Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma — which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition — Steve Jobs
There has been a lot of clamor from several CEO’s around what the role of business can be in serving society. Most recently, Larry Fink (CEO of Blackrock) wrote an open letter to S&P 500 CEO’s urging them to reconsider the role their business plays in today’s society. It follows then that entrepreneurs will be held to a higher standard while conducting business. There is nothing more gratifying than sharing your knowledge and experiences with young change makers as they embark on a mission to be the stewards of society.
Last year, I participated in the first ever livestream coaching event on the Ye! Community website called ‘Ask a Coach Hour’. The livestream turned out to be a healthy discussion on a wide variety of challenges faced by young entrepreneurs. Below are some of the key takeaways from the discussion. I hope the questions and responses can assist young entrepreneurs around the world to startup and grow their enterprises.
Business should solve problems
Although businesses are for profit institutions, the reality is that they help solve a problem society is facing. In doing so, they add value. For an entrepreneur, the best business is one which combines his or her passion with the needs of society. A business becomes profitable when it is offering a solution or service for which the societal problem is so great that individuals are willing to pay money to solve it. Although many businesses do not break even until year three, this should not deter you from starting up. If the service you are providing adds value in a way that is better than any competitor, the profits will come.
Risk is defined as a situation involving exposure to danger. The frequency of conducting risk assessment varies depending on the size and complexity of the business. Also, risk has various components e.g. political risk, market risk, credit risk etc. The best approach is to layout the risks your business is facing or will face, into clearly identified categories. Most large companies use an “Enterprise Risk Management” (ERM) framework. Here is a link to that framework.
The Importance of Diversification
In order to make a business “weather proof”, it is important to diversify the sources of revenue. An entrepreneur needs to have multiple income streams to combat slowdown in one revenue source. This will help weather proof the business. For example, an entrepreneur could provide maintenance services after selling a product. That way, when faced with a slowdown in product sales, ongoing maintenance on products already sold, can help diversify the business. However, entrepreneurs should be careful when diversifying and should not set up multiple revenue streams around services or products which do not support the enterprise’s core competency. A good resource to think about diversification is the portfolio planning model developed by Bruce Henderson of the Boston Consulting Group.
Continuing The Conversation
While this article is only a part of a three part mini-series where I share useful tips for entrepreneurs as they create and scale their ventures, the takeaways are equally applicable to all businesses. The role of business never changed. It was and always will be about serving the client. Clients and employees of a business collectively form a society. We lose focus when we prioritize personal gain over the good of that society. A sustainable business always places the interest of society over its own. Let me give you a good example. At this point, it is worthwhile mentioning the Long Term Stock Exchange (LTSE) which is the brainchild of Eric Ries, author of The Lean Startup. Eric wants to remove the apparent conflict that CEO’s of businesses face between short term profitability and long term sustainability of a business by allowing executives to take decisions which may be painful in the short run but will ultimately benefit the company in the long run.
Our mission is to enable bold, visionary companies that are built in an ethical, sustainable way, to thrive — Eric Ries on the mission of the LTSE
As per the LTSE website, The McKinsey Global Institute found that companies that operate with a long-term mindset have in the aggregate outperformed their industry peers across almost every financial measure that matters since 2001. Every entrepreneur must think about how important a long term mindset is. Perhaps, this may seem a very abstract and philosophical statement. At its core, it is just simple common sense. The role of an entrepreneur is to put a smile on people’s faces.
By writing this mini-series, I am trying to help entrepreneurs do just that.