by Ryan Blair
In his book Outliers, Malcolm Gladwell makes the point that it takes approximately ten thousand hours of training and practice to truly master a skill set at a professional level. Sometimes you’ve put your ten thousand hours in and you don’t even know it. Make sure you take into account any related experience in your area of interest, and remember, you don’t necessarily need to have a degree or extensive formal classroom training to succeed. If you need ten thousand hours of experience, then time is your greatest asset, so how are you investing it? Most employees work 40 hours a week, but in my opinion, they aren’t really applying all those hours to perfecting their business skills. Many of those hours are wasted talking around the coffeepot, on Facebook, or on other unproductive activities. If half of your yearly 2,083 hours was really applied toward building your business, at that rate it would take you about ten years to become a professional entrepreneur.
Take a look at your network, since this is also an asset. Take stock of the most powerful and well-connected people in your circle. Make a list of individuals you can reach out to, and keep those connections hot with the occasional note or follow-up e-mail. Don’t go overboard, but keep yourself in their mind. As you’ll see later in the chapter, these connections can be the most valuable assets in your arsenal.
When I add a person to my network, I always start thinking about potential partnerships or business ventures. If someone in your network already owns a business, then you might be able to create a product or service that complements and leverages that individual’s customer base.
Also, how are you being perceived by the people in your network? If they see you as an amazing writer because of your candid and funny e-mails, you could start a business as a freelance writer. The landscaping around your house might be so meticulous and beautiful that many of your friends would hire you to do the same for them.
Other untapped assets might lie in your affiliations with reputable people and organizations. For instance, when I started real estate investing, I leveraged my stepfather’s name and volume in real estate to my benefit when buying homes and making investments. Who in your family and group of friends has a reputation that you might be able to leverage in your new business?
Get creative. When it comes to leveraging the assets in your network, many times having access is better than owning. For instance, I have a friend who owns a private jet. Now the maintenance fees, fuel, and the cost of upkeep is astronomical for a private jet, but when I want to use his jet, he simply charges me what it costs him. I can put eight employees on a jet from Los Angeles to Las Vegas, and it costs me far less than it would if I travel via commercial airline and it saves me a lot of time.
Also, location is an asset. For instance, if you live in Silicon Valley, your access to high-tech companies is unparalleled in the world. Or inversely, if you’re creating an event planning service, the small community you live in might be better because families tend to gather more frequently.
You should also consider whether there are any niches to fill. If you can identify a definite need for the area your business is in—there is no fabric or craft supply store within thirty miles, for example—you can have a clearer sense of how to tailor your plan to fill that hole. Or maybe there’s already a business in place that fills that niche, but it’s currently up for sale.
The best example I can offer from my own life comes from one of my earliest business ventures. One of my sisters was married to a man who owned a small Internet service provider that served their community. It was 2001, and there was a mix of nervousness from the dot-com bubble’s recent implosion and optimism that the Internet was still a solid and reliable resource.
My brother-in-law got word of another small Internet company called SkyPipeline, which was coming up for sale. It was struggling, but because it was based in populous Santa Barbara, I could see right away that there was a definite opportunity for expansion, and the course of action I could take to turn it around.
It was a tiny company, started with only about $20,000 in capital, and it served fewer than ten customers. Of course, you have to start somewhere with building your client base, but they were making less than $1,000 per month and were burning far more trying to provide service.
I still owned 24/7 Tech, my technical support company, but I felt that this struggling little wireless company would be a great investment as a side business, and could even grow into my primary focus.
The point is, it may be that your best opportunity is to create an entirely new business, but entrepreneurship is not necessarily creating a business from the ground up. There may be small companies out there that are ripe for purchase, restructuring, and rebranding. Keep your eyes open.
Around the same time that I was looking at SkyPipeline, I was slated to make a presentation to a potential 24/7 Tech investor. King Lee was the ex-CEO of Quarterdeck, a large software company whose products we used daily. I knew he was a well-connected individual, and I persuaded him to meet with me so I could pitch my business idea. At the end of my presentation, he remarked frankly, “Ryan, this thing that you were telling me about with wireless service—that has legs. Everything else I’ve heard I’m not interested in. Let me know if you ever decide to do the wireless thing.”
That was the signal I needed to go forward with SkyPipeline. I knew that I would have one interested party once the new company was up and running. But how could I get to that point? I found out that raising capital was far more difficult than I had imagined. Time and again I was rejected by venture capitalists I spoke with because they didn’t think it was a scalable model, or they felt there were too many competitors in the market, or they just didn’t think it was a good business to invest in because it was already struggling. I believed in my vision for SkyPipeline, though, so I decided to pursue one other direction that had worked so far: I networked.
