Many startup entrepreneurs have a passion for their products, not a background in business. With this in mind, startups can give themselves a better chance of surviving if they create a board of advisors to provide regular, outside perspectives on internal and external situations.
Startups fail for many reasons: Poor financial management, insufficient marketing and lack of planning, to name a few. After all, when someone starts a business, more often than not their initial goal is not running a business, but providing a specific service or product.
One entrepreneur I know says he cringes at the thought of creating a business plan. "It's weird trying to be a fortune teller," he says. "How the heck and I supposed to know what's going to happen in the future?"
And he has a point. Many entrepreneurs can't tell you what they'll be doing next week let alone five or ten years from now.
Yet, according to Thomas Kinnear at the University of Michigan, "it's still a good discipline" to make such projections. Kinnear, executive director of the university's Samuel Zell & Robert H. Lurie Institute for Entrepreneurial Studies, says the key to a successful business planning effort is to change one's perspective the father out one looks.
Kinnear says short term planning should look like a road map, but "a 10-year plan is going to look more like a compass." It's simply a guide for making decisions.
I have no problem with this approach, but I agree with my entrepreneur friend. Unexpected events come out of nowhere and affect entire industries. For example, what chicken farmer had a contingency for bird flu before it became a world-wide concern? And which tourist agency had strategized around Hurricane Katrina? It's tough enough for established companies to survive in these situations; Startups have it even worse.
Still, I also agree with Kinnear, in that some form of planning ought to exist. But since so many startup entrepreneurs having a passion for their products and not a background in business, the best piece of advice is probably "don't go it alone."
With this in mind, small business startups can give themselves a better chance of surviving if they create a "board of advisors." Such boards consist of people trusted by the entrepreneur. They want to see the business succeed, so they offer input and, if need be, raise yellow flags.
Greg, a small business owner I know, has a board of advisors that meets once a quarter. He secures a conference room away from everyone's place of work and has dinner catered in. Meetings last about two hours.
Greg's board consists of four or five carefully chosen business professionals he knows, and they simply donate their time. "Their insights are invaluable," Greg says. "And they keep me in check."
Another area that leads to startup failure is poor financial management. Writing in Inc. magazine, Norm Brodsky tells the story of two software engineers who quit their jobs to form their own company. They were able to raise about $200,000 to get things going, but they squandered most of it on posh office space with top-of-the-line furniture and PR consultants to give them a polished image.
As Brodsky predicted, they didn't last long. Their financial management focused on building image, not substance. What could have been a very successful operation went south due to poor fiscal planning.
There's that planning word again.
It's not flashy, it's rarely fun (for an entrepreneur, anyway), and it fails the "does it make me money?" test. At least, on the surface it fails that test. In reality, as the axiom goes, poor planning leads to poor performance.
Let me finish by telling you about Paul, an acquaintance of mine from waaaay back. When he started his own business I was right there, even doing a little work for him. When things started slipping I suggested we take a day or two, look at a bigger picture, and make a plan for how to move ahead. Paul would have none of it. "We're going to have to paint this train while it's moving," he said.
There was no reasoning with him. He wouldn't even take a half a day to stop, analyze his situation, and get input from other people who cared. Paul was driving forward, determined that he could make it work by himself.
Predictably, Paul's business ground to a halt in just a few short months.
Granted, events can happen without notice that throw entire industries into tailspins. But if any company - especially a start up - is clear about its values, has a focus for where it wants to go, and gets regular, outside perspectives its internal and external situations, it can find ways to adapt. That means that its chances for survival are greatly increased.