Starting or Transforming a Business - Critical Points. Recommendations for Entrepreneurs - PART 2

The objective of the previous and following articles is to increase the chances of people who want or need to start a business of being successful.

Especially in countries with high unemployment rates, where having access to formal job positions is difficult; becoming an entrepreneur may be the best option to move ahead in life.

Before starting the discussion about the points described in the diagram of the 1st article/post, it is essential to talk about some problems, assumptions and ideas that may put your business in danger.

Initially, we have to separate those businesses where someone sells his or her solo service, as a physician or a lawyer, from those that demand investment in equipment, infrastructure, skilled professionals, and the process involved in delivering the product or solution depend on teamwork, machines, complex operations and flows. 

A simple way to define your business model is by checking the question you ask yourself when a client contacts you for a project. If the question is: "how am I going to do this task?", instead of "what's the team, processes and flows that will be involved in the delivery of this task?", you are selling your time and expertise, not the services of a company. 

The critical point here is that your income will no longer exist if you have a health problem and must stop working. If you decide to sell the Business, you're selling yourself, making it impossible for you to leave the Business you are selling and to use the money you may get with this operation to start a new project or a new way of life.

Our discussion deals with the latter, with the creation of companies.

Points you have to pay attention to and have to think about them when planning your company.

Let's start with a common recommendation that is "follow your passion". 

Don't do this. Most of the endeavours that start based on "follow your passion", fail. Probably this is one of the main reasons why so many startups fail. Starting and running a business, a corporation, is about competence and capacity to deliver a specific product or service, not passion, it is about solving other people's problems, not yours. Passion is not equivalent to having the capacity of delivering outstanding performance in specific areas. You cannot have the wrong assumption and expectation that success and high performance are a natural consequence of passion.

Founding, leading and running a successful business is a great pleasure and gives those who achieve this a sense of wellbeing and proud. 

After creating a successful company, it is easy to understand that the founder will look behind and romantically attribute success to passion, but this is not the case, it is only a romantic way of telling a story. What happens is that the person created something that he or she became passionate for. The critical point is not about following your passion; it is about creating one. Entrepreneurs have to focus on skills, competence, solving other people's problems, never on passion. 

As your Business grows, you will face an increasing number of problems and difficulties that you will have to deal with.

This moment puts you in front of a reality that will come sooner or later. Any business, especially a startup, will face the challenge of growing and surviving at the same time. This challenge is a situation that you will have to manage not only as a startup, but probably many times along the existence of your company. When entrepreneurs plan a new business, they can only imagine a successful one, giving minimal weight and attention to possible problems and failures, even when they believe and say that they are considering everything. As the time evolves and they start discovering and dealing with the inherent problems that exist in every business, the magical initial expectation may turn into a tough reality. Only reality has the power to challenge dreams. The more complex and stressful are the problems and the situations faced when running a company, and the less prepared you are, the more probable that the overoptimistic and romantic initial expectation will be replaced by negative feelings. Most companies have to make changes to their initial strategies and plans; even those that became successful ones went through this process. You have to see these necessary adjustments and moves along the time as a natural evolution and not as failures. Preparing yourself to the inevitable issues and challenges faced by those who start a business will help anticipate problems and design strategies to deal with difficulties and avoid a cycle of dazzle, disappointment and despair. To run your company as an efficient leader, you have to foresee the possible scenarios and challenges that may put your company at risk and have a strategy for each of them. This preparation is essential even for those problems that you see as having a low chance of occurring, especially if they may have catastrophic consequences.  

You need a great financial plan

During times of economic stagnation, fighting for survival may be harder. 

To go through the growing process and face all the challenges that naturally happen when building a company, it is critical to have a good and realistic financial plan. This plan will guarantee the capacity to run the operation during the period when the company is not profitable. If you accumulate debt, especially if it demands high payments in the short term, this has to be taken into consideration when managing your finances. Never forget the quote: "Cash is King". If you start running out of cash, and you have to borrow more money from banks or bring investors, you will negotiate in a weak position. The chances are that you will have to pay higher interest or you will have less power to negotiate with the investors, giving them the advantage to pay less for the shares you are selling or to ask for a more significant part of your company. 

