When you see how the media portrays entrepreneurship, you would probably think that entrepreneurship is about ideation, startups, and raising equity almost instantly while the founders stay in control. And from there it goes on to spectacular success where the company is sold just a few years later for a ridiculous price of 10 or 15 times projected sales (not EBIT).
While it can happen, the odds of it happening are about as good as buying a Powerball ticket regularly and hoping to hit the big jackpot. For every entrepreneurial venture that fails, there are thousands, if not tens of thousands, who fail. But don’t get me wrong. Many entrepreneurs do very well and make a rich living in many “pedestrian” businesses.
These businesses include any small business that makes cabinets, paints houses, provides dental services, sells clothes, serves hamburgers, markets real estate, or does thousands of other things that we all want and need every day. These make up the majority of small business success stories.
There is a strong case for entering a business with proven demand. We all know that a lot of people want pizza. So it ultimately comes down to quality, service and differentiation that clients or customers value. And these are all areas where small companies excel and larger companies can beat.
And why is entrepreneurship always portrayed as requiring a startup? Not that there’s anything wrong with running a startup and doing things the way you want — but you could buy an existing company — it could very well be cheaper and easier to fund — especially if it needs work. Another option is to buy a franchise and get a proven business formula in a can.
Mark branch
What about dealing with raising equity from investors? Most new and existing businesses have few owners. My philosophy has always been to resist this temptation and do whatever I can with my resources and debt. I could never understand why anyone would want to start a company and then immediately hand over control of it to investors. They rarely understand the market or business strategy as well as the founders, but will want to put their stamp on them (ie tell the founder what to do). What’s more, VC and private equity investors usually have a limit on how long they want to hold that investment, which means they may have to sell the company in the future. Maybe the founder doesn’t want to sell? Also, my experience is that undercapitalized companies are better run companies. Necessity is the mother of invention!
So much success as a business owner depends on a genuine commitment to putting in the work that it takes to be successful. The pop culture view of business success is based more on the idea for the business versus the work required to make the business viable as a business. The “Startup” is just that. It’s a start. It doesn’t end there. That’s why it drives me crazy when someone tells me they want to “start a startup”. I will inevitably ask if they want to start a proper business instead. If so, get ready to work harder than ever because it takes that kind of dedication and obsession.
As an economics professor who teaches these things, I want to help people realize that they have a lot more options than they might have first thought. And then I want to give them a realistic idea of what they’re likely to need to achieve some level of success over time. Entrepreneurship is open to all, it can be a means of solving a problem that helps many people, and it offers owners and employees the opportunity to create an amazing quality of life. And while reality rarely matches public perception, there are many ways to embrace it and thrive over time.
Mark Zweig is the founder of two Fayetteville-based Inc. 500/5000 companies. He is also Entrepreneur-in-Residence at the Sam M. Walton College of Business at the University of Arkansas and the author of the award-winning book, Confessions of an Entrepreneur. The opinions expressed are those of the author.
