GREAT IDEAS FOR ENTREPRENEURS FROM THE THOUGHT LEADERS AT CASEY NEILON
BEFORE YOU START THAT NEXT BUSINESS, DO THESE 7 THINGS
HOW SERIAL ENTREPRENEURS CAN AVOID A CRASHING HOUSE OF CARDS
I love working with serial entrepreneurs. These intrepid people are the ultimate believers. They are ready to climb that next mountain, overcome any obstacle and defy the odds. They are prepared to do what many people think cannot be done. That indomitable spirit is both their strength and their Achilles heel. How so?
Serial entrepreneurs love to start and grow companies, up to a certain point. But then they often lose interest and go looking for some new exciting business opportunity. Many times, the businesses they’ve already started are just beginning to thrive as the entrepreneur’s interest wanes. But the future of those companies is far from certain.
The risk to serial entrepreneurs is that they’ll put their family’s long-term financial health at-risk if they start a new business before their current businesses are ready to thrive without their full attention. If you’re thinking about starting a new business, even though you already have one or more businesses, I recommend that you do these seven things first.
Are You Looking For Acres Of Diamonds?
In this somewhat dated yet highly insightful video, Earl Nightingale tells the story of an African farmer who sold his land to go looking for acres of diamonds. Of course, the moral of the story is that the diamonds were in his own back yard. Had the farmer been willing to do some research before striking out in a new direction, he would have learned that his property fit the geological profile of land that contained diamonds.
In other words, he could have spent his time digging for diamonds on his own land rather than wandering around looking for diamonds that might have been hard to see in the first place. Diamonds don’t present themselves as beautifully cut and polished stones, ready to be set on a ring. Instead, they look like rocks. To find diamonds, you have to know what you’re looking for.
I believe serial entrepreneurs are often at-risk of making this same mistake. So many people are entranced by the new thing that it makes the old thing seem dull and boring. They don’t want to do the work of looking closely at what they already have and optimizing it to make it even better. That’s clearly not as fun or exciting as building something new.
But there is another part of the acres of diamonds story that is important. The farmer lost everything. He lost the farm and the diamonds that were already in the soil. Since he didn’t value what he already had and didn’t do the research to understand how valuable his farm actually was, he walked away from it all. I believe this risk is very real for serial entrepreneurs.
To be clear, I’m not saying that a serial entrepreneur will put their existing businesses at-risk by not cordoning off the obvious risk factors for the new business. Most serial entrepreneurs know they need to incorporate the new business, buy insurance, setup separate bank accounts, create separate books and protect their personal assets from seizure. That’s clear enough.
Where the risk arises, in my experience, is when the financial fortunes of one or more of their businesses take a nose-dive. Then they have tough choices to make. Do they siphon off money from this business to support that other business? Do they tap their personal equity to infuse capital? Do they go get a bank loan? Or do they sell the business or close it down at a loss?
In a worst-case scenario, the loss of one business could produce a domino effect where all of the other businesses could follow suit. This is called a house of cards. I’ve seen this happen to entrepreneurs who did not properly assess and prepare for certain types of risk. Why does this happen?
The businesses we launch are, in many ways, like our own children. We breathe life into them. They represent the future. We nurture them and spend way too much time, energy and money on them. We fawn over them and are so proud when they finally mature and become everything they had the potential to become.
This is why it’s so incredibly hard to make tough choices regarding our businesses. We love them and they are a part of us, even when, like children, they drive us crazy. So here is my advice to you. You would probably think very carefully about having another child. You would likely have many long conversations with your significant other. You would think carefully about the future and what you want. I recommend that you take the same approach when thinking about starting a new business.
You risk your family’s long-term financial health if you start a new business before your current businesses can thrive without your full attention.
Do These Seven Things
Before you start that next business, I recommend that you do these seven things:
- Spend one hour a day for at least 30 days thinking of ways to improve your current businesses.
- Get your company’s financial data evaluated by a qualified third-party.
- Get a professional assessment of your cash-flow needs.
- Complete an accurate risk analysis for current and future businesses.
- Consider your commitments to existing employees.
- Assess your readiness to focus deeply on the new business.
- Carefully think about what you really want out of life.
Spend An Hour A Day For 30 Days Looking For Ways To Improve Current Businesses
I know this may not sound like a lot of fun, at the beginning. But it really does become more interesting as you get into the process. But more importantly, this exercise can help you identify hidden pockets of money within your existing businesses that might just fund that new venture.
The process is simple. Choose a time of day when your mind is clear and just start making lists of things you think could improve the operations of your current businesses. Don’t worry about costs or implementation of the ideas just yet. You can do that later. At first, just let your mind run free and think about things that have bugged you and that you’ve wanted to address for some time.
Every entrepreneur I’ve worked with over the last 20 years has these lists, even though they may not be top of mind. I find that once they start thinking about ways to improve their businesses, this can reignite their interest in those companies. That can lead to some very good outcomes.
Once you’ve made a list of things you’d like to improve about your current businesses, you can prioritize them by the amount of time and money they would require. Then you can project what you think the ROI would be on those efforts. At the very least, this gives you a comparison for the financial outcomes you could realize by investing in current businesses versus a new business. This exercise just might help you find acres of diamonds in your own back yard.
Get Your Company’s Financial Data Evaluated By A Qualified Third-Party
Most entrepreneurs are cup-half-full people. This means they tend to be optimists. I’ve heard entrepreneurs make statements about the financial standing of their businesses that I was nearly certain would not bear out once we dug into the details. Please do not make this mistake.
