Here are some statistics that you should not read if you have already started your company or have already committed yourself to start a new venture.
- The average numbers from all companies in the US are the following: 4 employees with a turn over of 1,1M$/ year in with an average salary payout to the founders of 41,000$ / year.
- 87% of companies do not grow over 9 people, in Sweden EVER.
- Of all companies started only 0.4% turn over 10M EUR after 5 years in Europe. True story.
- 67% of entrepreneurs live on dangerous levels of stress in Western Europe. Stresses me out to think about this.
- Entrepreneurs divorce (during or after the company) have 5–10% higher divorce rates across Western countries. (Side note - My wife and I are entrepreneurs. We are screwed statistically)
But still, we do … like we have our company in the bag; like we got the bug that no one else has; like we have the idea that will be the next Facebook. I heard that in Berlin there is a new startup every 6th minute. As Reid Hoffman says “A startup is by default-dead”.
My point is not for you to not start a company, but to be aware of the statistics that are against you to scale and succeed. Entrepreneurship is a wonderful way of life — putting passion, purpose, values into a nice soup that only you can build for yourself. So the question that is left is “How the hell do we beat these statistics?”.
Let me address 3 groups of entrepreneurs here:
- A tech company where a founding team comes together with an MTP (Massive Transformative Purpose), wants to stay hungry and foolish, applies for a startup accelerator program and are “crushing it”, “killing it” in every startup pitch.
- An individual or a small team that comes together to build a company to support their lifestyle — from family businesses, small SME’s like the juice shop right near where you live. Very few become Blue Bottle Cafes, Starbucks or a brand you have heard of beyond your little community.
- A freelancer who starts a solo operation to support his/her lifestyle either as a stepping pad for the next thing or as the lifestyle choice.
If you put aside “scalability”, “new digital business models”, “we got featured in Tech Crunch hype”, the operating system you want to build your company on is quite similar for both the groups. While the tech startup group might access funding to make it faster, the first group probably works through their banks or similar to get their business off the ground. Nevertheless, the below rules are equally applicable to all the above groups of companies.
So here are 3 golden rules and some handy tips for those that are starting out or scaling up. Again, the principles are more of the philosophy and the mindset, more than a magic formula based on the stage you are in.
3 Golden Rules
Rule 1: Understanding the war between the entrepreneur, the manager and the technician in you:
The entrepreneur is the dreamer, the visionary that always finds solutions to the problems. The manager puts order, structure and rhythm in place. The Technician loves the craft of the job. In most cases, most companies are started since someone really likes to bake, or someone really likes perfumes and that becomes a subscription service online. The technician loves the job. But just the technician alone won’t make the business fly. The entrepreneur wakes up with a vision, the manager screams “oh no” and during the fight between the two, the technician is working in the business. Most of those starting a company are 70% technician, 10% entrepreneur and 20% manager (even if it just means managing yourself).
To the technician, it is a dream come true. All the freedom in the world, no bad bosses, no admin and hierarchy. Slowly but surely the truth sets in. There is only 1 type of freedom — freedom to work all the time. There is tons of admin, the type you hate with bookkeeping, logistics, late payments. There is tons of hierarchy — how you divide your time and finally, there is a bad boss — the technician is the boss. He/She is working 70% of the time, busy spinning wheels.
In short, if the business depends on you, it’s not a business — it’s a job. Over time it becomes the worst job in the world since you are trapped with loans, customers and services to fulfill all the time, Sundays and holidays included, which in essence is not the purpose of business. The main purpose of a business is to create value for customers and provide jobs so you are free of the job.
Funnily enough, even if a technician manages to get customers, gets to 4, 10 or even 20 employees, he/she is still crucial for the business to run. Forget 2-week vacations without working, forget not being in the shop, and even if you trust your team and even if there is openness, there is no transparency that makes you the bottleneck. From the founder's point of view, you get busier and busier, put more hours, but it simply isn’t enough. The entrepreneur in you knows that you want to open more stores or in new countries, but you still can’t get out of the operations. More funding just adds more board work, more committees to manage and politics to take care of.
So what do you do?
Adopting the entrepreneurial perspective all the time — ”how must the business work” instead of the technicians perspective which is “what work has to be done”.
The entrepreneurial perspective sees the business in its entirety and then deconstructs the parts, while the technician does it the other way
The entrepreneurial perspective starts with the progress the customer is trying to do, and how the business can serve them, while the technician starts with the business and then figures out the customer.
Start with the entrepreneurial perspective. Err on the side of that more than your intuition guides you. In concrete terms, that means the following:
- Construct your vision — how would the world look like when your organisation is built, when your products are used by thousands or millions when you have created or redefined your market.
- Go deep with the customer — the progress he/she is trying to make, the jobs they are trying to do (see my earlier post on this)
- Build out the go to market from there, carefully constructing the pieces requiring you to find your product/market fit
- If you have passed the product/market fit phase, have employees and are ready for the next phase of your company, keep reading.
Rule 2: Build your business like it is going to be franchised
The true product of the business is the business itself. Not the commodity you are selling, but the business itself. Mcdonald's true product is not their hamburgers, but the whole business architecture — the way you source the products, the way the hamburger is stored, made and served, the tons of different business processes that come together. Now, I am not suggesting you grow by franchising your business (it is surely applicable to a few types of businesses).
