CHAPTER 5
What’s Really Required
The Three Requirements
Managing is the easy part. What’s hard is inventing the world’s next great product.
STEVE JOBS, Founder, Apple Computer, NeXT Inc., Pixar
Whether you’re a high school student dreaming about owning your own company, or a freshly minted MBA looking for your first billion, or someone with a burning desire to fix the world, welcome to the new and improved world of entrepreneurial opportunity.
If acquiring the entrepreneurial attitude is the way to go, what does it take to actually get started? Steve Jobs’ quote above is a good warning that conventional wisdom, as usual, has it wrong. As this book emphasizes over and over, the single most important thing that’s going to be required is to know how to make something, or deliver something, the world needs. After that it’s all pretty straightforward, common sense. You are now well armed with the “four fundamental practices” of successful entrepreneurs, and a ton of great tips from successful JA alumni. There are just three more things you have to make sure are in place. Here they are:
A BIT OF MONEY
I started Dell with $1,000 … instead of studying for finals my freshman year at the University of Texas.
MICHAEL DELL, Founder, Dell Computer
There’s something about money that brings out the worst anxieties in people. Many would-be entrepreneurs suffer a particularly bad case of this. Some never get beyond the first step because they can’t imagine themselves raising the money necessary to start their own business. Making it even more scary, the hype about IPOs and young Silicon Valley billionaires has blown the public perception of start-up financial requirements out of all proportion. A dose of reality may help.
Our research shows the average cost of starting a business in the United States today is about $15,000. It’s probably a bit more in a few higher cost economies and significantly less in all lower cost economies around the world. All in all, it’s a pretty good deal when you consider the relative economic or social cost of some other ways people could spend time—or money.
 Average business start-up |
$15,000 |
| A year on welfare |
$30,000 |
| A year at Harvard |
$50,000 |
| A year in prison |
$75,000 |
What just jumps off the page from this chart is that funding new entrepreneurial businesses is a bargain. Certainly, politicians and governments everywhere have learned that supporting new entrepreneurs is just about the best economic investment they can make. For example, the government can fund two companies for the cost of keeping a family on welfare one year; it can fund three companies for the cost of a one-year scholarship at a top university; and it can fund an amazing five start-up companies for the cost of keeping one criminal in prison for one year! See more below on government funding opportunities.
Crazy comparisons aside, the point shouldn’t be missed. On average, the cost of starting up your own business is modest. And of course the smart way to go is, don’t quit your “day job” before you’re ready. Even if you agree it’s not a lot of money on average, you will likely have to come up with some start-up money. Where are you going to lay your hands on $15,000? According to a survey conducted by Inc. magazine, the multiple sources of start-up financing used by entrepreneurs breaks out as follows:1
| Personal savings |
73% |
| Credit cards |
27% |
| Loans from friends and relatives |
14% |
| All other cash sources |
14% |
| Loans against personal property |
7% |
| Bank loans2 |
5% (some government secured) |
| Equity investments |
2% |
| Internet crowdfunding3 |
1% (growing rapidly) |
Finally—while only 2 percent of entrepreneurs get their start-up money in the form of “equity investments,” angel investors and the VC community can be helpful to you at various stages of your company’s development: seed money, start-up, mezzanine, or scaling up financing, and most certainly “bridge” money to ensure a successful IPO if you decide to go that route in the future. Perhaps the only thing you need to know at this stage are the key questions any VC firm will ask you when you seek its money. The great John Doerr, the “King of Silicon Valley” and the funder of many famous companies, says the four questions he always asks are these:
What’s the People Risk? Will the founders stay or move on?
What’s the Technical Risk? Can the product be made—and scaled up?
What’s the Market Risk? Will the “dogs eat the dog food”?
What’s the Financial Risk? Can capital be raised again if needed?
The bottom line is, entrepreneurial seed money just isn’t that much of an obstacle for start-ups in today’s world. There are in fact, thousands of famous, bootstrapping companies started for less than $2,500, including many profiled in this book such as Sony, DHL, Virgin, Microsoft, Apple, Chiron, and DryWash. While these great companies didn’t need a lot of money to get started, they all did have the one asset that is absolutely essential—the knowledge to create a product or service that customers needed and were willing to pay for. This brings us to the second requirement.
