News

There's a great story you may have heard about a Ph.D student from a few years ago at the University of Toronto. Every day at lunch, starting in the late spring, the student would walk out onto the football field. He'd bring with him a large bag of birdseed, and a whistle. He'd spread birdseed all over the field. Then, after 20 or 30 minutes of this, he'd blow the whistle. At first, a few birds would respond to the noise and drop in for some seeds. But gradually, over the course of the summer, more and more birds would descend on the field, expecting to be fed. And then the first football game of the autumn rolled around, and the players lined up, and the referee blew the whistle, and…

It's a great story. Problem is, it's a story. It's a myth.

There are a lot of myths about entrepreneurship. Mark Healy has written about many of them on his Strategy and Tactics blog over the past eight months. He argues that the following five are without doubt the most prevalent, and least accurate, ones:

According to Healy:

1. "Entrepreneurs are risk-takers. Let's start here. You'll also read a lot of stats about new business failures. Those numbers are high. For some of the failures, the entrepreneurs in charge may have been crazy free spirits—and big time risk-takers. But for many of those failures, and most of the successes, you're likely going to be surprised here."

2. "You have to have a killer business plan. You know what I'm talking about. The 45-page business plan. Bound. Sectioned. Great headers. With graphs. And Pro Forma's. Proclaiming how the business is the next Facebook. Uh huh. We'll talk about this some more as well."

3. "The business idea has to be fully differentiated to succeed. I've beaten this point to death before. This is a very common myth. It is a myth perpetuated by business magazines and business books, and, to some extent, by business schools. It's sexy. It's fun to research and write about. It sells. But it isn't true."

4. "You can't teach entrepreneurship. Or, as it is sometimes told, entrepreneurs are born that way. This presupposes at least two things are true: 1) there is no process to entrepreneurship. Hmm… And 2) that people can't/don't change."

5. "It's necessary/easy to raise $1 billion to start a business. Case in point: Dragon's Den. Great show. Entertaining. But… There's a reason the term bootstrap also means something other than a cord in your Dr. Martens."

Mark Healy was here to discuss the biggest myths surrounding the launch of a new business.

Mark Healy, P.Eng, MBA is a partner at Torque Customer Strategy, a boutique marketing consultancy focusing on customer intimacy. He also leads a "Demystifying Consulting" lecture series yearly at The Richard Ivey School of Business, as well as Schulich's and Laurier's Business Schools. His discussion on Friday will kick off the our Business Incubator discussion series. We will be featuring a different entrepreneur here every second Friday to explore issues confronting small businesses and to take your questions.

Editor's Note: globeandmail.com editors will read and allow or reject each question/comment. Comments/questions may be edited for length or clarity. HTML is not allowed. We will not publish questions/comments that include personal attacks on participants in these discussions, that make false or unsubstantiated allegations, that purport to quote people or reports where the purported quote or fact cannot be easily verified, or questions/comments that include vulgar language or libellous statements. Preference will be given to readers who submit questions/comments using their full name and home town, rather than a pseudonym.

Noel Hulsman, editor, Report on Small Business, writes: First off, I would like to apologize if anyone had any difficulties posting questions or comments. We had a minor technical glitch which has now been fixed. With that out of the way ... Mark, thanks for joining us this afternoon. You've gone against some fairly established 'truths' here, but response we've received so far, your arguments seem to have struck a chord. Let me turn this over to the readers ...

Marc St-Aubin from Toronto writes: One of the interesting myths you are pointing out Mark is that a overly elaborate business plan is necessary for success. But then, if a plan is mandatory, which one of the sections within that plan should the entrepreneur focus on, spending time and effort—and seeking solid advice?

Mark Healy writes: Focus in two areas: past experience of the management team. Investors invest in people first and foremost. Also, focus on the value proposition — i.e. why is the idea a good one, differentiated if that is the play, and ultimately how and why it will make money. The more compelling and simple this section is, the greater the chance of raising money.

Matt M from Victoria writes: If an overbearing business plan is not necessary, what is the minimum business plan one should have? What are the essentials to know?

Mark Healy writes: The minimum is a five-pager that outlines the following: the market need, the solution to the market need (value proposition), a description the company product or services specifically that provide the solution, competitive situation and how to combat it, management team and track record of success + some type of projected financial statements.

