The statistics on the earnings of entrepreneurs in the U.S. might give pause to anyone thinking of starting a business.
An article by Bloomberg Business revealed that U.S. entrepreneurs make 35% less than employees. Recently, we discussed the statistic with the people of Lattice Consulting, who offer Income|Outcome business acumen simulations in East Africa.
Interestingly, we learned that the U.S. study resonated with their experience in that part of the world as well.
So why would someone agree to earn less, basically? The Lattice team shared a theory with us. It is paraphrased below.
Entrepreneurs are swapping current earnings for the potential to build wealth.
If you’re starting your own business, you may be earning less now, but after five years you have the potential of a business you can sell. The business can balloon to higher earnings for you than you would have collected as an employee.
But of course, to get to that point, your business has to grow beyond the founder. It must be built into something that will last, with or without the individual who started it. But how do you get there?
We drew on Lattice’s expertise to come up with a series of questions that current or would-be entrepreneurs should ask themselves in order to build a business that will last.
Do I know what I want from this business in five years?
If you’re an entrepreneur, it’s a good idea to have clarity around what your endgame is. But trying to figure out the entire big picture can understandably be overwhelming, so it may be better to start with a short-term vision.
Entrepreneurs should ask: what do I want from the business five years in five years? Money? Market Presence? Innovation?
The Lattice team has observed that in East Africa, most people start businesses without this clarity. And it may be said that North American entrepreneurs are not much better at vision-casting. Without a goal, it will be difficult to know where you are trying to go.
How do I make this business sustainable?
Many entrepreneurs lack the ability to build a business that will last into posterity. Not only does the business have to last 5 years, but at the end of that period it has to look attractive to potential buyers. So the entrepreneur has to manage for cash flow and for profit.
Most of the people that Lattice Consulting works with are going through a business acumen workshop through their regular employer, with the goal of doing those jobs better. But a lot of Kenyans also have a business on the side. And all the lessons they learn in their company-sponsored workshop, they are applying to the side businesses.
It is as if the employees, upon learning certain financial concepts, say to themselves, “Ah, this is what I need to do.” Increased business acumen empowers them to sustain their side business long-term.
One of the Lattice facilitators shared a real-life example of this playing out. The facilitator trained a woman who did not realize that the time she spent in her side-business should be valued, or how to value that time. So she was busy giving a business free services and thinking that she was somehow still making a profit.
After participating in the Income|Outcome simulation, she realized that in order for her business to remain alive, she had to assign value to her time and price the company services accordingly… and be much stricter with how she spent her time. She ran her business differently after gaining knowledge through the game.
Can the business survive without me?
Entrepreneurs should think about courage.
Do you have the courage to step back from your baby, to put in systems and structures to ensure that even if you’re not present, the business grows and survives beyond you?
This is critical if you decide at some point to sell your business. The systems that you have established must instill confidence in the buyer, since they are buying your business and not you.
What skills do I have, and what skills do I need?
Everyone has strengths and weaknesses. A lot of entrepreneurs are not aware of their own skills, therefore they are not aware of what skills they need bring on from outside. This makes it very hard for them to make the right hires.
Entrepreneurs need to be honest in identifying their strengths and weaknesses–this is critical to building a business that works beyond one person. Different personalities create tension, which can actually be a very good thing for growing a sufficient team, as Steve Jobs once elegantly explained.
How do I find out what I don’t know?
This is the toughest question to ask… because it seems to be unanswerable. Whatever answer you give to these earlier questions, your knowledge will never be complete until you know where to find the answers you lack. “The half of knowledge is to know where to find knowledge,” as an old proverb teaches.
When it comes to business, simulations such as Income|Outcome are useful, simply because the learning sticks through hands-on play. The Lattice team has several stories of increased knowledge as a result of the Income|Outcome board game.
One woman said, “Now I know why my business collapsed.” It was because she wasn’t pricing her overheads into the cost of her quotes.
Another said, “Now I understand how my employer feels.” The simulation provided a very visceral experience in that case.
Another didn’t know they needed to budget until taking the simulation. And yet another said that they didn’t know cash was so important until they were taught the concepts of cash vs. profit.
They all learned valuable lessons, and in each case they learned something that they didn’t know that they didn’t know. And as it turned out, what they didn’t know was the really important stuff.
Entrepreneurs should ask: How and where can I get a ‘complete’ business experience in a very short time?Are there workshops or seminars at the community college? Chamber of commerce? Through my workplace?
Statistics paint a bleak picture for entrepreneurs, but they do not tell the whole story. There are ways to build your business into an effective machine that can sustain itself—even when you’re not around.
By asking yourself the questions above, you’ll be well on your way to growing a business that builds wealth…without stealing every minute of your day.