A BIT OF KNOWLEDGE
General graduates of the university are twice as likely to start their own businesses as the MBA graduates of Wharton.
IAN MACMILLAN, Professor of Innovation and Entrepreneurship, The Wharton School, University of Pennsylvania
The number one reason for new business failure is not a lack of money. It’s more basic than that. It is, simply, you haven’t come up with a product or service that anyone wants to buy. So you need to learn how to make a product or provide a service that the world needs and will pay for. And where are you going to learn that?
One place you won’t learn it is at the leading business schools of the world. Ian MacMillan, the iconoclastic South African innovator, who heads Wharton’s highly regarded Entrepreneurial Research Center, developed the first entrepreneurship studies program at a blue-chip business school. And why did Wharton approve his pet project? Because MacMillan’s research revealed huge shortcomings in the MBA program, powerfully summarized by his mind-bending statistic quoted above. His well-documented argument was clear: Graduates from the “nonbusiness” departments of the university—the sciences, engineering, health services, and even liberal arts—were two times more likely to become entrepreneurs and start a business than the MBA graduates from the business school. Eureka! Steve Jobs was right when he said, “Managing is the easy part. What’s hard is inventing the world’s next great product.”
So, if learning management theories won’t help, then what kind of education would be helpful? The bedrock essential of entrepreneurship (and all enterprise for that matter) is being able to come up with a great product or service. As Jobs said, this is the really tough part of business. Managing is kid stuff compared to being able to create a better mousetrap. The simple truth is you have to become very knowledgeable about something—very good at designing and making some product or service that answers a real need in the marketplace. It could be simple or complicated, high or low tech, but you must become expert at it. And where can you learn this? While not essential for every entrepreneurial possibility, university schools of engineering, computer science, biotechnology, and even the arts can be terrific places to get started. Certainly technical institutes and vocational trade schools are also great places to learn how to make something—and in fact are real hotbeds for creating new entrepreneurs. And of course, regardless of your formal education, there is always on-the-job-training in existing companies—which just happens to be the number one source of product/service knowledge for today’s largest category of new entrepreneurs—those millions of corporate refugees who have been downsized out of their livelihoods and turned to entrepreneurship to feed their families.
The important lesson in all the examples that fill these pages—from self-educated Soichiro Honda, to high-school dropout Ray Kroc (McDonalds), to university no-shows and dropouts like Richard Branson and Bill Gates, to Yale Drama School grad Jodie Foster (actress, director, and producer) and PhDs in biochemistry like Ed Penhoet—isn’t where and how they acquired their knowledge. The one mighty thing they do have in common when it comes to knowledge is that they all managed to become very good at something. They understood that what’s required to create great companies is not becoming great at managing, but becoming great at making products or delivering services that a lot of people in the world need and will pay good money for. And that, indeed, takes a bit of knowledge.
AN ENTREPRENEUR-FRIENDLY CULTURE
I decided to run the big company the same way I ran the small company.
FRASER MORRISON, CEO, Morrison Construction
Beyond acquiring the necessary bit of money and bit of knowledge, entrepreneurs still have to play with the hand they’re dealt in terms of the environment in which they operate. Or do they? Of course you can’t, by yourself, change the macroeconomics of the day or control the political/social fabric of your country. For example, North Korea or Somalia might not be the best location right now to start up your business. But you can do a lot about the immediate environment you choose to work in and the culture you design for your own company.
For starters, your family and friends can be strong, supportive allies in your venture. Co-opt their support any way you can. There are other, obvious people to cultivate and activities to engage in: entrepreneur networks, seminars on starting up businesses, funding sources, legal advisors, and actual entrepreneurs as mentors. Beyond all these possibilities, the single most important resources of all may be those individuals and organizations who can help make you more of a customer/product expert in your chosen field—the next Steve Jobs, or Richard Branson, or Jack Ma of your industry. Take every seminar available, attend every conference and trade show scheduled, and join every professional association you can find, linked to the customer/product field of your choice.
