Welcome to the Financial Times MBA Jobs Clinic Q&A on starting your own business. Are you an MBA student or graduate looking for advice on creating your own start-up? Want to find out how to raise funds to launch your venture?
Our panel of experts answered readers’ questions on Thursday, 16th of October.
Also, take a look at our MBA Careers site to read the latest features on the MBA job market and careers advice. Our panel of experts include:
Jonathan Moules, the Financial Times business education correspondent.
Mr Moules writes about issues on entrepreneurship among MBA students, global business school rankings, senior academic appointments and the ongoing evolution of leadership and executive training in the higher education sector.
He has held several roles for the FT, including enterprise correspondent, technology and telecoms news editor.
The company turns security online identity verification systems into games to increase engagement and advertising revenues for big brands.
Companies such as Heinz and Unilever are among those that have taken up the idea so far.
Mr Kingston earned an MBA from Durham University Business School, in the UK, in 2009.
Prof Thornhill is executive director of the Zell Lurie Institute for Entrepreneurial Studies at Ross.
His research interests include leadership, competitive strategy, innovation and corporate entrepreneurship.
His work has appeared in several management journals and he has published more than 20 teaching cases.
Prof Grandinetti was a serial technology entrepreneur for more than 25 years with two Nasdaq IPOs.
He is also active as a board member, mentor, angel investor, consultant and public speaker.
Previously, he was a strategy consultant with McKinsey, the consultancy, and an engineer with Hewlett-Packard in Silicon Valley.
Prof Grandinetti has an MBA from Yale School of Management.
James Hickie, lecturer in entrepreneurship, Manchester Business School, UK.
Mr Hickie has completed research on how young entrepreneurs build highly successful businesses. The study identifies key factors which led to the early success of these entrepreneurs such as meeting a business partner with complementary strengths and identifying appropriate mentors for each stage of business growth.
He has conducted consultancy projects for entrepreneurial businesses in sectors including internet technology and the self-storage industry.
Click on the questions below to read the answers:
- Q1) For a graduate without any experience of running a business, what is essential when it comes to starting a venture? For example, would it be better to gain one or two years work experience before starting my own company?
- Q2) What specific fields do you recommend one should start off with when it comes to running a business?
- Q3) I have the opportunity to take redundancy at work. I was thinking I could use the redundancy money to start a business - is this a good idea? Or should I invest the money in business school first?
- Q4) What is the best advice you can give me for starting your own company? Where do you start from besides having an idea?
- Q5) What is the best way to raise funds for a new venture?
- Q6) How long should I give my start-up before admitting defeat? I launched last year and am still looking to make a profit. I have been advised to stop now and look for something else.
- Q7) Which entrepreneurs do you most admire and why?
Q1) For a graduate without any experience of running a business, what is essential when it comes to starting a venture? For example, would it be better to gain one or two years work experience before starting my own company? ~ Michelle, UK
Jonathan: The best way to learn about running a business is to do it, starting small and adapting what you do along the way as you increase your understanding of the market you are serving, perhaps even “pivoting” into a whole new area.
Having said all that, it is not always possible to have the best in life. Therefore a stint as a wage slave may well be the best option, perhaps working for a start-up where you can see how things could operate first hand. A third way might be to work for a company where you are allowed the freedom to run your own business in your own time.
Stewart: Experience always pays dividends. The challenge is finding the right time for you to stop learning in someone else’s company and start taking charge of your own. It’s rare for a first time entrepreneur to have all the necessary skills at the beginning, so a continuous learning mindset is critical. When mistakes happen – and they will – learning from them can often be worth the cost.
New business leaders also need to build a team that will complement their skills. If you hire people similar to yourself, you’re less likely to fill the gaps in your skills and knowledge set, and it’s the gaps that get you in trouble.
In fact, if there’s one thing upon which most entrepreneurs agree, it’s the importance of hiring the right people. When you’re a two- or three-person team trying to build a company together, the chemistry and commitment of the team is every bit as important as the product or service you’re bringing to the market, which brings us to the final “essential” - the business model.