Miles Thompson from Enfield, Nova Scotia writes: Really looking forward to this session. I'm happily back working for someone else, but if entrepreneurship can be truly taught, along with risk assessment, it would have been very helpful. I have always wondered how some people see opportunity, the rest of us don't.

Mark Healy writes: The people that see the opportunities are constantly scanning for them. There is a process to identifying opportunities. One serial entrepreneur I know reads the news daily looking only for regulatory changes (announced by the federal or provincial governments) that could lead to new businesses. Processes that entrepreneurs engage in looking for opportunities vary — but all are disciplined and normally involve more than one person sitting down to discuss potential businesses.

14th CTR from Canada writes: I was a commercial lender for a major financial institution. Approached numerous times for start up loans. The majority of applicants came to me with a business plan but with limited financial resources. What I would tell them is that banks' are low risk lenders, I wanted to see a minimum of 50% of the start up cost coming from themselves and we would look at financing the balance but only on a fully secured basis. Also, I expected the applicant to have 6 months working capital to get them throught the start up phase. The deals that I booked that went sour, were usually because the cash ran out before sales could cover costs [AMP;] the owner didn't have sufficient resources to continue funding the business.

Mark Healy writes: We've certainly faced that. And in our business, our assets are our people and our intellectual capital, so securitizing debt is almost impossible. At one point with a banking partner, we had a corporate line of credit for $50K, while our receivables were north of $175K. The gap was being funded entirely through company profits (retained earnings = partner bonuses not taken). In spite of the profitability and client roster, the banking partner would still not raise the line to cover our receivables, such that we could reinvest the profit in the business itself. So, it's frustrating from the entrepreneurs side as well. The traditional banking institutions are not normally the right place for entrepreneurs to go for financing in the early days, because of what you described. The banks took some bets about ten years ago, and got burned. What you ask for is normal and reasonable to me (we get asked for a lot worse) — it is unfortunate those businesses did not make it, because I think you were reasonable and conservative.

Ex-banker from St. John's Canada writes: Ask a lot of successful business people and they'll tell you thay have no written plan. The plan, and how it is to be executed, is in their head. A lot of what you read about, 'fail to plan, plan to fail' is BS in the real world. Most of those teaching business strategy in business schools or entrepreneurship have never run a business, never started a business yet they know everything about a business plan. As an MBA turned business banker turned self-employed businessman I'll tell you that your business plan better start and end on the same page. Anything more is useless filler. Keep it simple and easy to understand, and that includes the financials. Oh, maybe add two more pages of financials if you are looking for bank financing (I make the sign of the cross on my chest). And why keep it to one page? Cause tomorrow you'll likely have to rewrite the thing and rewriting 40 pages is a lot of work. And next week it'll be obsolete and you'll be doing something a little different. Mission statements...hogwash. Just be sincere about what you are selling but you don't have to pull a Tom Peters. But in the end, I think, you become successful, as JD Rockefeller stated, if you 'wake up early, work hard, strike oil.'

Mark Healy writes: I agree. Having a business that works and does/can make money is way more important than having an actual business plan. The planning process is important for first-time entrepreneurs, more so that they can convince themselves of the realness of the opportunity.

Dwight Tanner from Canada writes: All entrepreneures are not the same. There are those who want to just make a living and not work for someone else, there are those who want to do a particular thing and the only way to achieve that goal is to be an entrepreneur, there are those who want to get rich but do not care what they do, and the list goes on. Therefore, perhaps we need a more differentiated definition, or possibly definition with a grid of traits for classification purposes.

Mark Healy writes: You raise a good point. I was thinking about this this morning, after receiving an email from an entrepreneur friend of mine. He is big time into the Entrepreneurialism is Sexy game — he likes to raise money, talk about his new start-up ventures, connect people, get people excited about the idea, etc. My orientation — if I'm being honest — is actually less about being an 'entrepreneur' in the Fast Company sense, and more being a business professional and consultant. For example, not once have I ever thought it would be okay to lose money for a while, and make mistakes, before sorting things out — I wanted to run a tight ship out of the gate. But this is a personal style/orientation decision. I like your idea of coming up with different definitions.

Noel Hulsman writes: Mark, thanks so much for your time today. We really appreciate your insights. Have a great weekend. Cheers.