Actually the more difficult challenge may be to maintain an entrepreneur-friendly culture in your enterprise after it’s launched and begins to grow. Remember the dreaded life cycle of all organizations? Your start-up enterprise will not be immune. Learning how to avoid the perils of the life cycle can mean the difference between entrepreneurial success and failure. Here’s a real-live case of how to do that.
It’s the story of Fraser Morrison in Edinburgh, Scotland. It’s an amazing tale of regaining his family’s construction business 15 years after they had sold it to a giant construction conglomerate in London—which mismanaged the once-thriving $3 million family enterprise into a money-losing, $300 million bureaucracy. In his own words: “We ended up buying back Morrison Construction. I had finally reached my long-held ambition to restore family control. But we also had to buy the money-losing parent company along with it. So I had a business with overall sales of about US$300 million but losing very big and hemorrhaging cash. But we owned 100 percent, and I thought I knew how to turn it around. Thankfully my hunch was right. In our first year we increased sales and actually made a small profit. The next year, we pushed sales up again and made a respectable $11 million profit—and have never looked back.”
And how exactly did Fraser Morrison change years of losses into profits in just 12 months? He started running the big business the same way his family had always run the small business—in a very entrepreneur-friendly culture. He changed five key factors, which I’ve transcribed into general principles that anyone can apply to maintain an entrepreneur-friendly culture in their enterprise. Here they are, in Morrison’s own words:
Keep It Small. “We split up into relatively small units—between just £5 to £20 million turnover. It’s worked very well for us. As we grow, we want to continually feel like a small company.”
Keep It Personal. “To the owners in London we weren’t important. Our people now have a strong personal stake in the business. They have a more entrepreneurial attitude about the business.”
Keep It Honest. “We gave 18 percent of the business to the key managers. We try to run the business in everyone’s best, long-term interests. Business needs this honesty and transparency at the top.”
Keep It Simple. “The single most important thing that I’ve learned—and I haven’t found a situation yet where it isn’t true—if you forget about the nuts and bolts of the business, you’re lost.”
Start over with the Basics. “When we got it back, we refocused the attention of people back to the basics at the site, which in the construction business is the only place you make money.”
At the end of the day, what do you actually have to do to pursue your entrepreneurial dream? To be sure, you need to learn and apply the practices of the world’s great entrepreneurs as covered earlier: Sense of Mission, Customer/Product Vision, High-Speed Innovation, and Self-Inspired Behavior. And then, as this chapter illustrates, you’ll need to acquire A Bit of Money and A Bit of Knowledge and create the most Entrepreneur-Friendly Culture you can.
Kim Kaupe
Cofounder, ZinePak, JA Alumna, Florida, USA
My JA Experience:
“I was first introduced to JA in high school in Florida. What really sparked me about JA was that you learn a lot in high school about math and algebra, but you don’t learn a lot about practical, everyday things like costs and taxes and stuff like that. I remember those JA workbooks—it was the first time I actually saw math as something useful and applicable in the real world. And for the first time I heard about revenue, costs, profits, and things like that. You know, in high school you’re in your teen years, and you’re usually talking about the latest movie and if you’re going to get asked to the prom. So I went into the JA program and we actually started a company, and it was all very beneficial and very practical learning for me.”
My Career / Business:
“Everything happens for a reason. The girl sitting next to me at the New York ad agency where I had just started working was Brittany Hodak, my future cofounder at ZinePak! One day I was complaining to her, ‘This place is awful, I have to leave,’ and she said, ‘I agree, I don’t like this place either. In fact, I have this idea to package published content with music, and I think you would be a perfect cofounder.’ She had never started a company and I had never started a company, but Brittany had worked at a record label for five years and I had been working in publishing, so we said, ‘Well, what the heck, let’s give it a go!’ I was 25 and she was 27. We knew we had a good idea, we knew what the product would be, and all we needed was a client.
“Brittany and I spent a month doing risk assessment, and what we figured out was encouraging. We believed we could actually be making money from day one. We also realized we didn’t need a glamorous office, or employees right away, or all the bells and whistles—just the two of us on our couch in our sweatpants. We needed a phone, a computer, and our brains. Those were the only three things we needed.
