Thursday 30 September 2010

For an entrepreneur starting out - some tips with hindsight

In September 2000 I was just setting out on my first entrepreneurial venture.  I was working as an investment banker at JP Morgan at the time, but on a skydiving trip Perris Valley I had hatched some plans with Matt Cooper.  We returned to the UK and set to work on evenings and weekends. 

10 years on we have sold the business we created then.  Older and a little wiser, I'm writing a note to my 2000 self and sharing the benefits of hindsight.  If you're an entrepreneur getting ready to jump, I hope you'll find it useful.  And if you've already jumped please share your comments below.

Balance enthusiasm to jump with readiness to "cut away"

Entrepreneurship is like skydiving - you have to be willing to leave the safety of employment and leap into the unknown.  That takes enthusiasm and courage, but personally and professionally it is very rewarding.  Determination and confidence when dealing with uncertainty are vital - as a friend recently explained to me "you have to be ready to make 100% of the decision with only 50% of the information".  The unpredictable movements of markets, competitor activity and the breathless rate of technological and regulatory change all keep you fit and on your toes.  Cut through this complexity and uncertainty by sticking to your aim and avoiding distraction.

But sometimes a skydiver has to be prepared to cut away a malfunctioning parachute and rely on his reserve.  Focusing on your aim is very important, but if the environment changes, your aim may need to too.

Hindsight:  Our environment changed when our major competitor secured additional funding in 2003.  While we were very happy to take on larger and richer rivals, their access to a $100m fortune made a difference that even the most determined and focused challenger should think carefully about!  At that point we lost the opportunity to dominate the market, but we still achieved excellent growth and profitability.  But when a second major rival (with even bigger reserves) began to prepare to enter the market we knew it was time to prepare our exit.

Capitalise - and choose a big market

A simple rule of thumb is that VCs won't invest in businesses in a market worth less than $1bn per year.  So unless you can finance your growth by other means, avoid markets that don't have massive potential.  Capital is vital to ensure that you can develop your business with a longer term vision, rather than basing every investment on immediate cash-flow constraints.  You wouldn't jump out of a plane without investing in a decent parachute.

As well as providing funds, raising capital can also introduce additional talent - and passion - into the team.  There is nothing like having "skin in the game" to make people share your aim and work to realise it.  You can apply the same rationale to your advisors and suppliers - try to structure your deals with them so that they share in your success - it's a great indicator of their commitment. 

Hindsight:  The total projected value of our market in the UK was £50m - well below the threshold to interest most larger investors.  We designed our business so we could quickly run from operating cashflow.  Before 2003 our better capitalised rivals were losing money fast and many of their first-round investors wrote off their investments, so raising finance would have been difficult for us.  After 2003 the market appeared over-priced and any returns on new capital were likely to be negative or low.  We were able to eke out good returns on our original investment because we continued to deliver excellent growth and margins, and developed an exceptionally lean operating model.  But we were unable to attract new money.  Talking to potential investors was a constant source of stimulating and challenging ideas, energy and enthusiasm though.

Innovate and benefit from the innovations of others

Keep new ideas coming, and stay abreast of the latest trends and technology.  Moore's Law determining the falling cost of computing power, and the constant innovation of others ensure that what is impossible or prohibitively expensive now can quickly become cost-effective.  Anticipate this and be ready to integrate the innovations of others.

If a high proportion of your costs are technology-related, be ready to be bold with your strategy.  When cost structures change this can create opportunities for bold new entrants with disruptive models.  Be ready with branding and pricing policies that take advantage of these changes.  Above all, continue to invest in research and development so that you stay at the cutting edge of your market.

Hindsight:  We generated plenty of new initiatives in our battle to outmanoeuvre our rivals - service extensions, affiliate networks, disruptive pricing and an array of exit options.  Meanwhile, we stayed at the cutting edge of technical innovation and stripped out cost at every opportunity.  With free or nearly-free tools from Google, Skype, Facebook, Twitter and LinkedIn and with the reducing costs (and increasing reliability) of cloud hosting, we reduced our operating costs even as our business volumes grew at a compound annual rate greater than 50% for several years.  We stood on the shoulders of giants whenever we were able to do so.

