The Entrepreneur's Emotional Roller Coaster

My wife is getting a Master's in Professional Counseling, so I hear a lot about psychological conditions and diagnoses. But I have not heard her talk about Entrepreneurs Emotional Roller Coaster. I don't think it is an official diagnosis, but I know it is real.

The emotional trauma of being an entrepreneur is really tough. There is the high of the new idea. The idea hits you while you are driving or in an important meeting. It is not that it came to you out of the blue, because you have been thinking about the idea for some time. But in an instance it clicks. And it is so clear and so obvious. You've got it. It is a winner.

For the next few days you have a hard time thinking about anything else. You refine the idea a little more. You start calculating the revenue for the first couple of years. And then you do a multiple of EBITDA and start thinking about the world travel you will be able to do--and all the other new business you will be able to start. It is a real high.

Then you go online and find almost exactly the same idea that someone else is doing. It hits you like a two by four. Wow. How could they have come up with something so similar. Then you think about it some more and realize that you do have a unique angle.

Then you start working on the business plan and raising capital. At first it is exciting and exhilarating. When you are on draft seven, however, is starts to get tedious. You wonder how each potential investor can come up with a unique question that requires you to do in depth research--do they get together and plan the harassment.

When you realize that the seventeenth investor you meet with really gets it, it is such a relief and another high. This is an influential investor and if he invests, you are confident that at least three others will invest also. You start calculating the multiple of EBITDA again.

Then, just before this investor plans to execute the documents and write the check, the CEO of one of his other investments becomes gravely ill. And of course the investor decides that he has to put his focus on that company. He does not have time to do any new investments. Just how close can you get, and how low can you feel?

You start thinking about having to get a real job, and you really start feeling bad. Then out of the blue a friend of a friend calls and wants to meet . . .

Let's just call it EERC--Entrepreneurs Emotional Roller Coaster.

Is a Business Plan Really Necessary?

It takes a lot of time and effort to write good business plan. Sometimes I wonder if all that time and effort could be better spent actually starting the business rather than researching and writing and editing. It really is a lot of work.

It clearly depends on the nature of the business you are starting. Actually I am doing both now--starting one business without a plan and one with a plan, or should I say trying to start them. It is never a given that they will get off the ground.

Remember rapid cycle failure. Instead of spending months writing a business plan, sometimes it is better to lay out your plan in a simple concept paper--three or four pages. Scoping out what you plan to do helps you think through the process and is highly recommended.

Then get to it. If it seems like it is beginning to work, you can always go back an write a detailed plan. If not, you have not wasted a lot of time.

If your business requires capital that you are going to ask others to put into the company, unless it is a small amount coming from close family and friends, a business plan is a must. People who invest want to know that you have very carefully thought through the concept and have looked at every important aspect of the business.

Can you clearly describe what you plan to do? What is your product or service? Who are the customers? Who is the competition? What is the experience of the management team? What do the financials look like? How much capital is required? How do I get paid back? What are the risks?

You have to be able to answer each of these, plus a few others thrown in for good measure, in great detail. Now that doesn't mean that the investor will always read the complete business plan, but you better be prepared to answer any questions that is asked. The business plan is critical in your preparation for this important exam.

When I write or read a business plan, the one thing I know for sure is that the business will not turn out exactly as the plan projects. But it is a road map and critical planning tool.

So, if you do not need outside investors, write a concept paper and spend your time starting the business. Do not waste months writing a detailed plan.

If you need investors, write the plan. Do the research and learn the material. The test is not the quality of the plan. The test is do you know the business well enough and are you experienced enough to make the right adaptations when the plan falls apart.

You are the plan--not the document--and you are the focus of investors interest!

Stress Test for Entrepreneurs

If Stress Tests are able to tell us if a bank can survive tough times, then maybe entrepreneurs should take a stress test before starting a new venture. And if current trends continue, the government may require such a test before we are allowed to start a new venture!