“The timing was right and we had the right idea, so we started up. Luckily for us, both the record labels and Walmart loved our concept. We did deluxe albums for everybody from Kiss, The Beach Boys, and Johnny Cash to Katy Perry, Taylor Swift, and Justin Bieber—young and old, pop and rock. We sold exclusive packages into Walmart in all 3,000-plus Walmart stores from the beginning. Walmart is every merchandiser’s dream, and they were big supporters of ours from the very first day.
“After our start-up, we were actually invited to go on the hit show Shark Tank. We later discovered it was very unusual to be invited on the show. When we appeared on Shark Tank, we received full offers of $725,000 from four of the five Sharks, and then turned them all down. We had sales of $1 million our first year, $3 million by the fourth year, all with no outside money—so we ultimately decided we really didn’t need or want investment money from the famous Sharks after all!
“Today we are doing a lot more of what we call Super Fan packages, in other areas beyond music. For example, we do New York Mets super fans, Comic-Con super fans, Starbucks super fans, in addition to the music artists. We’re working with different sports teams, with different brands, and still working with our music artists. So we’ve evolved the business and expanded our markets immensely—and we’re particularly excited about the sports market today.”
My Advice to Young People:
“First, for those who always say: ‘It’s not the right time.’ Well, it’s never going to be the right time. There’s always going to be a reason to delay. You just have to take a deep breath and jump, and hopefully your wings will catch you on the way down.
“Next, entrepreneurs get a bad rap for being frivolous and taking risks, but they are actually very calculating. I tell people it’s like a chess game—you look three steps ahead to see where the pieces will end up so that you can mitigate the risk the best you can.
“Third, whether you’re an entrepreneur or an intrapreneur inside a company, it always smart to ask for help. I think women especially often have a superwoman complex—saying I don’t need help. You’d be shocked at how many people want to see you succeed and are willing to lend a helping hand—so don’t be afraid to ask for help.
“Finally, I encourage young women to go for the entrepreneurial life as we’ve done with ZinePak. But it’s hard for the girls seeing images of Mark Zuckerberg and Elon Musk everywhere. They say that’s not me. He doesn’t look like me. That’s another reason why Brittany and I wanted to go on Shark Tank. We could say, here we are! And a million young girls might tune in and say, ‘I could do that too!’”
Jimmy Zhou
Founder, Private Equity Fund, JA Alumnus, China
My JA Experience:
“I first joined the JA program in 2003. At that time JA was only in the universities in China—it was not in the high schools yet. I was a sophomore at the university in Shanghai. JA was a very good platform for the students. A platform to know the real business world, to learn more about companies, and to create a strong network. So I got a lot from JA—not only the network, there were also a lot of practical things we did in the activities. And the most important part of the experience was those professional guys who mentored us. So JA was very important for me.”
My Career / Business:
“I’m in finance now. I left the university after graduation and joined a Chinese investment bank. I learned a lot from the professionals I met in JA who were working in this area. Then I founded this private equity fund. My founding team and I are helping the young entrepreneurs of China build their businesses in China and around the world.
“We like to work with young Chinese entrepreneurs, not with rich people or big companies. That’s because I think the young entrepreneurial people are the future rich people, so we think it’s very important to work with them now because they are really the future. This is another thing related to JA. Working with and for younger people is so important. And helping them become successful is the future. That’s another thing I got from JA.
“I should mention that both my parents are engineers. Even though my university major was also engineering, I went into finance, which is quite different. But my dad and mom taught me that the way to change the world is with ‘our own hands.’ So, even though I run a financial business I want to help young people become entrepreneurs, and help change the world in my own way.”
My Advice to Young People:
“First, I think you have to do everything with an attitude of happiness. By that I mean you must have the passion and the motivation. You have to be happy, right? You don’t want to be sad. If you’re sad, you don’t want to get up early, you don’t want to go to work, you don’t want to do anything.
“Second, I think you have to focus on the ‘what’ of your business. Put all your efforts and do the very best you can on what you are doing. Even if you have a failure, you have to keep working, and stay focused, and you will ultimately make it happen.”