I knew of a successful angel investor in Santa Barbara named Pete Sutherland, who I thought might be interested in the potential of the company. I was able to book a meeting with Pete to present him with my idea for purchasing SkyPipeline, a plan that involved selling my share of 24/7 Tech. Pete was willing to help fund my business plan and to let me work with some accountants to get my finances in order, partly because I had demonstrated a willingness to reach out to other people for effective fund-raising, and partly because I was investing a huge portion of myself into the project. Pete’s assistance enabled me to go forward with the purchase and helped the business grow rapidly once I took over.
My investment in 24/7 Tech was small—not much more than about $30,000—and combined with my savings, I was able to scrape together $20,000 to make an offer on SkyPipeline. Of course I acted as if I had all the confidence and assets in the world, but writing out that check really hurt me because I knew I had a mortgage and a car payment, and it was really a leap of faith. I was going all in.
But where networking really made a difference for me was when Pete stepped in and was willing to mentor me, to talk me through the negotiating process. Even though I started out with no office, employees, or fancy logo, I had a solid plan and obvious confidence in myself and in the telecom business, and those assets convinced others it was a solid investment. Pete explained to me that this ability to network was one of the most crucial elements in success. Business veterans already know that fact, but as a new kid starting out, this was an important lesson for me. And it paid off. Pete agreed to invest $75,000 to help get SkyPipeline off the ground, and then he agreed to help me lead a round of financing with other investors. And it was all because he saw that I was willing to reach out and do the legwork to meet people, make connections, and gain interest.
I bought SkyPipeline in July 2001 and immediately started meeting with potential investors and clients to whom Pete had introduced me. With $75,000 in the bank—the first half of his investment money—I already had my eye on a bigger goal to expand the company right away.
And then September 11 happened.
That summer the Dow
had reached its all-time high. The NASDAQ had also been doing extremely well and was just starting to slow. But after the terrorist attacks, the market plummeted and investors lost fortunes. Here I was, one month into a business, and the market was the most volatile it had been in my lifetime. All my potential investors pulled out for more secure investments, nervous that telecom was too edgy.
I knew it was necessary to put Pete’s influence to work or risk total failure. I called him up and explained that if we couldn’t get any more backers—and soon—he’d lose the $75,000 he’d already put into the business. A smart man and a shrewd investor, he went to work with me, reaching out to various people and companies to give our sales pitch. By December of that same year, we’d closed $415,000 worth of financing, and the company had an exponentially larger clientele than when I’d started. Networking and influence can be very, very powerful tools.
I learned that lesson again as we moved forward into 2002, when I got a call from a man named Fred Warren, who had a ranch in the Santa Ynez Valley, not far from Michael Jackson’s Neverland estate. It was a rural area with thousands of acres of open land, but it was also a community with a lot of wealth. Fred wanted our service, and because my company was operating in the area, he gave me a call to see if SkyPipeline could handle the job.
Of course I was willing to take any contract I could, but I also realized that the cost of providing service just to Fred’s ranch was probably not going to be a wise move financially speaking.
I had no idea who this individual was, but he said he’d be willing to pay the $5,000 required to set up a tower facing his property, so I offered to meet with him to discuss the details and tell him more about our company—to see if it was an arrangement we could both benefit from. In the meantime, I Googled him and learned that he was the founder of Brentwood Associates—and one of the world’s most-successful venture capitalists.
We sat down at our meeting, and I pitched my business to him, explaining about the funding I did have and the potential investors I had lined up. Fred looked at me and said, “You need more than another $415,000. You need another million, and I’d like to participate with you.” Suddenly, I had a new business partner with more influence, clout, and capital than I could have ever imagined.
Now, obviously, an experience like the one I just described is atypical. But it doesn’t change the fact that a few well-situated investors can give your business a huge advantage—especially in its early stages. Also, don’t be afraid to ask one of the mentors with whom you have had personal contact whether he or she would be willing to be listed as a reference for you. Hand in hand with networking and mentorship, your references are assets. A solid set of references from well-respected individuals can create a sense of stability and legitimacy with prospective investors and clients.
Also, sometimes trash can be an asset. To use SkyPipeline as an example again, when Global Crossing was shutting down, it was going to cost them a significant amount of money to remove all their antennas from the coast of California. I was able to relieve them of that burden by putting their antenna towers to good use with my company SkyPipeline and, as a result, I was able to leverage $50,000,000 of their assets. One man’s trash is another man’s treasure.
I hope I’ve given you some good ideas so far. When taking stock of your own asset inventory, you’ll need to strike a balance between being realistic and allowing yourself to think big. As you make your lists, it will be helpful to create a kind of ranking system to rate how certain or secure an asset is. For example, if you have $15,000 in the bank but anticipate that you might be able to secure a $20,000 small-business loan, make a note of that. Both are assets, but one is certain and the other is a realistic—but as of yet, unattained—goal. The most important thing is that you are thorough, organized, and honest with yourself as you go through this self-audit.
