The Point

Characteristics of an Entrepreneur

I recently asked a few friends what they thought makes an entrepreneur. The precise question was: What are the characteristics of a successful entrepreneur? Now, please let me explain. The people I approached are all experienced business people. Some work in corporations in high powered positions and others have first hand experience in the world of entrepreneurship. The replies showed an interesting pattern. There was strong consensus about the top 5 characteristics. I call them “the five necessary characteristics”:

1. Passionate and energetic: An entrepreneur has to have a “positive outlook” in life even when others are down. He has to lead the way where others don’t see the path.
2. Perseverant: An entrepreneur is someone who relentlessly overcomes issues and is unstoppable.
3. Good with people: An entrepreneur has a great touch with people.
4. Able to plan: An entrepreneur is a strategic thinker who is able to look ahead, put plans together and systematically implements them.
5. Able to take risks: An entrepreneur is someone who is willing to put it all on the line for the sake of the great rewards that are out there.

Now, I do believe that these characteristics are important. They are a necessary condition for success, but they represent characteristics that are required for many other challenging roles in life. For example, let’s take the role of a parent:

1. Energetic: As a parent, you have to show enthusiasm. “Yes, it’s great to that you got a B in math (before he had C’s). Now, we need to work on the next step.” Or, “I know it’s 9.00 PM. Let’s get the homework done so that you are prepared for tomorrow.”

2. Perseverant: As a parent you are in for the longest run of your life. Just to get over the first 2 years is a test of your endurance. The never ending feed-dress-clean-sleep-cycles. As an entrepreneur you would expect to make some money after the first two years, you plan your growth and potentially you think about your exit strategy. As a parent you are not thinking about anything else except getting out of the terrible twos. Hopefully they start to walk and talk soon. Hopefully they will get potty trained. You are in for another 16-18 years until they are out of the house (you are not even sure that you really want that) AND there is no exit strategy.

3. Good with people: As a parent you have to be good with your kids. No question. This is a must, but it is not difficult to do. If anything, most of us have to learn how to be from time to time a bit firmer, so that our little ones are not too spoiled, before life gets to them.

4. Able to plan: As responsible parents we have the obligation to plan for ourselves as well as for our kids on their behalf. We have to plan/think about what schools they are going to study, how to secure their education e.g. by sponsoring a 529 plan, or on a more fundamental level, what values we teach them.

5. Able to take risks: As parents, we already took a risk by simply becoming one. But among many other things we need to learn how to let go by taking calculated risks along the way. The first time your little one rides his bike without you running next to him. The first time your girl goes out alone with her friends. The first time they go on a trip to Italy without you.

So, while these characteristics are important for a lot of situations in life, they are not necessarily describing what makes a successful entrepreneur. I think there are some critical characteristics and behaviors that determine success or failure. I call them the five sufficient characteristics:

1. Know your market

Knowing your market doesn’t necessarily mean that you have read every research report that is out there and that you have talked to any analyst who covers your space. Knowing your market means that you understand your customer on a very fundamental level. What is their burning platform? If you can sell to that, you will get a deal. If you are not able to very specifically articulate their need, you don’t have a business. It’s as simple as that. If you have many customers with the same needs, you have a bigger market. In order to make money you can raise your prices, sell more into an existing customer or get new customers. Your ability to implement any of these strategies depends your ability to articulate the need of your customer at a given time. Selling is widely associated with talking. I believe it is more connected to listening.

2. Get your widget right

Your widget, a product, service and/or business process, doesn’t have to be the best, the first, the cheapest, or the flashiest. All that matters is that your widget is good enough and solves the pain that your customer (minimally perceives) to have. It’s almost never only about its features or about its quality. It is the perceived value of the widget in relation to the perceived need it fulfills. An entrepreneur is able to make a connection between the widget and the need on a level that is most relevant for the customer.

3. Find better people than yourself

Surround yourself with smart people who are better than you. Starting a business means learning faster then your competition. You need all the horse power you can get in the process. There are certain areas where you need to bring expertise from the outside. The founders of Google, Sergey Brin and Larry Page did that. They brought Dr. Eric Schmidt on board, an experienced executive from Sun Microsystems, who took over the Chairman and CEO role.

4. Be good with cash

Getting a business off the ground costs money. There are investments in people, infrastructure and travel costs among many other things. Sales cycles might take longer than expected. It takes longer to build the widget. Customers might pay later then you thought. In other words: You need money to start a business. You most likely need more than you think and then some more. Having a realistic picture regarding your funding requirements and then getting a grip on your costs is key. Take the advice of Michael Gilbert, who started a number of businesses in his career: “Don’t spend your cash flow on frivolous purchases such as fancy desks, cars, big fancy websites or brochures. And don’t let anyone talk you into this either. If is doesn’t add to the bottom line…don’t do it. If you need it for your business to generate income by all means do it. However, I have yet to encounter a business where a fancy desk or $25,000 on marketing has even paid off.” Past that point, I like businesses that are able to finance their growth on their own. There is nothing better than validating your business model through continued success in the market place.

5. Have an exit strategy

Businesses underly life cycles as their products. As an entrepreneur, it is better to think ahead about the end game. Who is likely to buy your business: Competitors or companies that like to enhance their solution portfolio complementary to yours. Maybe even an IPO is in the cards. Successful entrepreneurs have planned the end game and build their businesses accordingly.