Samer Sfeir
Cofounder, shareQ / M Social Catering, JA Alumnus, Lebanon
My JA Experience:
“My friend and I had worked on a social enterprise idea since 2009 that very few people seemed to care about. I then joined the JA Company Program in 2012 as it opened the door for us, with our idea, to participate in a regional program. During that year, we won the Best Women Empowerment Project among five Arab countries. Today, that project has become M Social Catering, where I now work full-time as a social entrepreneur. Our previous name was MommyMade. JA was one of the first organizations that actually believed in us as youth—and that we could have some impact. JA continued to support us for years beyond the competition.”
My Career / Business:
“I am an active social entrepreneur, and cofounder of both shareQ and M Social Catering. ShareQ is the umbrella organization for M Social Catering, a social enterprise that provides high-quality catering services and food for corporate events. Our corporate catering customers are renowned international and local companies, NGOs, banks, and universities. All of the profits go to support our job placement and integration program that trains and employs women and youth with physical, social, and financial challenges.
“Regarding our social impact level, up through 2017, some 150 women and youth with such challenges have been trained. Approximately 80 of them have already integrated into jobs. In addition, we recently launched the Healthy Food for NGOs Program, which has prepared and distributed 50,000 healthy meals to 2,000 children with social and financial challenges all across Lebanon.
“In addition to being a social entrepreneur, I am currently teaching entrepreneurship at Notre Dame University and giving training and workshops on entrepreneurship for several local and international organizations. I’ve chosen to be in social entrepreneurship because it’s a great combination of creating a successful enterprise while making a sustainable social impact on people’s lives.”
My Advice to Young People:
“My one big piece of advice is: You are going to spend most of your waking life at work, so try to seek out your life’s vocation and passion using these steps which have worked for me and have become my life’s slogan: Pray, Dream, Plan, Go for It … Success!”
Stephen Arinitwe
Founder and CEO, Aristeph Entrepreneurs Centre, JA Alumni, Uganda
My JA Experience:
“I’m the founding member and CEO of Aristeph Entrepreneurs Centre. ASTEC is a social enterprise which I started in 2008, while I was in the JA Company Program at the Kololo Senior Secondary School. It was legally registered in 2011. The entrepreneurial spirit I gained in JA led me to become a young CEO at the age of 17. It has also helped me win a number of awards that include the Annual Young Achiever’s Award in 2009 and 2011, and in 2013 I received international recognition at the One Young World convention in South Africa; 1,250 delegates from 190 countries attended that event, and both Sir Richard Branson and Winnie Mandela addressed the delegation. I was the proud flag bearer for Uganda.
“I joined JA Uganda because I wanted to become a CEO at an early age, and I made it! Today I am also a proud alumni member of JA. I must thank JA Uganda for who I am today in the business world.”
My Career / Business:
“Currently I am a practicing business journalist by professional training. I originally established Aristeph Entrepreneurs Centre because I wanted to help other young people in Uganda develop their future as JA helped me. I came from a humble family with not enough money, but I am now proud to say that JA made me rich. Today I can provide for all my needs while helping my fellow youth find a job and earn a living. At ASTEC we help them get hands-on, income-generating skills. My team and I train young men and women to make a variety of products from local materials ranging from eco-friendly paper bags, candles, and charcoal briquettes to hair shampoo and soaps to various art and crafts. We also provide job training in IT and agribusiness. So far, ASTEC has trained over 15,000 young people.
“With their newly acquired skills, they can pay their school fees, take care of their families, and eventually establish their own companies. Today, Aristeph Entrepreneurs Centre is one of the leading social change organizations in the country. We have three social entrepreneurship academies: ASTEC IT and Media Academy, Entrepreneurship and Cottage Enterprises Academy, and ASTEC Agribusiness Innovations Academy. They all operate under our ASTEC Social Innovation Hub.
“I started all this because we have a big problem in Uganda—that affected me and inspired me to be part of JA. It is that parents have failed to provide career guidance to their children. They have also failed to find a good way to mentor their children. Further, the unemployment challenges faced by so many Ugandans are severely limiting the growth and the development of our entire country. And finally, Uganda’s education methodology is more theoretical than practical. The number of graduates who are unemployed after leaving university has reached a crisis level. So, I said to myself, I think I can do something about all this—to help myself and all these young people earn a living. That is what led me to found ASTEC, which I hope has become an enterprising role model for the country.”