Many small to mid-size business owners make decisions based on the financial data that is available to them. Sometimes this data is accurate and other times it is very much inaccurate. More than once I’ve had to be the bearer of bad news about how an entrepreneur’s financial records had significant flaws. These are not happy conversations.
This exercise can, almost by itself, prevent the house-of-cards phenomenon. Many small to mid-size businesses don’t ask a qualified third-party to review their financial records because they think it’s simply too expensive. But in my experience, this expense pales in comparison to the issues that come from making decisions based on erroneous information.
I recommend that this evaluation should examine at least 5 years of operations of your current businesses. This analysis might help you find pockets of money that could fund your business venture. Or it could help you uncover problems that you might not see today.
Get A Professional Assessment Of Your Cash-Flow Needs
Once you’ve completed your close financial evaluation, I recommend that you get an assessment from a qualified professional to project your cash-flow needs – before you start that new venture. This can help you identify potential crisis-points before they become a crisis. Any business that runs out of money is dead in the water. Here are some questions the cash-flow analysis should consider:
- How much cash are your current businesses generating?
- What are their capital needs from the time you start the new venture until you project it becomes cash-flow positive?
- How much cash, if any, do you need to funnel from your current businesses to your new business?
- What are your capital needs from the new venture? What are you basing this on?
- Can you see a particular moment in time when more than one business will fall short of cash-on-hand requirements?
Whatever you project, pad it by 20% or more and you might be okay because it always costs more than you think.
Complete An Accurate Risk Analysis For Current And Future Businesses
Cash-flow concerns are often near the top of the list of things that can go wrong when starting a new business. But that’s not all you should consider. I recommend that you complete a risk analysis for your current businesses and the new venture. Here are some areas to consider:
- Customers: are you at-risk of customers not being able to pay you or at-risk of any large customers discontinuing to do business with you?
- Vendors: are you at-risk of vendors going under, changing business terms or creating policies that would adversely impact your operations?
- Cash-flow shortfalls: if you can see a time when cash needs would outstrip cash flows, what is your plan to address this?
- Obsolete technology: will you need to make significant investments in technology or other capital expenditures any time soon? How much will this cost and how will you finance it?
- Cyclical business models: are any of your current businesses subject to known cycles, particularly business slow-downs? Can you project when these come and how much of an impact they might have on operations and cash?
Consider Your Commitments To Existing Employees
Businesses are run by people who lead and employ other people. This is an area where I see entrepreneurs often underestimating the time and energy they will need to put into the new business and take away from existing businesses. Even if you have the capital to start the new venture, do you have the time to invest in the new employees?
I believe good employers take seriously their responsibility to make their employees’ lives better. As a serial entrepreneur myself, I find that one of the best parts of the job is investing in other people and watching them blossom. This is the kind of payoff that money can’t buy. Only time and energy can do this.
I know that there are many talented people today who would like to work for a smaller company where they don’t feel like just another cog in the wheel. Working for a smaller company can be so much more rewarding than working for a great big company. What are these people looking for?
- A good paying job – yes – but money may not be at the top of their list
- Health insurance and other benefits
- Education and continuous learning opportunities
- Mentoring from someone who will take a real interest in them and help them realize their potential
- Work opportunity, career growth and expanded responsibilities
In my experience, investing in people creates energy and excitement at work. These people can also become your successors in an exit. So before you start that new venture, ask yourself how much time and energy you can commit to new people?
Assess Your Readiness To Focus Deeply On The New Business
Running a business, any business, requires a lot of focused energy. One of the reasons entrepreneurs are successful is because they see opportunity where others only see problems. It’s one thing to see an opportunity but quite another thing to make that opportunity real. This requires long hours, lots of coffee and the ability to focus deeply for extended periods of time.
So while you might have the cash to start a new business, do you have the focused energy? Any new business will encounter some level of adversity and problems. Problem-solving, while fun for most entrepreneurs, can take a lot of focus away from existing businesses.
Here is the point I want to make. If you find yourself sitting around the office in your current businesses without a lot on your plate, if you feel like things run pretty well without your input, if you go home at the end of the day and are still full of energy – then you probably have room to focus on a new business. But if that’s not the case, think twice.
Carefully Think About What You Really Want Out Of Life
Life is short. I’ve met numerous entrepreneurs who plan to work forever and never retire. But that doesn’t mean that work has to consume our lives. Having a good balance between work-life and home-life keeps entrepreneurs healthy and thriving. If you already have a very full work-life, do you really need more work?
Before you start that new business, I recommend that you get together the people who know you and care about you and ask them what they think. Ask them how they feel about you starting another business?
But I also think you should ask yourself why you want to start the new business. What is it that you’re trying to build? What will you sacrifice along the way? How much time are you willing to give up? What is the value of time to you? How important is it to you to climb that next mountain and why is that more valuable than the mountains you’ve already climbed?
How Can I Help?
I love working with serial entrepreneurs because they are such amazing people. The recommendations I’ve outlined in this article are based on the many years I’ve served entrepreneurs. I’ve seen the good, the bad and the ugly. I’ve seen the way success really impacts them and their families. But I’ve also seen the opposite. I really don’t want you to have any regrets. If I can help you think through your plans for starting a new business, please reach out to me for a conversation.
Nicola Neilon – CPA, SHAREHOLDER
I am a CPA and shareholder at Casey Neilon. In this role, I work with many small businesses and their owners. I love that this gives me the opportunity to go beyond just being a tax preparer or auditor. The long-term relationship that develops encompasses the roles of business advisor and trusted confidant. I have been serving clients in this capacity since 1997. My experiences have taught me that I am not Wonder Woman, nor do I have a crystal ball, but many people have no background in accounting and finance, and they need someone that they can trust to help them navigate a path to reach their goals.