Or What Every Entrepreneur Should Consider When Starting a Business
In the summer of 2007, I made a decision that changed the trajectory of my professional career. After practicing law and advising clients for five years in Nashville, Tennessee, I had the opportunity to join an entrepreneurial technology venture. The thought of building something and being a part of a team intrigued me and the chance to do it in a high-growth environment excited me. So, while my colleagues thought that I had lost my mind, I packed up and moved to Jacksonville to jump head first into uncharted waters.
Why did that decision change the trajectory of my professional career? Because:
I lived the ups and downs of entrepreneurism and developed an empathy for just how hard it is;
I gained insight into the life and mind of entrepreneurs—the willingness to take risks, the confidence that it takes to forge a path that few see and many question and the loneliness that exists in those moments of doubt—and a deep respect for their creativity, vision and innovation;
I leveraged my experience and education to help build an enviable culture, a strong infrastructure and a predictive and strategic financial model; and
I experienced the uncommon success of completing an industry-recognized successful exit, which led to the opportunity to do it all over again at another entrepreneurial venture in a different industry.
All these things have led me to where I am today—an entrepreneur’s advocate, who works tirelessly to leverage the experiences and insights gained as a member of two successful entrepreneurial ventures to help other entrepreneurs realize their dreams. My advocacy usually manifests itself as either an investor and board member to entrepreneurial ventures or as a consultant/advisor to our clients at Harbor View through our Path to Liquidity consulting engagements.
This is the first in a series of what we are calling the “Entrepreneur’s Playbook”, which is a compilation of the insights my Harbor View colleagues and I have gained through our own entrepreneurial experiences as well as through working with our diverse clients. Hopefully, you will find these insights helpful to you as you sit in that loneliest of seats.
At the outset, there are three things that I think every entrepreneur should consider:
Start with the End in Mind
Regardless of why you started your business, my guess is that one of the reasons was to make money. Further, I would be willing to bet that you decided to risk everything for the reward of creating some wealth. While there are different avenues for making money and generating wealth (e.g., selling it one day, running it as a lifestyle business or building it for wealth transfer to the next generation), one thing is critically important—you need to know what your path is. Using an analogy that I often employ with the businesses with whom I work, it is much easier to get to New York by car if you set that as your destination—you can choose your route, your day(s) of travel and plan for provisions along the way. If you simply get in the car and start driving without a destination (or a map), you may still get to New York, but it will be more by chance and you may end up circuitously driving through the United States before you get there. The journey of an entrepreneurial venture is too long and hard to undertake without a destination in mind.
Surround Yourself with Good Advisors and Don’t Be Pennywise and Pound-Foolish
Too many times in my professional life as an attorney, operator, investor, board member and investment banker, I have seen entrepreneurs make short-term decisions that sacrifice long-term value. Believe me, I empathize with choosing to invest in product and development or sales and marketing over paying an attorney to create an invention assignment agreement or an accountant to perform an audit. Further, who wants to focus on the minutiae and intricacies of GAAP accounting when you are simply trying to collect cash and pay bills? However, if those short-term decisions (being pennywise) are left to fester over the course of your entrepreneurial venture, they will have a disproportionate and, potentially, exponential impact on the value of your business (pound-foolish). By forgoing the attorney’s fee to produce an invention assignment agreement, the ownership of your intellectual property could be called into question, which would eviscerate your value. Further, the longer you wait, the harder it will be to implement these fundamentals of business, which, in turn, will make it harder to scale. Finally, it is one thing to find someone willing to invest in your business (whether it be a buyer, an investor or a lender), it is dramatically harder (and potentially impossible depending on the degree) to close the deal when financials aren’t clean and there are legal questions throughout. Find good advisors and trust them as you grow—they can make a world of difference in maximizing and maintaining the value of your asset.
Focus on the Fundamentals and Monitor Them Maniacally
Regardless of what destination you choose (i.e., whether you choose to sell your business one day, run it as a lifestyle business or transfer it to the next generation), maximizing the amount of money that you can make and/or wealth that you can create requires focusing on the fundamentals. When we take our clients through our Path to Liquidity methodology, we emphasize maximizing value by assessing three things: their ability to grow, their ability to handle growth (i.e., scale) and their ability to predict growth. Fundamentally, these three items determine a company’s value and most entrepreneurs have a “gut feeling” about how their organizations stack up to them. Where we see a lot of entrepreneurs fall short (and their corresponding valuations and deals along with it) is in their ability to confidently and consistently provide data that supports their positions. It is one thing to know that the market is big and competition is lacking. It is another to be able to quantify the market, assess the competitive landscape and demonstrate how your sales and marketing approach and execution has consistently and repeatedly produced results. Further, having the ability to consistently and accurately predict future revenues, expenses and bottom-line results is very different that saying that your organization will simply grow next year. Having a firm grasp on the data driving your business and monitoring it maniacally results in better decisions, better results and, ultimately, increased confidence from all involved.
Shortly after making my jump into the entrepreneurial world, I ran across a short article in the Harvard Business Review on Growth Strategy that really caught my attention for two reasons. First, it was an interview with Fred Carl, Jr., the Founder of Viking Range, which was founded and based in Greenwood, Mississippi. Having spent a significant amount of time in Greenwood during my life, I admired Viking as a company and Mr. Carl as an entrepreneur who built his company in Mississippi. Second, Mr. Carl’s thoughts really captured well how I viewed my role at Black Diamond—prepare the company for its destination, which we knew was going to be a sale one day. Whatever your destination is, build it like it is going to be big; it will make the journey that much easier.
In the next Entrepreneur’s Playbook article, I will share some thoughts on company valuations and attempt to demystify the noise that circulates around multiples and valuations.
DISCLAIMER This presentation is intended for information and discussion purposes only and does not constitute legal or professional investment advice. Statements of fact and opinions expressed are those of the participants individually and, unless expressly stated to the contrary, are not the opinion or position of Harbor View Advisors, LLC (“HVA”). The information in this presentation was compiled from sources believed to be reliable for informational purposes only. HVA does not endorse or approve, and assumes no responsibility for, the content, accuracy or completeness of the information presented.