There’s a great story you may have heard about a PhD student from a few years back at University of Toronto.
It goes something like this: Every day at lunch, starting in the late spring, the student would walk out onto the football field. He’d bring a large bag of birdseed and a whistle. He’d spread birdseed all over the field. After 20 or 30 minutes, 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. Then the first football game of the autumn rolled around, the players lined up, the referee blew the whistle, and …
It’s a great story. Problem is it’s a myth.
It’s Small Business Week. Every year at this time, I’m asked the good and the bad, the truths and the myths of entrepreneurship. After years of running a business and working with private company owners, I think the myths are the most interesting of the lot.
Here are five very common misconceptions about entrepreneurship.
1. It’s necessary and easy to raise tens of millions of dollars to start a business.
Here are some of the entrepreneurial success stories you’ll read about most often: Google, Facebook, WestJet, Porter, Lululemon, Zappos … Are they legitimate entrepreneurial successes? Unquestionably. Are their stories common? No. They represent a micro fraction of private businesses (ones that got really big and are typically no longer private).
Popular business TV shows and magazines focus on these stories because they are rare and remarkable. But they set a false expectation among budding entrepreneurs. Raising a lot of money for a business venture is very difficult. And it is often foolish and unnecessary. Starting small and proving out a concept is invaluable. It is also impossible if entrepreneurs find themselves richly funded only to be forced to report monthly on how quickly they are deploying capital.
Canadian banks rarely take risks on ideas without assets. It can take years of relationship building to find venture capitalists and/or angel investors who will even hear out an entrepreneur. And if funding is achieved, the large chunk of equity that must be given away is often resented. In the end, bootstrapping likely makes more sense from both a faster time-to-market perspective and from a risk mitigation perspective.
2. Entrepreneurs are crazy free spirits, and risk takers.
Again, I think this is true, but it is rare. Richard Branson is not like the rest of us. And not like the majority of private business owners I’ve encountered over the past few years.
It is well known that a high percentage of businesses fail within the first two years. For the ones that make it, a conservative growth plan, rigid-bordering-on-obsessive control over costs (even down to the grade of paper towel stocked in the bathroom of one of my clients), and lots of internal debate over most decisions were some of the keys to the survival and success of those businesses.
Most entrepreneurs may not fit the corporate mould, but most of them are also far more calculating than they are given credit for.
3. It’s about having a killer business plan.
We all know the one. The 45-page business plan. Bound. Sectioned. Great headers. With graphs. And Pro Formas. And a conclusion of hockey-stick-growth in two years.
The reality is most business plans are written for banks or other lenders, long after the business has started and it is generating revenue. Writing a business plan is a useful exercise in formalizing, and maybe tweaking, the business model, in order to get external parties to buy into the idea.
The majority of business plans I get to look at are about 10 pages long, and do not follow a formula. Instead they lay out in as plain a language as possible what the business is all about, why customers will buy, and what funding is required to make it all happen – and nothing else.
4. The business idea has to be fully differentiated to succeed.
I’ve written on this point a number of times in the past. This is a very common myth. It is a myth perpetuated by some business magazines, books and, to some extent, by business schools. It is eye-catching and it can be fun to research and write about. However, it is only one lens on how to start a business.
How many truly new ideas crop up every year? And how many me-too businesses come into the market each year? Few of the former and more of the latter.
The simplest explanations for this?
A) Most markets are not fully saturated – there is room for another business that will do things better but not all that differently.
B) The concept of perfect information, where all customers are well informed about all sellers, applies to very few market spaces. The idea and execution have to be good, more so than differentiated, to succeed.
5. You can’t teach entrepreneurship.
Or, as it is sometimes told, entrepreneurs are born that way. This is almost a complete fallacy. Research shows a high percentage of entrepreneurs start their first business after the age of 40, and at some life-changing point such as after a divorce or after being downsized from a corporation.
The idea that entrepreneurship can’t be taught presupposes at least two things:
A) There is no process to entrepreneurship.
B) People can’t or don’t change.
The process of scanning for business ideas, exploring them until ruling most of them out, and then addressing the most promising is well documented and taught in business schools every day.
The point about personal change is perhaps even more important, since most successful entrepreneurs spend a few to many years working for others – and learning/evolving/developing – before forming a company of their own. It’s the most straight-forward way to learn what works and what fails in business.
Special to The Globe and Mail
Mark Healy, P.Eng, MBA, is a partner at Satov Consultants – a management consultancy with practice areas in corporate strategy, customer strategy and operations strategy. Mark’s focus areas inside the customer strategy practice include consumer insights, customer experience, innovation and go-to-market strategy. He is a regular speaker and media contributor on topics ranging from marketing to strategy, in telecom, retail and other sectors. Mark is known as much for his penchant for loud socks and a healthy NFL football obsession as he is for his commitment to Ivey and recent Ivey grads. He currently serves as chair of the Ivey Alumni Association board of directors. Mark lives with his wife Charlotte and their bulldog McDuff in Toronto.