be the final word.
- Even though you have the final control it’s important to learn how to delegate. None of your employees will ever be as good or dedicated as you will be at your company. But they will outnumber you and as a group will be able to do more than you ever could. I've seen many entrepreneurs fail at this stage as their companies grow. They try to maintain too much control and become a large bottleneck in the company. Learn to let other people do a worse job than you at the same task.
- You need to be aware that every entrepreneur has a company size that’s right for them. Some of the people I've mentored love being in the 10-20 employee “like a family” business. Others love the challenge of a larger company like I do. If you outgrow your comfort zone you will be miserable. That’s when it’s time to either hire a management team for your company and stay on the Board of Directors/consultant or just outright sell. You don’t want to be the owner that holds all the employees/shareholders back.
- Don’t get married. I just had to throw this one in here. You’ll be living and breathing your business for years. Unless you've found a unicorn you’ll be distracted from your business by your home obligations. You don’t need any distractions.
- Know when it's time to sell. This is an art form but one of the more important aspects of owning a business. You can either run it as a life style business and pocket the profits or sell the company and pocket X years of future profits all at once. So when you sell you get the future profits and the free time to start a new business and repeat the process. This is how you really grow your net worth. Be sure to use a large law firm to handle M & A work, it can get really tricky and people try to screw you often. Don’t agree to a long (more than 2 year) non-compete agreement.
- Learn investing early. I've seen too many entrepreneurs that are great businessmen but seem to think that they are just as good at other areas. This is a costly mistake. I've seen so many go into dodgy investments after they sell their business and end up broke. Remember that just because you've made money by running a business you are still likely inexperienced in all other areas of life. You never had the time to practice other skills.
- Don't listen to all the naysayers. You'll be inundated by people telling you how impossible it is. Use that as fuel to keep going forward.
- Look for a market that is too small for the VCs (venture capitalists) to be interested in. You don't want to be competing against the kind of money and expertise they can bring to your competitors. Once they notice that you are starting to succeed they will fund a startup to crush you. This would limit the market size of your new startup to somewhere less than $200M. VCs need large markets to make their business model work.
- Smaller boring markets can be some of the best opportunities. The guy that invented the little plastic dental floss holders, you know what he’s worth? Before he made it big I’m sure it sounded silly at parties saying what company he was starting. Sexy markets mean lots of competitors.
- Make sure you’re doing something you would do without being paid. If you don’t have a passion for your company, if you don’t believe that you’re making a real difference in the world, you will burn out.
- Don’t take any money from VCs. They have a business plan to invest in 10 companies, have 8 fail, and have the other 2 be outrageous successes. This is great from them, not so much for you. They want to push you to either fail or to grow to a billion dollar company. Once you take VC money you've sold your company whether you know it or not.
- Look for a market that is served by one main company and a few smaller competitors. Markets that have an entrenched number 1 and 2 are much harder to break into than a market that has no defined number 2 company. Your job is to become that number 2 company and make life hard for the number 1 until they either buy you out or make a mistake and you become the number 1 in that market.
- Give your employees skin in the game. This means giving them an ownership stake in the company. This does NOT mean giving them voting shares in the company. The more they feel they have a large payout at the end the harder and smarter they will work for you. Don’t be cheap! They will help you make your millions, as long as they get 7 figures as well. And they will be breaking down your door after you sell to start another company with you.
- Keep a majority voting block of the company for yourself. You can issue different types of shares in the company, voting and non-voting. Make sure you have 51% of the voting shares. You don’t want to create a company that is paralyzed by a few partners that cannot agree with each other. You need to be the final word.
- Even though you have the final control it’s important to learn how to delegate. None of your employees will ever be as good or dedicated as you will be at your company. But they will outnumber you and as a group will be able to do more than you ever could. I've seen many entrepreneurs fail at this stage as their companies grow. They try to maintain too much control and become a large bottleneck in the company. Learn to let other people do a worse job than you at the same task.
- You need to be aware that every entrepreneur has a company size that’s right for them. Some of the people I've mentored love being in the 10-20 employee “like a family” business. Others love the challenge of a larger company like I do. If you outgrow your comfort zone you will be miserable. That’s when it’s time to either hire a management team for your company and stay on the Board of Directors/consultant or just outright sell. You don’t want to be the owner that holds all the employees/shareholders back.
- Don’t get married. I just had to throw this one in here. You’ll be living and breathing your business for years. Unless you've found a unicorn you’ll be distracted from your business by your home obligations. You don’t need any distractions.
- Know when it's time to sell. This is an art form but one of the more important aspects of owning a business. You can either run it as a life style business and pocket the profits or sell the company and pocket X years of future profits all at once. So when you sell you get the future profits and the free time to start a new business and repeat the process. This is how you really grow your net worth. Be sure to use a large law firm to handle M & A work, it can get really tricky and people try to screw you often. Don’t agree to a long (more than 2 year) non-compete agreement.
- Learn investing early. I've seen too many entrepreneurs that are great businessmen but seem to think that they are just as good at other areas. This is a costly mistake. I've seen so many go into dodgy investments after they sell their business and end up broke. Remember that just because you've made money by running a business you are still likely inexperienced in all other areas of life. You never had the time to practice other skills.
- Don't listen to all the naysayers. You'll be inundated by people telling you how impossible it is. Use that as fuel to keep going forward.