Instead, I am suggesting you think of your whole business as a franchise. If you had to give the keys to someone else in some other city or market or even in your own little studio to operate your company, what would he/she need to run it exactly the way you have done (which hopefully is fantastic in your market) — so that your customers have the same experience wherever they interact with you, so that you are more system dependent and less human-dependent, so that the business runs without you and not with you in every decision and every meeting. Every large company is a hidden franchise. H&M, IKEA, Google, Uber, DHL — they all have more or less the same experience anywhere you go.
If you have the franchise mindset, you would do the following from the very early days of your business or at least start quite soon:
- Look at all the parts that provide value to your customers, remove waste that does not add value (remove all Muda as in Japanese Lean Philosophy)
- Work on your business, not in it.
- Your company would provide identical value wherever your customer interacts, ideally with not high skill sets of people you need (remove barriers to go-to-market and fewer people dependent) where the model will stand out as a place of impeccable order and all the work is documented in operating manuals.
Work on your business, not in it. Think of the current company you have as a prototype to the mass franchise of 10,000 such prototypes you will do in the future. Not like your current set up, but exactly like your current set up, 10,000 clones / replicas. What are the decisions you will take knowing that? As impossible as it seems right now, if you don’t start thinking that way, you will probably get sucked in to the statistics in the start of this post.
Rule 3: Your Business Development Program that contains your secret sauce
Your business development program contains your operating manuals covering the following aspects:
1. Starting with your Primary Objective:
Your objective is different than your work. Your life is not your work. Your business should serve your life, not the other way around. What is the primary objective for you? Your family? How does the business fit into that objective?
2. Your strategic pillars
- What is the Market Size, is the opportunity worth pursuing?
- Revenue potential — your company would make in 12 months? 5 years? Does it fit with your primary objective?
- Who are the key customer groups?
- What is the business you are in (in essence, how does the customer feel after using your service or product, not the commodity you are selling.
“In the factory we make cosmetics, in the store we sell hope”. We are in the business of hope. Cosmetics is just a commodity, a means to an end”
3. Organisation, Management and People Strategy
- Key Results, accountabilities and responsibilities for your different parts of your business system
- Your principles, manifesto in which your business operates — the uncompromisable values that you and your organisation are held up against from the small to the big, which will stand true in any situation.
- A well-defined structure of management — principles that define the group of people who will manage the systems you have created.
Lululemon manifesto as seen on their shopping bags. They get all their employees to make personal plans for 1–3–10 years and then fit the work and all the systems they have developed into it.
4. Your Systems Strategy
- How do you acquire customers, activate and convert them?
- How do you work with delighting them every time?
- How do you build a system that works with very little people dependency that the business keeps ticking as the system works like clock-work?
Points 3 and 4 deserve its own post, coming at a later date. In this post, it is more the mindset I would like you to take away to scale your company.
Startup is hard, but scaling up is harder.
We meet approximately 50 founders and work with them hands-on for 10 weeks or so in our scale-up programs, where the founder typically have one or more of the following challenges:
- I am busy all the time, working on urgent things, putting out fires
- We have hired a management team, but I still do most of the work. I don’t even know what most of my employees do, and I don’t want to ask since people might think I am micromanaging them
- We just changed our sales team, but still, sales are slow
- We launched in 2 new markets, but they didn’t work as well as we thought
All these are symptoms of rule 1, 2 or 3. Not understanding the roles you play. Not having a franchise mindset. Not having thought through structures of execution. While in some cases, speed is key to succeeding (I talk about Blitzscaling here) where you should be ok in letting fires burn, a vast majority of companies do not need to blitzscale. They just need good growth levers to scale without the founder(s) being involved in everything and feeling inconsistent, inadequate and divorcing their families to pursue a dream that could have been more colourful with some more thoughts and systems in place.
Running companies myself, I find it hard to get such perspectives when I am in the middle of it all. I find the technician — manager — entrepreneur battle playing right in front of my eyes, and I see the technician in me coming out with fallacies like “the product is key”. While no doubt the product is key, the business when seen from the entrepreneurs perspective trumps anything else. The systems that need to be in place, the structures that make growth less painful and for you to be working on the business and not in it.
It’s time to change those statistics.
It’s time to help the dreams of more founders become bigger.
It’s time to stop absurd divorce rates due to entrepreneurship eating the souls and splitting families.
It’s time those 4 or 9 people companies become bigger and create more jobs.
It’s time. Stop being busy spinning plates. Work on the most important aspects of your business.
It’s time founders work on the business, not in it.
Get a sounding board, get a sparring partner that is neutral. Your board might be biased to protect their investments, while a neutral sounding board has perspectives that can be invaluable.
We have a pretty good structured scale up and business development program in Northern Europe. Drop me a line if you are interested to grow and work on your business instead of in it or check our free next program sponsored by the Nordic Council of ministers here.
References and more reading:
- The above ideas are inspired by E-Myth by Michael Gerber. I highly recommend reading his book or checking their blog out.
- The above ideas are also inspired by the book on Lululemon’s founder story Little Black Stretchy Pants
- US Small Business Average Size
- Economist article on why only very few scale-up
- Tech.EU publication on total scale-ups in Europe, focused on funding raised.
- Entrepreneur Divorce Rates.
- Interestingly, entrepreneurship is not the profession with the highest divorce rates. Check this out