Always have a competent tax advisor. Underestimating the impact of taxes is a mistake that new entrepreneurs can make. Never design your business imagining that you will be capable of not paying taxes based on questionable breaches or opportunities of the law. You will be just accumulating a debt that you will have to pay in the future with the addition of fines and interest.

When creating your Business Plan, remember that they are just mathematical models, not predictions of the future. Most of the time, they are overoptimistic and do not reflect what will happen. Your company will not be a natural consequence of your Business Plan. Advisors create Business Plans that project numbers that would exist in a flourishing and successful company. You cannot be deceived by optimistic projections that are based on doubtful assumptions. Use the creation of your Business Plan to identify the critical variables of your business and to generate the targets you have to chase. Don't spend your time making fine adjustments to a mathematical model that is full of uncertainties, and that will probably project a reality that is entirely different from what you will encounter when running your company.

If you are starting a business in a field that you are not familiar with, the chances are that you will have more difficulty to be successful. In this case, you should bring to your project, someone who has a successful experience with the type of business you are initiating.

Another difficult decision is if you should bring an essential person to the business as a partner or as an employee. One of the mistakes entrepreneurs make when starting a company is to bring people as partners when they should come as employees. If you make this mistake, you will probably have a big problem later to fix the situation.

To start a company, even if you have a specific skill linked to the solution and product that you will create, this is not enough. The critical abilities you need are: 

1. Hire, compose and lead highly efficient and aligned teams
2. Define the objectives, the clients, the market, and the targets of the company.
3. Build and use a robust real-time database containing the information that is critical to your business
4. Define and continuously follow indicators of performance that allow the understanding of the performance of the company.
5. Have an early diagnosis of the problems and inefficiencies that you did not imagine would exist when you planned and designed your company
6. Identify opportunities you did not see before
7. Efficient Execution, because this is essential to build your company and to quickly make the necessary transformations to adjust to the problems and opportunities that you will encounter
8. Differentiate your company from the competition. 
9. Define a noble objective to fight for.
10. Make your company the best place for you and for those who work with you. Remember that we will be influencing their lives, not only their work.

When starting and running a business, never attach yourself to preconceived assumptions that may block the necessary freedom of ideas and choices that exist when you are defining what type of services or products you will design and sell.

Wrong assumptions and predefined ideas may turn into big problems if they restrict your imagination and choices.

 Leading is also finding the ideal balance between the individual and the company objectives. Employees and partners try to get the more they can to fulfil their own goals and desires, even if it is not the best for the company. Don't judge them, this is people's normal behaviour, what happens in real life. The capacity to find the ideal balance between individual and corporation objectives is a skill of high performing leaders.

New generations do not have strong ties to the companies where they work. One of the reasons this may be happening is because these generations understood that the companies where they work do not have passion or loyalty for them too. In general, the companies don't have noble objectives. 

The best way to keep people working in your company is making this place the best one for them. Creating the best place for someone to work goes beyond compensation, it is about sharing noble objectives that have a social impact, that transform for better the life of society and about giving them the needed time, infrastructure and support to achieve the defined objectives.

As a leader, you have to understand what will impact your image and your capacity to lead.

Promises create expectations that must be fulfilled; otherwise, they turn into disappointments. After some rounds of not delivered promises and frustrations, you will lose your credibility, which leads to a scenario where no one will trust you and your future promises. This situation reduces the morale of those who work with you, makes it more challenging to build and lead teams, to hire high-quality professionals and to create an atmosphere of proud and fulfilment. 

Try not to promise what is impossible to deliver, because even if you have good intentions and plan to deliver, a sequence of failures will end up with the perception that you are not a good leader and that you are not capable of achieving what you intend. 

Experienced people know that leaders define themselves by their capacity to deliver what they promise, and by how much what they say matches with their behaviour.

You will determine the ethics code of your company through the choices you make and through your actions and attitudes.