It’s hard to say which comes first – the desire to be an entrepreneur or the germ of an idea for a business. Obviously, you need both.
The idea can come from anywhere. It can be the result of an experience you have in the marketplace or it can be something to do with a hobby or passion you have. And the two sides of the initial decision of what business to get into are this:
One, you need to know a lot about the subject. When I say a lot, I mean you should be able to write a book about it. If not at first, then at least before you start investing in it.
Second – and this is more important than you might think – you need to be interested in it. You are going to be married to this idea. You are going to be sacrificing time and investing resources into it. If you are not keenly and seriously absorbed by the whole concept, you won’t last long. You won’t be able to maintain the momentum it takes to go through the process of developing and running a multi-million dollar business.
But if the idea excites you and you want to know everything you can about it, you’ll be ready to dig in and put your time and money into it. You’ll enjoy the process and even more, you’ll be gratified when your business serves a need in the market.
Now let me stop right here and do a little balloon-bursting.
If you’ve been scanning the entrepreneur news for long, you may be on the “do what you love” bandwagon. I’m all for having a passion for what you do, but only to a point. “Doing what you love” can be a big mistake unless you keep it within certain guidelines.
So let me give you some caveats on deciding what your business will be…
Separating Your Passion From the Reality of the Marketplace
I can’t stress this point enough. You might think the world will beat a path to your door to buy your product, especially since there’s nothing else like it in the market place. You’ve got visions of selling your wares like hotcakes and watching the money roll in. No one’s ever heard of your breakthrough idea, but once they do, they’ll have to have it, right?
Not necessarily. If you’re filling a true gap in the market, it might be true. But if your product doesn’t already exist, there might be a good reason for it… no demand.
You must realize that if there is no demand for your product, you won’t have any buyers. Entrepreneurship is not a case of “build it and they will come.” No matter how passionate you are about your idea, the market decides what sells, not you.
A prime example is the online grocery business that was called Webvan. Owner Louis Borders was already a successful entrepreneur (Borders Books), so he was able to attract a lot of startup capital. And because he was so sure of his idea, he spent it all on a distribution system of warehouses and delivery trucks. Then reality set in.
People weren’t as quick to change their shopping habits as Borders thought they would be. He had banked on the idea that people would choose convenience over time spent going to the grocery. And that they would not only pay full retail price, but a delivery charge.
That wasn’t the case. If Borders had tested the market he would have found that people like to shop for specials when they go grocery shopping. They also go to the market several times a week because they often don’t plan meals in advance. One big delivery order at premium price doesn’t meet the customer need. And then there’s the fact that most people like to squeeze their own tomatoes before buying them…
Borders built it, but they didn’t come. And with the profit margin in the grocery business being razor thin (he didn’t have the power of volume buying on his side), the business tanked. When it closed, 2,000 people lost their jobs.
As you can imagine, Borders has had a hard time living down this spectacular failure. It’s easy to say in hindsight that he should have known better. But if you’re ever going to learn from someone else’s mistakes, this is a good one. It really drives home the point that you need to build your business slowly to minimize risk. You need to determine exactly what works – and what doesn’t – before you blow all your capital. You need to make sure there’s a place in the market for your passion – not just in your own mind.
The Conceit of Outside Knowledge
One of the most common mistakes made when choosing a business venture is thinking you know things you don’t.
For instance, you might enjoy dining out. You eat in restaurants several times a week. In fact, you’ve dined in some of the finest eateries in the world on your travels. It only seems natural that your passion for great dining experiences and all the time you’ve spent in restaurants would lead to opening a restaurant of your own…
The problem with this thinking is that you are going on “outside knowledge.” Your experience, vast though it may be, has been as a customer, not a business manager or owner. Your experience feels deep and certain. But it isn’t. It’s specious. And rather conceited.
I am not immune to this mistake myself. I once partnered in a restaurant because I had the hubris to think that my own dining history qualified me to run one. And a colleague, George, an architectural designer, almost helped me make it worse.
Like me, George thought he knew the restaurant business because he had spent many years frequenting fine dining establishments. When I gave George a tour of my place, he suggested doubling the size of the kitchen. My partners and I were keen on the idea because we also thought the kitchen was too small.
Fortunately, I got a couple expert opinions. I hired two friends who had been running restaurants for years to do an analysis. Imagine my shock when their report showed that the present kitchen was fully capable of handling three times the traffic we expected to have!
As proof, the report included a diagram of how to better organize the kitchen space. The map showed where every sink, stove, storage unit and cooking pan should go. It boggled my mind because it was so counterintuitive to me. My own ideas were based on kitchens I knew – household kitchens. But that’s not how an industrial kitchen works. A restaurant kitchen equipped to produce 200 meals in three hours is a very different thing. It’s not a family space, it’s an assembly line. And it needs to be set up like one.
That’s a classic example of the conceit of outside knowledge, which is why I am no longer in the restaurant business. Just think of how many people have jumped into business simply because they think they understand something they do not.
Typical businesses that fail due to this mistake include:
- Travel agencies
- Vacation tour operations
- Bed and breakfast enterprises
- Art galleries
- Gift shops
- Antique stores
- Book stores
- Coffee shops
- Sports-related businesses
If you’re tempted to start a business in a field you have never worked in, be aware that much of what you do in the beginning will likely be wrong. Ask yourself if you have the resources – human, capital and emotional – to push the business forward after you suffer from your mistakes.
There’s no better foundation than building on what you know. You might be drawn to the rush of something new and exciting, but your chances of success decrease with every step you take away from what you’re familiar with.
So if you want to be an entrepreneur, I say go for it. But do your homework and build on what you know.[Ed. Note: Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]