I was browsing through my backlog of reading material today and stumbled upon something Karen Aho wrote for Bloomberg Businessweek earlier this month: Do Two-Thirds of Shark Tank Deals Fall Apart? If only two-thirds of those deals don’t work out, it’s still better than the statistic for small business owners building their business with other, un-televised, equity investment. I’ve heard the number of successful companies working with venture capitalists (those that actually meet projections) is as low as two percent. Of course the two-thirds Aho is talking about don’t even get off the ground, but nevertheless working with angels and other venture capitalists isn’t always the bed of roses a lot of young entrepreneurs might think.
What’s more, an idea that doesn’t pan out on the Shark Tank or isn’t interesting to a venture capitalist is not always a bad idea.
There are literally millions of small businesses that would never catch the attention of a VC firm or other equity investor. In fact, I’m convinced the Silicon Valley model: Start a tech company, ramp up sales for five years, and sell it off for gazillions of dollars, might not be the best way to look at running a business. I know it dates me, but when I started my career a little over 30 years ago, most of the business owners I knew felt like starting a business was a long-term commitment and made that business their life’s work.
Not too long ago, I interviewed Mike Glauser, Professor of Entrepreneurship at the Jon M. Huntsman School of Business at Utah State University and Co-Founder of My New Enterprise about some of the things he and his team have learned as they spent the summer riding bicycles across the United States and spent time interviewing entrepreneurs in small-town America. They’ve been doing interviews like this for years, but the bike ride across the U.S. will end up being a great hook for an upcoming book, training videos, and other educational materials My New Enterprise will make available to their customers and am sure Professor Glauser will use in the classroom.
Of course some of the entrepreneurs were more successful than others, but all of them had successful businesses in 100 different little small towns along the ride and most (if not all) of them would never even get a second look for an equity investor. They’ve either bootstrapped or borrowed the money they needed to grow and thrive. In fact, Glauser suggests, “It doesn’t need to be a model that scales quickly to enable a quick and profitable exit to be successful. $2 million in annual revenues and eight to ten employees is a very viable business that can thrive long term.”
Three of the things that many of these businesses shared in common are summed up by three traits:
- They wanted to stay in their hometown and help the community grow: He and his team were surprised that none of the people he interviewed said money was their prime motivator—although many of them had very successful businesses. They did business in their hometown because that’s where they wanted to live. They simply figured out a way to create profitable businesses in places some might consider off the beaten path.
- They aren’t interested in an exit, they’re interested in solving a market need: I’ve observed that there’s a difference in how a founder runs a business he or she intends to exit in a few years and someone who is building a business they intend to make their life’s work. A business owner in it for the long haul understand that he or she will have to live with decisions they make today for years down the road. They’re less inclined to make knee-jerk reactions to boost profits now if those decisions portend a negative consequence down the road. Their focus is on creating products or services their customers will want to buy and find other related products their customers might be interested in.
- They love getting their hands dirty doing the real work of the business: My first experiences in business were in such a business. This describes my Dad and how he approached his small business. He understood how important it was to “run” the business, but what he really loved was working with customers, pulling orders, and finding solutions to his customers problems.
Although this type of approach might not get you on the Shark Tank, it does create highly successful businesses that generate very good incomes for their founders. Glauser says, “100 years ago there weren’t any big corporations. Small business owners saw a market need and went to work delivering a solution. I think we’re going back to that. Fortunately, technology makes it possible to work almost anywhere to do it. We need to teach out up-and-coming entrepreneurs to build communities—figure out what they need and be the best at doing it.”