Of course, if you have money in the bank, that’s the best asset to start with, but even now that I have money, I still prefer using other people’s money in building my businesses. As an entrepreneur, you’re constantly taking all the risk, but when you bring in investors, it spreads the risk and brings complementary talents, skills, and experience to the table. In chapter 16, “Raising Money,” I’ll teach you how to hold on to as many of your own assets as possible, by tapping other people’s assets, too.
11
RISK AND SACRIFICE
The prospect of starting your own business sounds exciting, promising, and liberating—you’re eager to get started. Now is the point where you’ve got to start considering the less glamorous side of entrepreneurship. You need to determine how averse you are to risk.
Some people thrive on the thrill ride of risk; some people collapse under the strain of it. Others neither relish it nor shrink from it, but simply accept it as a necessary part of their business plan. Which type of person are you?
The fact of the matter is entrepreneurship isn’t for everyone. It is necessary to have a firm grasp on your tolerance for risk before you can even hope to make a jump into this business. Your ability to manage living on the edge financially for at least a year is, in many ways, what will make or break your business.
How far are you willing to go and what are you willing to lose to own your own business? It’s not so much a question of strength, as it is a question of temperament. Is your personality one that can adequately deal with the various unpredictable and constantly changing unknowns that go along with business ownership?
In our last chapter we discussed the need to define your assets. Now, you’ve got to assess your tolerance for risk—and the tolerance of others around you.
Any commercial you see on TV or any claim you hear from someone making the pitch that “I made X dollars in my very first month working from home!” is likely a gross exaggeration, or the person’s testimony was derived from significant skill and relevant experience. Security is not going to be part of the game for quite some time. Are you ready and willing to deal with that?
You’ve got to be frank about who you really are and not just who you want to be, or how you want to be seen by others. It’s a good thing to show a lot of confidence and toughness when you’re meeting with potential investors, but when you’re considering whether this world is right for you, you can’t put on a show for yourself.
It’s really not about strong versus weak, or tough versus soft. This is about the way you look at the world and the way that your body and mind process stressful situations. If you know that you are not someone who performs well in high-pressure situations, you need to seriously question whether entrepreneurship is the right move for you.
First, you’ll need to consider what is at risk. Your personal finances will definitely be at risk because you’ll be investing a large amount of those into starting your business. Your home or car may be at risk if you use them as collateral for a bank loan. Your luxury items, such as a boat, might be at risk if you find you need to sell them to raise capital. Your lifestyle will certainly be at risk as you make sacrifices.
But there is more at risk than just your material possessions. Your sense of security will be at risk as you wait for deals to go through. Your peace of mind will be at risk as you’re stressed about establishing a clientele or securing enough investors to grow the company to keep up with the market. And, of course, if it all falls through, you risk the disappointment and heartache of a failed business.
It’s essential to remember, however, that risk taking is not the same as being reckless. You may be someone who tends to be fairly cautious in your decisions and conservative with your plans. That doesn’t mean you’re not equipped to handle the pressures of entrepreneurship. In fact, you might be ideally suited for it.
People often confuse high-risk tolerance with a willingness to fly off the handle with spur-of-the-moment choices that reflect little market research and no serious consideration for the current situation of the company. They are not the same thing at all. Reckless people rarely succeed in this field becau
se they don’t properly invest the time and energy required to make informed decisions, risky though the decisions might be.
If you are someone who craves risk for the sake of an adrenaline rush, go skydiving. If you’re someone who can put up with risk as the cost of doing business, then start a company.
Consider each of the following situations:1. You have enough to take care of three months’ worth of expenses in the bank, but no more. Sales have dried up and it looks as if you’ll barely be able to cover operating expenses this month. Can you handle it?
2. Your bank account has reached zero. You have some leads but no signed deals, and the end of the month is rapidly approaching. Can you handle it?
3. Your balance is overdrawn, the credit card companies are calling you demanding payment, your child has to have her tonsils out, the transmission just blew on your family’s only car, five customers are clamoring for service on their accounts, and your last investment pitch was just soundly rejected. Can you handle it?
At what point would you curl up into a ball on the floor? Which scenario would be the one where you would finally decide it was all too much for you? Where is the line where you just couldn’t find it within yourself to pick up the phone one more time and start working your way down a list of prospective clients?
There are degrees of discomfort, and everyone has a different breaking point. But if you want to be an entrepreneur, there is no choice. You always have to be willing to make that next call, go present that next pitch, and work to close that next deal. If you know that you’ve got it in you to go out and sell, even in the toughest of circumstances, then you’ve probably got the right personality, temperament, mind-set, and confidence to make it as a business owner. If not, you may want to reconsider your decision, or at least your approach.
