Assumptions versus Knowledge

One of my favorite quotes is that new ventures have a 'high ratio of assumption to knowledge' (McGrath & MacMillan, 1995, p. 4). Essentially, when you start a business, you are relying on a huge pile of assumptions. Take the business plan, for instance. It is an important tool that I highly recommend, but it is based almost completely upon assumptions such as what price you think you can charge, how you think the customers/competitors will react, the sales you think you can get, etc. You will likely get financing if your assumptions appear believable, but it is still not a guarantee of success.

As a business grows, however, this ratio of assumption to knowledge should change. You will get customer feedback regarding your prices and products/services. You will see how your competitors react. You will find out how much sales you can actually build. Then, if you are going to be successful, you integrate this knowledge into your working business plan to reduce your reliance on all those unknown assumptions. 

As I am writing this blog, I am sitting here at my favorite coffee shop and just finished a conversation with the owner. (By the way, if you ever get to Linton, IN, you have to look up Francisco de Borja!!!) They are in their second year of business and he described their experience thus far as a roller coaster as they try to figure out what works and doesn't work for their business. One example he gave me was their pastry cases, they realized that customers are more apt to purchase pastries if they are on the counter where they can see it and help themselves rather than in the case. I've also noticed that they have modified what they sell for lunch and also what they sell retail.

What I admire about their business is that they are willing and open to taking in new knowledge and integrating it to produce a more successful business. Other businesses can get stuck on that initial business plan (based entirely on assumptions) and don't take the opportunity to adapt and grow into a mature business with the new knowledge being given.

 

What to read?

While there are many, many books related to entrepreneurship out there, an author that I would recommend is Robert Kiyosaki. He has not only authored many top selling books, but also produced games, programs and coaching to help get his point across and that provide in my opinion a valuable educational service. His focus is primarily financial, and this has everything to do with YOU and/or how YOU view the financial aspect of your business.

I was initially turned off by the wording of his best selling book Rich Dad Poor Dad, as my goal in life is not to be rich. However, after giving it some thought, I strongly agreed that I would rather be efficient and smart with my resources than foolish and wasteful.

To give you a taste of Koyosaki's philosophy, here is a table that he uses to describe his 'poor dad versus rich dad' comparison:

Poor Dad vs. Rich Dad My Poor Dad Says   My Rich Dad Says           "My house is an asset."   "My house is a liability."           Rich dad says, "If you stop working today, an asset puts money in your pocket and a liability takes money from your pocket. Too often people call liabilities assets. It's important to know the difference between the two.           "I can't afford it."   "How can I afford it?"           The statement "I can't afford it" shuts down your thinking. By asking the right question, you mind opens up and looks for answers.           "The reason I'm not rich is because I have you kids."   "The reason I must be rich is because I have you kids."           "I'm not interested in money."   "Money is power."           "When it comes to money, play it safe - don't take risks."   "Learn how to manage risk."           "Pay myself last."   "Pay myself first."           Rich Dad always took a percentage off the top of any income he earned. He put this money into an investment account that went toward purchasing his assets. Poor Dad spent all his money first and never had any remaining for investments.           Believed that the company you worked for or the government should take care of your financial needs.   Believed in financial self-reliance and financial responsibility.           Focused only on academic literacy.   Focused on financial literacy as well as academic literacy.           Learned only the vocabulary of academia.   Learned the vocabulary of finance – "Your words are the most valuable tools you have."           "I work for my money."   "My money works for me."           Thought that making more money would solve his financial problem.   Knew that financial education was the answer to his financial problems: "It's not how much money you make that's important – it's how much money you keep and how long you keep it."

You can learn more about Robert Kiyosaki and the products/services he offers by visiting his website. If you are familiar with this series, let me know what you think.

Small Business Development Centers (SBDC)

If you want to start your own business and need some help, and are located in the U.S., I encourage you to start with your local small business development center (SBDC). What is an SBDC? As described on the U.S. Small Business Administration's (SBA) website:

SBDCs offer one-stop assistance to individuals and small businesses by providing a wide variety of information and guidance in central and easily accessible branch locations. The program is a cooperative effort of the private sector, the educational community and federal, state and local governments and is an integral component of Entrepreneurial Development's network of training and counseling services.

The services do tend to vary from SBDC to SBDC, but I have found that the quality is good and it can be an affordable start to receiving some training and one-on-one counseling for your business idea. Another advantage of starting the entrepreneurial process with your local SBDC is that they have a great knowledge base of the local entrepreneurial resources that you can tap into - both within and outside their organization.

