Are you entrepreneur material?

Posted by on October 1, 2008 in Misc.

Let’s assume that the sight of people walking the business districts everywhere with boxes in their hands becomes more prevalent and the unemployment rate continues to climb. For some, finding employment is not going to be that difficult. After all, there are critical worker supply issues in industries like health care, engineering and computer programming. But, for others, it may become more difficult to rejoin the rat race. For example, what are hedge fund traders going to do now that the entire industry is shrinking?

Over five years ago, I made the decision that perhaps being associate #286 in a large law firm was something I probably did not want to do (not that anyone would have me either) nor did I want to become a foot-soldier in a large multi-national firm. Every position I have had since then has been self-created or I own more than a nominal stake in the business.

Yet, if you met me circa 2002, you would have not pegged me as entrepreneur material and many entrepreneurs I have met along the way are not the stereotype that the media portrays of a bunch of 20 year old kids, in khaki’s with some far out idea they are attempting to bring to market. In fact, I have met stodgy, by the rules entrepreneurs that would make Jim from accounting blush.

I am not sure if there are “essential” characteristics that you need to be an entrepreneur but, if you are thinking of becoming an entrepreneur (voluntarily or not), here are some factors to think about:

  1. Entrepreneur = hard work. There are, indeed, life-style entrepreneurs who work lighter hours but most people who start businesses remark how much work it is (if you are a blogger think about how much time it takes from your life and that’s your hobby). You have to remember you are now the accounting, human resource, legal, IT and stationary department. An entrepreneur wears many hats during the course of a day.
  2. Narrow specialist don’t survive too long as entrepreneurs (without help). I have met people who know some programming language, engineering technique or some esoteric knowledge like the back of their hand and all they want to do is tinker with that knowledge. If they don’t have a non-specialist with them, they don’t last long in business. Entrepreneurship is about being the jack of all trades. You have to know some book-keeping, some sales and marketing and some client service skills. It is, in many respects, the flip-side of big business where you execute 5 specialized functions over and over again.
  3. Better get some thick skin. I remember the first time someone threatened to sue me for $2 million dollars (a bit of a nut…), the time I had to yell at someone to get paid and the time I had to fire an employee. You need some thick skill and some courage to survive.

Those are all the flip-side things to think about lest you think entrepreneurship is always sipping coffee at a Starbucks sending emails on your laptop dressed in jeans and a t-shirt. But you know what? It is one of the most satisfying things I have ever done. You grow something from scratch, you challenge yourself and you meet some wonderful people along the way (I find entrepreners generally more “real” than corporate fat-cats having lived in both worlds).

From the personal finance side, these are some things to consider:

  1. You have to get your family on board. Based on my own experiences, the cash flow cycle of a start-up which does not need much capital expenditure (i.e. personal service type businesses) is that  you peak early since your friends and family buy your good/service to support you and there’s an inital excitement. Then, after that initial surge, some businesses go side-ways or back down. The question becomes how do you feed yourself after that surge? You have to set expectations for your family that you may not have predictable and steady income for the first couple of years and everyone has to pitch in.
  2. Learn cash flow cycles. When you are an employee, you always know what you are going to get paid. If you are self-employed , you don’t. So you have to understand your cash flow cycles in terms of when you get paid (a/r aging), seasonality (i.e. no one does business in August in Toronto so don’t ramp up expenses in that month if not that much cash is coming in) and your fixed and variable costs.
  3. Find the balance between pumping cash into your business and into your portfolio. Entrepreneurs can be terrible asset allocators. They pour all their free cash into their business and forget to build their portfolio. Businesses always take more time and money than everyone estimates but you have to remember to set goals to build your personal portfolio as well.

Anyone else care to share?

I don’t write much on entrepreneurship. Is this something people would like to hear more of?

6 Comments on Are you entrepreneur material?

By Richard on October 1, 2008 at 10:54 am

Good points. I always read articles about “the 5 personality traits of successful entrepreneurs” until I realized that it doesn’t matter what other people are doing because I don’t want to do it any other way. On the other hand I’m avoiding almost every real risk possible and I chose a business with 0 expenses so maybe I’m not a true entrepeneur. If you’re just starting to consider it as an alternative to getting a new job there’s definitely a few things to think about.

Everything needs to be based on the fact that projects won’t be done on time and money won’t come in when you expect it to. And remember that sales and profit are one thing but cash keeps you alive.

By Retired @ 31 on October 3, 2008 at 12:27 am

Keep your head down x2. Work hard and remember the only number that matters is the one on the bottom of the income statement and the balance sheet (profit and equity).

Set ambitious goals and continuously work towards them.

Be a tightwad on routine expenditures and spend the money wisely on quality assets that generate income.

Pay yourself less now, more at the end.

Diversify your portfolio and keep it more conservative than you normally would.

Run your personal balance sheet like your business one. Debt should be avoided and minimized. Cash flow is nice, available credit is good, but cash in bank is best.

Always keep an eye to the exit. Plan how you’ll divest before you invest. Spend money on quality professionals. Whenever possible buy assets or start from scratch and sell shares.

Partners without skin in the game won’t last.

Have fun and enjoy what you do. Your own business can suck more than that 9-5 job if you don’t like it. Even if you make more money. Especially if you don’t.

By Jerry on October 10, 2008 at 4:32 pm

Entrepreneurship is not an easy trail to lead, if my best friend is any indication. He has been nurturing his business baby for about 2-3 years now, and I wondered if it was going to kill him for a while there… and I’m not exaggerating by a lot. He’s finally got some insurance that his company is seeing success, but it was a long time in coming, and it was really hard on him. I think the most important thing to do is to learn from others’ mistakes if you can, so you don’t make them yourself.
Jerry

By Saver Queen on October 19, 2008 at 12:18 am

Good post, and good comments. At the moment I am actually contemplating starting up my own business so I appreciate everyone’s feedback. I’d love to hear more on this topic.

By Riscario Insider on October 19, 2008 at 10:33 pm

“An entrepreneur would rather work 80 hours a week for themselves than 40 for someone else.” — Unknown

If you’re thinking of becoming an entrepreneur, be sure to read The E-Myth Revisited by Michael Gerber.

I’d like to see more posts on this topic.

By Angelo Costantino on November 17, 2008 at 11:21 pm

Being an entrepreneur has always been my dream…freedom, indipendence, feeling to being in control of my own life are the msin satisfaction coming from my business.

Great post yours, I’m here to stay!
CIAO!

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