“You’re Fired!” is the line dreaded by all candidates on ‘The Apprentice’. For many watching, the hit TV show is where their knowledge of entrepreneurship ends: dark boardrooms, pitching to investors, solving problems, and, most prominently, fighting with colleagues.
In the world of The Apprentice, it’s your company versus theirs, leaving many viewers to equate entrepreneurship with competition.
But the reality of entrepreneurship is very different. Outside of the TV world, experts and successful entrepreneurs are more than happy to share their experience and knowledge with first-time business owners.
We’ve collated some of the best recent advice from business school experts and entrepreneurs around the world.
Learn from the masters
James Caan, entrepreneur and investor on the BBC’s Dragons’ Den between 2007 and 2010, has been building and selling businesses for over 25 years.
This month, on London Business School’s Think platform, he shares some top tips for new entrepreneurs:
- Stick to what you know: If you’re starting your own business, start in a sector you know well.
- Have a solid marketing plan: Decide how you’re going to market your idea. “if you haven’t worked that out, the rest is irrelevant,” he says.
- Embrace failure: “All of the mistakes I made were fundamental to my learning. If you avoid mistakes, you can’t do it,” he says.
- Retaining good people is more important than backing a good idea. Bring good people on board and provide them with equity. “By giving them 5% of whatever they grow the business by, this costs me nothing, and it motivates employees,” said James.
- If you’re selling your business, have a three-year plan: When selling, you will likely be asked to show your last three years’ profits, budgets and forecasts. If you don’t have this, the credibility of your three-year plan goes out the window.
- Know when to stop. Once you realise things aren’t going to get any better, get out while you can, Caan advises.
Get into the mindset of an investor
To be a successful entrepreneur, you might need a change of mindset. Learn to think more like an invester, says Ilya Strebulaev, David S. Lobel Professor of Private Equity at Stanford Graduate School of Business in a podcast he did for Insights by Stanford Business. “Instead of asking ‘Why should we invest?’, venture capitalists approach every new opportunity with [the] question: ‘Why should we not proceed?’”
In practice, this means looking for the red flags. If investors see a very clear red flag, they will stop and make a quick decision not to continue. “This works because this allows them to spend much more effort on opportunities that are potentially much more profitable,” says Lobel. “By asking a negative question, why we should not, they communicate to each other that they would like to ensure that this decision is efficient, this decision is quick, and this decision is not final.”
Know when to grow
As your company grows, knowing how and when to expand your company’s staff can be one of the most significant challenges your start-up will face. Should you hire in line with market demand or anticipate it?, asks an IESE’s Insight article.
New research by IESE’s Liinus Hietaniemi, with co-authors Simone Santamaria, Aleksandra Kacperczyk and Juhana Peltonen, shows how and why different entrepreneurs pursue different team scaling strategies.
So, when should you hire? This depends on whether you are a standalone entrepreneur, or if you operate multiple startups.
If you are part of the latter group, you have the option to transfer staff elsewhere if one venture fails to grow. This reduces the sunk cost of overcommitment, so it makes sense for these types of entrepreneurs to hire more people earlier on.
On the other hand, if you are a standalone entrepreneur, you are likely to be more cautious about hiring more staff, unless you receive positive market signals that increase the likelihood of success.
“The option to redeploy employees reduces the sunk costs of hiring,” says Hietaniemi. “Without the redeployment option, if your product is unsuccessful, you’ll have to lay off the team. And, depending on the rigidity of the local labour market, letting them go may be costly.”
The research suggests that for standalone entrepreneurs, companies with less rigid labour markets, which for example, would allow you to give less notice when terminating an employee’s contract, could make investing in human capital less risky.
The author suggests that less rigid labour laws could, therefore, play a role in levelling the playing field for all entrepreneurs.
Building a board of directors
If your start-up is more established, you might be at the point where you consider who will be on your board of directors. This is another challenge facing entrepreneurs: how do you ensure you hire the right people?
‘Go with your gut’ may seem like the best approach here, but according to INSEAD’s entrepreneurship experts, you’re in much better hands taking advice from other entrepreneurs and learning from empirical research.
Selecting board members based on the candidate’s technical competence and network alone may lead founders to become disillusioned with the board they assembled, an article for INSEAD Insights reveals, causing them to lose faith in its capacity to empower management to create shareholder value and foster sustainable organisations.
There are three factors you should consider when building a board of directors, write Stanislav Shekshnia, Senior Affiliate Professor of Entrepreneurship and Family Enterprise at INSEAD and Vip Vyas, founder of Distinctive Performance, in their article.
Shekshnia and Vyas refer to these as the three P’s of board effectiveness: people, purpose and process.
- People: Founders should select areas of expertise which are critical for the board. To do this, founders must think about the board’s purpose and the context in which it operates: which stage of the business life cycle the company is in, the challenges it faces, the company management, etc.
- Purpose: A clear purpose serves to unite directors who may otherwise have little in common since they often juggle multiple affiliations and their day jobs. It also allows boards to structure their work, set agendas and assess their performance.
- Process: Good boards approach the task of designing their processes carefully, treating it as a work in progress that never ends and an exercise that requires the participation of all board members.
Learning from others
Following the advice of successful entrepreneurs and experts will help to reduce the risks associated with entrepreneurship.
For that reason, it can be useful to pursue further education to help you gain the formal skills that will set you up for success.
Business schools have noticed this demand for formal entrepreneurial teaching and started to develop specialised programmes to teach students effective entrepreneurship skills. You can find a selection of some of the world’s best entrepreneurship courses here.
Interested in this topic? You might also like this…