Network, network, network

One of the best things about starting a business is that you get to meet great people.  Your first customers will be, by definition, "early adopters" and you get to meet people who specialise in a wide variety of areas.  Their willingness to explore new possibilities is a great source of encouragement and a real learning opportunity.  Time spent talking (and especially listening) to people is very rarely wasted, and if someone has interesting things to say that don't directly relate to your current plans it's still worth developing a dialogue if you can.

Competitors deserve a special mention here - of course you are rivals, but in fact you have more in common with each other than with anyone else.  It's well worth keeping a dialogue going with your competitors - one which is respectful, and maybe even playful.

Hindsight:  I've met some amazing people in the last 10 years.  But I wish I had devoted even more of my time to getting to know people.  It's tempting to focus on service design and delivery - especially when you are understaffed - but every business is really about people.  And it's the most fun bit too!  I've recently qualified to skydive in formation, so I can now build networks in the sky.  I've been very lucky to be a member of some great teams in the Royal Marines, at JP Morgan and with Bmycharity, and now I'm looking forward to joining my next team...

Looking forward to 2020 vision

Writing with hindsight is easy - but I wonder what I'll write to current self 10 years from now - with the benefit of 2020 vision.  I could use some tips on swimming technique and my cooking has a long way to go - but I'm sure there are plenty of business lessons still to learn too.  I'm confident that networking in particular will remain central - after all it's in dealing with other people that we are able to create lasting value.  So I hope to deal with many more great people over the next 10 years, while building the relationships of the last decade too.  And I hope I'll be a much better skydiver by 2020 too!

If you've any tips you'd like to share with your earlier self when you set out as an entrepreneur please share them here.  I'm grateful to Jason Baptiste for the idea of writing a letter to my younger self.


  1. Ben, great blog, very useful insights. Thanks for sharing.

    How's about this tip. Choose your partners with care. You're going to have to work through some big decisions together. You don't want to be tied to someone who stops running when you're in a three legged race!

    This I have learned the hard way.

  2. Having just started my business, my biggest problem is how to adapt my risk-taking mindset from that of a multinational company's employee to that of an entrepreneur. In my previous life "informed decisions" were crucial, but there was plenty of available information. It was the quality and speed of analysis that made the difference, so long as it didn't get in the way of timely decisions. Now, the ability to take decisions based on less information seems far more important.
    My assumption - and a question to those of you with more experience - is that white-space businesses have a higher degree of trial-and-error attempts than established ones. The higher the sophistication, the more the competitive advantage lies on the details, rather than on the "big strategies". On the other hand, when it comes to new ideas, success may be a function of the proverbial "Just Do It"!
    Another area that I would like to explore, is whether first mover's advantage makes sense, for businesses with low entry barriers. Currently we are facing the dilemma of making our idea known to our customers, without awakening others to it, or at least not until we reach a critical break-even mass. The worst case scenario is that we enter the market, we strain to educate the potential customers to our idea and as soon as they are ripe, a far bigger player comes into play pushing us out in a sweeping move.
    Happy to hear your thoughts!
    Best regards,
    Tassos Vavladellis, Greece

  3. I don't count myself as an entrepreneur as such but have worked with a few. My biggest piece of advice would be that as an entrepreneur you will have the drive, determination and passion but not necessarily every skill set required to run a successful business. The best thing any entrepreneur can do is work out where they need help and get help in those areas. Too often someone with a brilliant idea tries to do everything and isn't really able to. I have worked with people in both cases and the more successful are those who are prepared to hand over part of the work to those who are experts in that particular area. The entrepreneurs can then get on with what they do best. But I realise that it can be like handing over a baby.