FORBES 6 Hours Ago
by Paul B. Brown
Some 30 years ago, I began work on my first book:Sweat Equity which focused on America’s best small companies. I thought it would be fun to go back and revisit some of the lessons that my co-author Geoffrey N. Smith and I came up with, the ones that have stood the test of time. Here, in the next part of what will be an occasional series, is a discussion of something that has puzzled me for three decades.
A true story: When I was 16, I accompanied my Dad when he went to buy a car. The plan of attack was simple. There were three Plymouth dealers within 20 miles of our house, and father and son would visit each, shop for the best price, and turn over the down payment.
Two of the car salesmen were nondescript and didn’t appear to be overly interested in selling a car on that rainy Saturday afternoon. Each offered a price within $100 of the others. But the third man made a lasting impression.
It wasn’t his appearance. Dewey looked the same as all the others in his sportscoat and mismatched pants. What lingered was what he said.
It happened after the dickering ended over the price of the Plymouth (a gold Fury III with a black vinyl roof would be the car the I would borrow for high school dates).
“How can you sell this car for $150 less than everyone else?” Dewey was asked as he drew up the papers.
Well,” said Dewey seriously after pulling on his cigarette, “we lose money on every sale but make it up in volume.”
Funny but True
Getting a money-making idea is one thing. Making money from it is quite another. The salesman’s wry comment on losing money on every sale but making it up in volume is amusing, but all too true for many entrepreneurs.
After getting a good idea and finding a market, they suddenly discover they are losing money on each sale and continue to do so until they go out of business. The joke turns out to be on them.
The third phase in a small company’s life cycle- after the company gets up and running and a formal management structure is in place–is the part in which it should start making money. It is the time when an entrereneur discovers if he has the resourcefulness to turn an ethereal idea into a solid reality. Getting most ideas to the profit-making stage takes more work than you might expect. As we have seen, the hard part is not, coming up with a blockbuster idea-the concept doesn’t have to be terrific. Implementing an idea is where the entrepreneur often stumbles on the road to riches. Implementation requires attention to details that may seem obvious when viewed with hindsight but aren’t at the time.
That puzzled us for a long time. Why do many entrepreneurs have problems dealing with growth? About half of the companies that pass the financial screens to qualify as one of the best small companies in America one year will fail to repeat the next. Why?
It turns out that dealing with growth hurdles almost always requires the entrepreneur to think in ways that are the exact opposite of what initially made him a success. Why this is so becomes clear if you trace the route that all entrepreneurs take.
In the beginning, there is the idea. It comes from the entrepreneur. He thought of it and only he, at first, understands it. From there, the entrepreneur works to build a company. At first he makes all the decisions himself and does almost all the work–from product design to bookkeeping–alone. Most often, he doesn’t have any choice. There is simply no money to pay anyone else.
But that very-self reliance, which is vital to getting the company up and running, can keep it from growing later. That independence to the point of orneriness is fine when a company is small. One of the great advantages an emerging growth company enjoys is its lack of structure. There is no bureaucracy to keep it from quickly exploiting openings in the marketplace.
But the desire for complete control is a major problem. It limits growth.
Quite simply, an entrepreneur can’t do everything himself. and he shouldn’t. But that is a difficult lesson to learn.
Paul B. Brown is the co-author of Just Start: Take Action; Embrace Uncertainty and Create the Future published by Harvard Business Review Press.