Week 32: What type of Entrepreneur are you?

Entrepreneur is a word that gets thrown around quite a bit. Truth is the word has multiple meanings.

There are so many types of entrepreneurs. Which one are you?

  1. To replace a salary – This is how most people start their entrepreneurial journey.
  2. To live a certain lifestyle – This is similar to the first but slightly different.
  3. To build a high-performance entity that serves a specific need/want/desire – These are of course the larger versions of the entrepreneurial path.

Let’s explore the first one a bit. Some people simply are not wired to be employees. They can work with people but it is challenging them to work for people. This is both a blessing and a curse. A blessing because it provides some important motivation to venture out on our own. A curse because we will have to work for people. Instead of having one boss – we have many in the form of customers.

Eventually, individuals can learn to become extremely productive team members. 

Bottom line if you have an idea for a business start it and understand that the first 18-months will be all about survival.

Now, let’s move on to the second-type. These people tend to be more social than the first type. Great examples of this style is people that turn their hobbies into an actual business. 

Another example would be those that want to reduce the cost of doing something they love. I can give you an example of a friend of mine. He’s an amazing photographer and loves to travel. Now, he does tours of various destinations and of course documents with his photography.

The third one, is of course the hardest. The great thing about the first two is that virtually any business can be built within the resources that we have. For example, if I have a service business once I get a few customers then I’m making some money. If I’m one person, I’m only going to be able to service so many customers at a given time. Remember, we are after all human. Even more importantly, we should have a life outside of work.

On the second one, all my friend has to do is get enough customers to break-even on his trip and maybe pocket a few bucks to be successful. These are the best benefits of being an entrepreneur. There are also pitfalls as well and being an entrepreneur isn’t for everyone.

However, for the third we must have a team. We simply can’t do it alone. This creates a challenge that the first two don’t have. In the first two, I don’t need a shared passion with employees. Most likely I don’t have them. I simply need a shared passion with customers. That is not true for the third one.

To get anywhere on the financing side we’ll need a solid team beyond the founder. This includes management, marketing, and financing. This should be a group of diverse people with a variety of viewpoints. Our challenge is to find a mutual passion for the product/service. We have to keep in mind that in order to attract investors we will have to not just have a good idea. We’ll need profits and free-cash-flow. People aren’t lending the capital to us out of the goodness of their heart. They want a return on that capital. They want that to be greater than if they’d invested the amount into the market.

It’s important to understand there are different levels and types of investing but more than anything else successful venture capital firms invest in teams that can execute.

Here’s a tip before even trying to go for large funding. This tends to be baseline needs for the big money.

  • Market size potential greater than $100 million
  • Gross margins greater than 50%
  • Break-even from cash flow less than two-years
  • Management industry experience

Other market issues that become important are growth rates in excess of 30%, market share by year three to be greater than 20%, and legal protections of the business.

On the profit side other key factors include after tax margins greater than 20%, return on assets larger than 25%, and asset intensity bigger than 3.0

Financially they’ll also be looking for rate of returns that are greater than 50%, IPO potential under two years, and majority founder control.

Finally, that the management team has all functional areas covered, quick to adapt, and has a full team.

Here’s the good news. No matter which path you chose you’re an entrepreneur. Be proud. Have fun. Celebrate success. Learn from failure.

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