Lesson #1: A Successful Business Is Created
Before There Is a Business.
The path to entrepreneurship is like a trek through the wilderness. If you want to survive and successfully reach your destination you must prepare beforehand. Before you go hiking through the woods, you pack carefully to make sure that you have all of the things you need to survive the trip. You think about the obstacles and dangers that you are likely to encounter. You check the weather report. You make sure you bring the right clothing, equipment, food, and water. The journey into entrepreneurship requires the same sort of careful planning. What preparation is necessary to put yourself in the best position to succeed?
• You start by being sure that you have the right mind-set-that you think like an entrepreneur instead of an employee.
• You do your homework-study the market, your target customers, and the competition.
• You identify the skills needed for a successful business in that market, and assemble a team of coventurers and advisors that provide the skills you need.
• You identify some advantage over the competition and ways to distinguish yourself from them in the minds of potential customers.
• You put together a business plan mapping out your route to success.
• You lay the proper legal foundation for your business. What do we mean by legal foundation? Here are some examples:
• You choose a form of legal entity for the business that provides the best limitation of liability and minimizes taxes (refer to Garrett Sutton's Rich Dad Advisor book Own Your Own Corporation, Warner Books).
• You obtain all necessary licenses and permits, making sure that clear and complete written agreements are in place to avoid any future misunderstandings.
• You put the appropriate legal protections in place so that you can sustain your competitive advantage. As my husband, Michael Lechter, puts it: You build a fort around your intellectual property so that you can fight off the spoilers and pirates among your competitors (refer to Michael's Rich Dad Advisor book Protecting Your #1 Asset, Warner Books).
ENTREPRENEUR VERSUS EMPLOYEE
What are the characteristics of an entrepreneur? How does an entrepreneur differ from someone with an employee mentality? Certainly, a willingness to take calculated risks is one element. Another element is a willingness to fly in the face of conventional wisdom. As Michael also likes to say, an entrepreneur will "suspend disbelief " and try something even when all the people around him or her say that it can't be done.
However, from my perspective, the defining characteristics of true entrepreneurs are creativity and the ability to accomplish things beyond their own resources. They are masters at solving problems, converting those problems into valuable intellectual property, then leveraging the intellectual property into a business. They are masters at using other people's money and other people's resources. An entrepreneur's mantra is, "Let's figure out how we can do it," and never are heard the discouraging words, "We can't do it," or, "We can't afford it."
Create a Business or Buy a Business?
I can't tell you how many people tell us that they want to start their own business. Most often the conversation goes something like:
"Sharon, I am so excited about starting my own business," Susan says.
I reply, "Wonderful, what type of business are you interested in?" Without hesitation Susan answers, "I want a business that provides good cash flow and that my employees can run, so I have a lot of free time to spend with my family. Oh, and I don't want to have to pay a lot for it."
At this point, I know that Susan is not really an entrepreneur and may not be able to become one. She truly does not understand the commitment required to build a successful business. Her comments, "I don't want to have to pay a lot for it," and, "I want a business that provides a good cash flow," tell me that she really wants to acquire a business that has already been built by a successful entrepreneur. The value has already been created by the seller. The seller is entitled to compensation from Susan for the value created. She will have to pay for that existing value. In this case, unless Susan knows how and is able to take this business to the next level or knows how to enter a new market, she is buying a job, not creating a business.
There is a big difference between being an entrepreneur who creates and builds a business and buying a business. In the example with Susan, it is clear that she wants to "buy" a business, not "create" a business.
There is nothing wrong with buying a business. However, it is CREATION that energizes an entrepreneur. To build a business from nothing that is successful, creates value, and is sustainable is the true goal of an entrepreneur. It is the CREATION part that provides maximum leverage and sometimes essentially infinite return on investment. When you buy someone else's creation, typically they, not you, achieve the leverage. Of course, that does not mean that the acquisition of an existing business is "wrong," particularly if you are bringing in additional talent or something to the table to take the business to the next level, or when the acquired business is only one component of a larger plan.
