Burgeoning entrepreneurial spirit

Ask any entrepreneur what their key challenge is likely to be and the answer will invariably be funding.

Whilst funding is obviously vital in turning a concept into a reality it is not in fact the single most important facet, and understanding this will go a long way towards enabling young entrepreneurs to better prepare for their ‘journey’.

First a few facts about young entrepreneurs. According to The Young Report, ‘Make Business Your Business” (May 2012) the success rate for new business ventures is much higher for those who start in their 50’s. The success rate is 48 per cent within this age group. For those up to age 49 it is 29 per cent.

This makes sense given that young people generally have little to no corporate experience. Their enthusiasm is often hampered by their lack of expertise.

Whilst entrepreneurship, particularly in the UK, has become one of the most dynamic trends to emerge in the business sector – some 450 000 new businesses were registered in 2011/2012 – a successful entrepreneur is by no means defined by the amount of funding he or she can raise.

In fact before funding is even discussed it is imperative to de-risk the young entrepreneur for an investor. This ensures both parties benefit from the relationship, and involves defining the four stages which mark out the entrepreneur’s journey.

Each stage requires a set of behaviours which, if not present will need to be augmented by others who have these skills.

Needless to say this raises an absolute requirement for deep-level capability in teamwork, co-operation and team leadership.

The first stage of the entrepreneurial process is marked by scanning the environment and identifying opportunities. Underpinning this is what we identify as a “contrarian spirit”.

It enables a person to see opportunity where others don’t. Being able to connect dots in a novel way when others don’t even see the dots is without doubt a pre-requisite.

There is innovative thinking here. But it is just the starting point. The journey to successful execution and conversion of the insight/dream/idea calls for much more.

All the investors I speak with underline that it is the character and competence of the people that decide the “go” or “no-go” decision.

Having the self-confidence to defy conventional wisdom is another key requirement.

As marketing guru, Seth Godin, wryly notes ‘all good ideas are terrible until people realise they are obvious.

If you’re not willing to live through the terrible stage, you’ll never get to the obvious part’. Self-confidence and persistence are without doubt traits which will likely ensure that an idea is turned into a commercial reality, but what if the idea is truly a bad one after all?

Just because someone feels they have hit on a great idea or business concept does not automatically mean this idea will float.

Even persistence may look like banging your head against a brick wall if the concept is doomed to sink So this brings us to the next point, flexibility. This is “to let go and let others”.

The ability to re-work the idea, to develop an ecosystem that will support it, to build partnerships with others who can add value to the idea and look at it in other, potentially more viable ways, is essential.

One of the most compelling insights that emerge from The Apprentice is the debilitating impact on a team’s ability to execute when rampant ego’s push for their preferences in socially destructive ways.

There is, by contrast, a socially integrated way to manage one’s ego. We know that people with what is now called “emotional intelligence’ are better guarantors of preserving and enhancing. A wise investor looks for this in the de-risking process.

Finally we come to expertise, something we touched on earlier and the reason why the statistics are against young entrepreneurs in the first place – commercial awareness is key – this possibly overrides the importance of funding.

The ability to understand the formal accounting documentation such as P&L statements, Balance Sheet and related financial measures cannot be understated.

However, if there are perhaps two dimensions that stand out: the ability to make decisions following a cost/benefit analysis and, possibly the most important, of all, “cash flow”.

When we train young entrepreneurs we deliberately put them through a non-computerised business simulation that simulates 9 years (which mean 9 P&L’s, 9 Balance Sheets and 9 opportunities to see the impact of their decisions in terms of money flow).

What emerges is a rapid development of a mental model as to how money resources an idea and then flows through a business system.

An investor who has a person trained in this basic mindset has massively improved the odds of a good working relationship.

This de-risking process enables us to draw a clearer picture of the type of entrepreneur most likely to turn their dream into a commercial reality.

With this clearer entrepreneurial profile comes the clarity around what needs to be developed/trained and what additional skills need to be brought into the venture to ensure its success. It also means that finding funding from this foothold is safer for both parties.

Whilst the current mindset still points to the main motivator for entrepreneurs as making big money – what we coin as the ‘iconic’ “Apprentice-style” entrepreneur – we detect an emerging different spirit.

“The Apprentice role model is beginning to look rather, narrow, tired and conventional, especially when you consider that our current economic plight is due to repetitive, damaging attitudes around “profit”.

This is where transformative thinking and behaviour is worth aiming for when we nurture, source and invest in future commercial entrepreneurs.

The change in attitude embraces the emerging collaborative economy whereby those with the expertise collaborate with those who have the funds and join forces to offer would-be entrepreneurs an opportunity to expand their own opportunities out of a different operating paradigm – which we understand as “radical generosity”.

This makes little sense in the conventional world and we continue to explore and learn how it functions. It might seem counter-intuitive and financially naive to many.

In the end it is a function of “trust” – a state of relational integrity that has been recognised as deeply needed in all facets of UK social, political and economic life if we are to thrive as a society.

Trust is at the core of how we operate and we are seeing a different return on our time and financial investment as the young entrepreneurs progress.

Simon Middleton has 30 years’ international “people agenda” experience in the blue chip multi-nationals of Hewlett-Packard, Philip Morris, PwC – and latterly the Lufthansa Services Group, where he was Head of HR. He now devotes his energy and expertise on Watershed a unique organisation with a counter intuitive approach to wealth creation.