Use the SBDC Locater on the SBA's website in order to fine an SBDC close to you.

It's all how you view it

In a recent article by the Greene County Daily World, there is a great example of an entrepreneur that is alert to opportunities:

Many area farmers are taking a financial hit from the recent floods.

But Sawyer Sparks, a young entrepreneur from rural Bloomfield who is a third-year agriculture economics student at Purdue University, says he's got a viable alternative to re-planting washed out corn and soybeans.

Sunflowers.

Sparks owns a local company called BioGreene -- which started in 2007.

Its major product is sunflowers.

He contends there is still plenty of time to plant and have hopes to salvage something from this year's damaged crop season.

"Some sunflowers have a growing period of 80-90 days, which would give plenty of time to mature in time for harvest," Sparks said this week.

When everyone else is talking about the flooding disasters across the Midwest, here is someone that is viewing the situation a bit differently and thinking entrepreneurially about what opportunities might exist. That is a true sign of an entrepreneur!

For the full story, go to: Greene County Daily World: Story: Bloomfield grad offers alternatives for farmers and youngsters

How entrepreneurial are you?

The term entrepreneurship is thrown around quite a bit in the media today, but have you ever wondered how entrepreneurial YOU are?

To answer that question, we must first define what it means to be entrepreneurial. According to academic research in this area (see Lumkin & Dess, 1996), being entrepreneurial consists of the following attributes:

• Autonomy
• Innovativeness
• Risk-taking
• Proactiveness
• Competitive Aggressiveness

Thus, to assess how entrepreneurial you are, you need to determine how autonomous, innovative, risk-taking, proactive and competitive you are. 

(On a side note, when you are more entrepreneurial, research also suggests that you are likely to perform better.)

Last year, I attended a speaker event by Michael Morris of Syracuse University. One of the points he was trying to get across is that there are many ways to be entrepreneurial. In addition to starting your own business, you can be entrepreneurial in the corporate environment, as a student, in the government (yes, really!), as a parent, in your church, non-profits, etc. Let's take the example of a student. In order to be entrepreneurial as a student, this could mean being more proactive in figuring out what you want to do, being more aggressive in trying to get scholarships, being innovative in designing a major or selecting double major combinations, being autonomous in your college decision, and perhaps risk-taking in trying out something new.

So, in what areas of your life are you most entrepreneurial?

Are you prepared?

Like other parts in the Midwest, southern Indiana where I live has recently experienced a tremendous amount of flooding. Several properties that we own are completely flooded. We also lost power for several days, which meant that we did not have access to the Internet and could not operate our business as normal. Multiple roads were flooded, which meant that we could not always go where we needed to go. We are still without phone service.

The question I pose today is the following: As a business owner, are you prepared for the unexpected? What happens if your physical business building or any of your other properties are flooded? What if your computer system gets zapped by lightening? Do you have a backup? What if your business burns to the ground? What if you or a key employee dies?  What if the area you live in is hit by a hurricane? What if there is another terrorist attack? These are all viable circumstances out of your control that could dramatically affect your business. 

Although you cannot control many of these external circumstances, you can control how are able to respond to them. For instance, you can purchase insurance. You can backup your data regularly and/or utilize web storage to have continuous access. You can document all the job duties and tasks so that it is easier to replace key employees if need be. You can have an succession plan. You can have a plan for what to do should your business need to be evacuated. You can be flexible and think creatively how to respond.

How else might you prepare for the unexpected?

You are never too young to be an entrepreneur!

I grew up in family-owned business. When I was younger, I also babysat, mowed lawns for extra money, sold cards, had a lemonade stand (well, once, it didn't go over that well) and probably did a few other "business ventures" that don't come to mind right now. Yet, I don't think that I was ever actually exposed to the concept of 'entrepreneurship' until college.

Today, there are not only a growing number of college entrepreneurship programs, but many targeted to schools and youth. Here are just a few:

 

 

 

If you are under the age of 18 and/or interact with anyone within this age group, no matter how young, there are many advantages of helping expose the entrepreneurial side in them. First, you are enabling them to build valuable skills (money handling, sales, people skills, etc.) that could be used later on in life. You are also teaching them how to be self-sufficient. Let's face it, not everyone is made for the corporate world. Last, you can help build confidence and give them something positive to focus on.

I used to work with an organization called The Institute for Entrepreneurship, where I helped administer a grant fund for kids/teachers and helped with their annual youth entrepreneurship conference. It was a simply amazing and inspiring experience -- you might be amazed at the potential in our young people.