My Advice to Young People:
“My advice to young people is to always follow their passion and seek knowledge from people who are professionals in the industries they hope to enter. For example, I had a passion for becoming a CEO, and by learning from the CEO of JA Uganda and other mentors I met in JA, I was able to achieve my goal.
“Also remember that what you earn does not count as much as how wisely you spend what you earn. I started ASTEC with just $14 in capital. As a nonprofit we always had to be careful with our money, and today we have become a large, successful social enterprise venture. So, to all young people, your future lies in your own hands—and be good stewards of every opportunity that comes your way.”
Pedro Englert
Founder & CEO, StartSe, JA Alumnus, Brazil
My JA Experience:
“Since I was a kid, I liked the business world. One day in 1995 I learned there would be a program in my school to develop the students’ entrepreneurial spirit. It was called ‘Mini Empresa’ (JA Company Program). I signed up. It was there that I first met JA, which was just arriving in Brazil. I loved the whole idea and started a very close relationship with the organization. In the following years, I participated in various programs such as ‘Mese,’ Banks in Action, and the Entrepreneur Shadow Program. I was also one of the founders of Nexa, a group of alumni achievers, in 1996.
“With each new interaction with JA programs, I grew more certain of the path I would like to follow in my professional life. The opportunity to participate in setting up a business, establishing a relationship with a USA school, spending a day with an entrepreneur, or listening to lectures from people we only read about in the newspapers was all very rewarding and stimulating. Certainly this was all fundamental to my preparation for the job market, and it allowed me to meet so many intelligent and competent people whom I still relate to today.”
My Career / Business:
“I’ve worked since I was young because I believed that would improve my qualification. Today I am a graduate in business administration. During college, I worked in several areas, but it was the financial industry that I liked the most. When I left college, I began working in the commercial area of a large company called Ipiranga, which distanced me from my dream of working in the financial markets. Then, four years after graduating, I was invited by a friend to join XP Investimentos, a new, small brokerage firm that was starting up in my city, Porto Alegre. It had a very aggressive partnership model, and I joined the firm with the goal to help lead the growth of all the branches. Well, just seven years later we had 400 branches throughout Brazil, we changed our headquarters to São Paulo, and we became the biggest broker-dealer in the country.
“In my last three years at XP, I was the CEO of a portal that XP bought called InfoMoney. During that time, I learned a lot about the digital world and realized the impact that technology would exert on our personal lives and our businesses. We next partnered with Bloomberg and consolidated ourselves as the largest financial portal in Brazil, and XP Investimentos became one of the largest companies in the financial market in Brazil. We recently sold half our shares to one of the largest banks in Brazil for approximately US$4 billion. I left the company in 2016 and went with my family to live six months in Silicon Valley. There I graduated from Singularity University and learned a lot more about the entire start-up ecosystem.
“Back in Brazil I decided to restart my career. Today I’m the founder and CEO of StartSe, the main start-up platform in Brazil with more than 120,000 people registered between entrepreneurs, investors, and mentors. I’m an angel investor in eight companies and a partner in five fintechs. In addition, I am on the board of directors at JA Brazil as well as the Brazilian Association of Fintechs.”
My Advice to Young People:
“My first advice to young people is to do something you enjoy, because only then will you be willing to devote the time and energy to make it a success.
“Understand the new technologies and how they will impact your business. Look for reference points and best practices globally, not just in your region.
“Do not be afraid to make a mistake, but do not persist when you are wrong, and certainly do not repeat the same mistake.
“Finally, remember that nobody does anything great all alone—and nobody works hard to realize a dream that is not theirs.”
1 The total adds up to more than 100% as many entrepreneurs use more than one source to finance their start-up.
2 Government (SBA) type loans, available in most countries, can be very useful.
3 Crowdfunding wasn’t on the magazine’s list as it’s so new, but it’s so promising we’ve added it here.