For example, the purchase of a franchise is not the "end game" for a true entrepreneur. A franchise may well be a great stepping stone-a source of education for an entrepreneur-but there is typically little room in a franchise for entrepreneurship and entrepreneurial efforts. When someone (the franchisee) buys a franchise, he or she is buying the right to use goodwill and business systems that have already been developed in connection with someone else's (the franchisor's) business (and sometimes the right to participate in collective marketing or purchasing programs). One advantage of a franchise business is that it has immediate credibility (with, for example, lenders) because the systems have already been tested and proven to work by the franchisor. (Of course, in order for the franchise to be successful, the franchisee must contribute significant efforts.)
However, consistency from franchise to franchise is one of the primary factors that makes franchising viable. In fact, the franchisor is, as a matter of law, required to control the way the franchise does business, or the franchisor will lose valuable rights. While there are some franchisors that will agree to adopt suggestions from their franchisees, it is the franchisor that makes the ultimate decisions. This tends to leave very little room for creativity on the part of the franchisee, and can sometimes be stifling to his or her entrepreneurial spirit.
From a Franchisor
With all of our franchises over the years I have noticed that there are four big-picture issues. Understanding the relationship among these four issues is what I focus on in training new franchisees.
1. Words: What words drive the way our franchise is heading? How do I greet my customers? How do I sell to the customer? What words are used to conduct the business and establish its culture?
The Words in and of a business always tell you a story.
2. Numbers: What numbers do I use to test the words that I'm using? Sales talk and blue sky floats by. How much time, how many sales leads, what is the cost, can I measure the in- and outflows of my cash?
The Numbers measure the franchise story.
3. Symbols: What are the symbols that I want the world to see representing the business?
Words, numbers, and/or pictures can be symbols, logos, uniforms, people-anything that leverages who and what your franchise is.
Symbols leverage your franchise story.
4. Focused action: This is the driver of all franchise and business stories. This is what makes or breaks any business. What am I doing? No matter what you are doing, it will work for you or against you in building your franchise.
I have come up with a formula that I use in all the businesses that I design to combine the impact of these four issues:
(Words + numbers) _symbols / focus
The bottom line is that a franchisee must focus on the established business systems, including what words they use, how their numbers perform, and the symbols they use in order to reach their greatest success in the franchise. One of the greatest benefits of buying a franchise is that the franchisor has already established the successful track record of the business system.
Franchise Control Systems
Create a Business or Create a Job?
Robert talks about the self-employed entrepreneur who builds a small business around him- or herself. This is probably an entrepreneur who owns a job, not a business. Rich dad has a rule of thumb about this distinction between a job and a business. If you can leave your business for a year and come back and find it stronger and bigger, you have created a big business, a B quadrant business. If you cannot, you may have created a job, or an S quadrant small business. For example, many lawyers or accountants become so successful that their clients only want to do business with them. The more successful they become, the less time they have. They own a job, not a business. There's a distinct difference between the two.
This is not to say that you cannot build a business around your expertise and creativity. You simply have to find a way to leverage your expertise and creativity-create systems that let others (your employees or coventurers) apply your expertise and creativity.
WHAT IS YOUR PERSONAL REASON FOR STARTING A BUSINESS?
As we begin this book about becoming an entrepreneur, it is important to understand your personal motivation for wanting to build a business. Ask yourself the following questions:
1. Why do I want to own my own business?
2. How badly do I want to own my own business?
3. At what level of play do I want to play the game?
4. At what level of play am I willing to extend myself to play the game?
5. Am I willing to spend the time to learn about other successful entrepreneurs and their businesses?
6. Am I afraid to fail?
7. Can I turn my fear of failing into a strength that will help me drive the business?
8. Can I learn from my mistakes?
9. Can I build a team, or do I like to work by myself?
10. Am I willing to pay the price?
11. Am I willing to put in the time now to be rewarded later?
12. Am I willing to delay financial rewards until the business succeeds, or do I need a paycheck?
As you are answering these questions, if you are still determined to start a business,take it one step further and ask yourself the following questions:
• What have been your greatest successes?
• What have been your greatest failures?
• How many times have you worked for free?
• Would you work for this company even if you were not paid?
• Are your family and friends emotionally supportive of your efforts in this venture?
• Are you willing to educate yourself in all the areas of the B-I Triangle (essential components of a successful business-to be discussed and reviewed throughout this book)?
If after answering all of these questions you are still eager to become an entrepreneur, you may have just what it takes to be a very successful entrepreneur. Congratulations for seeking freedom!
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Copyright © 2005 by Robert T. Kiyosaki with Sharon L. Lechter.