So, what would a Stress Test for Entrepreneurs look like? Here are a few sample questions:

1. Do you have a clear idea of what you want to do and are you committed to sticking to it until it succeeds or fails? If the answer is yes, you fail the stress test. To be a successful entrepreneur, you have to have a clear idea of what you want to do and then make adjustments as you begin to implement. That does not mean reacting to every event but it does mean learning and adapting. The one thing you can be sure of, no new venture looks exactly like the business plan that was originally drafted.
2. Do you have financial resources to survive while you learn and adapt the plan until it is profitable? The correct answer is of course "yes". There is no shortage of good ideas. The problem is that most do not work as planned initially. A good entrepreneur, given enough time, is capable of solving the puzzle. Unfortunately, what often happens is that we run out of money and resources before we get there?
3. Are you prepared for rejection, criticism and failure? Again, the answer better be yes. Entrepreneurship involves selling--selling the idea to investors, to future employees and of course customers. And maybe most importantly, to friends and family. While you think the idea is brilliant, you will get many more "No's" than "Yes's". Entrepreneurship is heroic until it looks like it may fail, and then people start to question your judgement--why are you putting yourself or your family at risk? And, of course the odds are not necessarily in your favor.
4. Is your idea potentially a billion dollar venture? If you answer yes, again you fail. First of all, if you think your idea is likely to create a billion dollar venture, you probably need counseling for grandiose thinking. Sure, we are told to thank big and we should. But we also have to be in the real world. Do you know the odds of a new venture turning into a multimillion dollar business much less a billion dollar business? You have a much better chance of being successful with a small idea, maybe even several small ideas. Only the most experienced entrepreneurs with proven track records are able to secure the resources to run with big ideas.
5. Is the pain of Not doing it greater than the pain of Doing it? The correct answer is yes. This, of course, is fundamental to basically all decisions we make, but especially true for entrepreneurs. There will be pain in the process. The question is, will there be more pain and regret in not doing it? For many of us, the rewards that come from adventure and following our dreams outweigh the risks.

OK, how did you do? Entrepreneurship is not for everyone. We all should carefully assess ourselves and our current life situation before taking the plunge.

Fail Wisely, But by All Means, Do Not be Afraid to Fail

While this may be difficult to hear, in my experience failure is fundamental to being an entrepreneur. The truth is, the odds are not real good when you start a new business. While we have all heard the stories of people who have an idea, start in the garage and end up on Wall Street, we hear about those stories because they are so rare and they are news.

The untold stories are those who have an idea, start in the garage, and end in the garage. Failure is a part of being an entrepreneur. If we are afraid to fail, however, the ideas never get to the garage.

If failure is fundamental to entrepreneurship, the the key is learning how to fail. If you spend a lot of money and a lot of time on an idea and it does not work, then you have lost a lot of money and a lot of time. You may have learned a lot, but at a great cost. While this sounds so simple, for most entrepreneurs it takes a while to figure out.

What I have finally learned is that if you invest a little money and little time and the idea is not successful, you still have learned but have not lost a lot. I like to call this Rapid Cycle Failure. Develop an idea and get it going as quickly and for a little money as possible. Most will probably fail, but if you do several you have a chance that at least one will be successful.

This is really a hard lesson for entrepreneurs. I believe the reason is that most of us have a dream of hitting a home run. And home runs must require a lot of planning and obviously a lot of money. Most of the time we never get the idea to the garage, and if we do, our odds are not very good.

Learn to fail quickly and inexpensively. Always learn from the failure and occasionally you will hit that home run.

Solutions

Is it ironic that the first post on this blog comes on the the day that GM files for bankruptcy? Wow, do we need solutions!

This blog is focused on exploring solutions related to management, leadership, communication, organization, quality, customer service, strategy and entrepreneurship.

The lessons learned should be applicable in any environment--from large corporations like GM to small mom and pops. And yes, entrepreneurship is applicable in large companies like GM! They also apply beyond business to volunteer organizations, religious organizations, schools and of course government.

I personally have had the opportunity to work in both large bureaucratic organizations and start ups. I have had the privilege of working with entrepreneurs as a principal in a seed investment firm. I have learned as a staff person and sat in the CEO chair. And I have trained and consulted with organizations from healthcare to manufacturing. My graduate studies were in organizational communication and I have taught organizational behavior and strategy at the MBA level.

Experience on a foundation of theory can be a powerful teacher, but I by no means begin to have all the answers. I have, however, learned a lot of the questions to ask.

Join me in this exploration, add your questions to mine, and let's learn together.