You Wouldn’t Think

I was reading through some of the news aggregation sites this week, as I frequently do when I’m looking for more blog topics, when I came across a listing that some of the people in the comments were making fun of: a think piece by a regular contributor to the Forbes site, who was talking about what it really takes to start a new company – and how different that is from the material we’ve seen being hyped in the media in recent years. My immediate reaction was that this mockery was stupid – this gentleman is a regular contributor to one of the country’s premiere journals on business and economics, and the people mocking him are a bunch of scruff Internet commentators no one ever reads. My second thought was that this whole kind of mockery was stupid – in that it’s generally a bad idea to go around mocking former Navy SEAL officers. Quite apart from the attendant risk of getting your living daylights punched out, the odds strongly favor such an individual having better information and better analysis of whatever issue he is discussing than would a random Internet wag. But once I had read through the article, my firm conclusion was that all of the mockery of it was stupid – because he’s undoubtedly correct…

You can read Eric Basu’s original article here, if you’d like, but the basic point he is making is that none of the increasingly elaborate instructional material about entrepreneurship is really going to tell you anything you need to know, because the basics of a start-up company are not and have never been any deep, dark secret. In fact, there’s nothing even remotely complex about how to start a successful entrepreneurial venture: just find something that people want to buy, sell it to them at a profit, and then expand your operations as needed. Note that I didn’t say it was easy; complex and difficult are not the same thing, or even close. What makes this whole situation worth repeating – and worth calling your attention to – is the reaction of all of those people online, who have been deriding this point as obvious. As a former management consultant and current management teacher, I can only respond by asking why, if these points are so obvious, do 90% of all entrepreneurial start-ups fail?

First of all, people assume that any product you offer for sale must be one that people will want to buy – or else why would you try to sell it? Unfortunately, this is often not the case; much of the time people start a business on the basis of what they would like to buy (or services they would like to use), not because there is any demand or because they know anything about that industry. Thus, most specialty retailers (online and in real life) fail because there aren’t enough customers to keep them in business, and most food service businesses fail because the people starting them have no idea how difficult that industry actually is. Bars are the worst; most bars and nightclubs are started by people who like hanging around in bars – a skill set that does not lend itself to many business enterprises. But even those problems are not as devastating as the ones cause by not making a profit…

Probably the single most common cause of failure I’ve seen in entrepreneurial ventures was failure to consider how the business will turn a profit. In some cases this is literal, as in ventures where it’s not clear how the company will receive revenue in return for its operations; in others, it’s not clear how they will convince customers to pay enough for the products or services provided to cover expenses, let alone make a profit. And probably the most common error entrepreneurs make is failing to consider their own salary; if the business turns a profit but you can’t live on the proceeds, long-term success is almost impossible…

I don’t have much to add to Mr. Basu’s excellent summation of the case – and, indeed, I’m not actually commenting on the article so much as I am the response to it. By now you’ve probably encountered people (they’re far too common online) who have never written a story, but sneer at how easy it is to do; who have never drawn a single image but insist that anybody could do better than this; who have never made a movie but could certainly blow Hollywood away – according to them. It would be pretty to think that such people would at least have the sense to respect the simple truth when they see it written, or at least to shut up about things they have never actually done. However, that does not appear to be the case…