There are four basic parts of the business you need to know inside and out:
- value proposition: why would someone buy it?
- back end: how will you make it?
- front end: how will you get it to your customers?
- economics: what are your revenues and expenses?
Get any of those wrong, and you’re in big trouble. Get them right, and you’re at least in with a chance.
Mike: Yes, do get some real-world business experience first before starting your own company. However, make sure that it is the right kind of experience. In general, the best experience for starting and running your own business is getting experience in a similar type of entrepreneurial company, because start-ups are NOT smaller versions of big companies – they are actually quite different.
Big company experience does not translate well into your future plans as a founder, owner or chief executive. Ideally, you would join a young company in a field related to the business that you eventually want to start on your own - as this is highly relevant experience that you can draw upon time and again. It will serve to reduce your learning curve and help you to accelerate your business on the path to success.
In addition, you should make sure that you become very familiar with current entrepreneurship methodologies – such as Human-Centric Design, Lean Start Up, Customer Development, Lean Value Canvas, and Value Proposition Design. You can learn these by attending meetings with Startup Weekend and MeetUp, and by reading related books and blogs.
Use your evenings and weekends to begin to network with the entrepreneurs, angel and investment venture capital investors in your region so that you have a strong community of contacts that you can draw upon when you are ready to make the leap.
Finally, seek out mentors from this community of contacts that you have built. They will serve you well. Good luck.
Howard: It depends on you. If you have a burning idea you want to unleash on the world, don’t wait, go for it.
However if you don’t have an idea, don’t force it. If you have a general industry that excites you (e.g. tech, advertising, gaming etc etc), then working in a fast-growing start-up in that space would give you good and relevant experience.
James: My research which includes interviewing highly successful young entrepreneurs suggests they usually have three aspects of business knowledge and skills in place before starting their first main business, but these are not dependent on having graduate work experience in particular.
Firstly, they have some experience working with customers before starting their business, e.g., having a job in sales, working as a waiter or running a small informal business at school or university.
Secondly, they understand the sector they want to start up in, whether through experience of working in that sector for someone else, or by having a hobby or interest relating to it (so to enable an understanding of the consumer’s perspective).
Finally, successful entrepreneurs usually have some understanding of what it means to be a business founder before working on a start-up, e.g., from a university entrepreneurship society, learning from an entrepreneurial family member or friend, or reading the biographies of successful entrepreneurs.
For entrepreneurial-minded graduates, who don’t feel ready to start up immediately, one option is to apply to a programme like the New Entrepreneurs Foundation, which helps to prepare entrepreneurial leaders of the future through giving them experience in businesses and helping them build entrepreneurial contacts. Some companies have a track record of employing enterprising graduates, who eventually set up their own business, such as Google, Ebay or the younger start-ups of Silicon Roundabout in London.
Q2) What specific fields do you recommend one should start off with when it comes to running a business? ~ Michelle, UK
Jonathan: This question implies that success is dictated by the market rather than the efforts of the founder. This is the wrong way to look at starting a business. If you do not have a passion for what you are doing you are unlikely to find the motivation, discipline and personal sacrifice needed to get that business off the ground.
By picking something you care about, you are also more likely to see the pain points that create an opportunity for a business. Many of the most successful businesses have been created by someone getting annoyed at the way something is done and looking for a better solution. That seems like a good place for you to start from.
Stewart: The best field is the one you know something about. Most businesses get their start when someone discovers a problem they want to solve - a pain point.
If there are others who have similar issues or challenges, that’s the first sign there may be a business opportunity waiting to be found. Then, you need to figure out:
(a) whether you can solve the problem and;
(b) if people are willing to pay more for the solution than it costs to create the solution.
Reid Hastings was bothered by late charges for movie rentals. His solution was a membership model – and Netflix was born. Brian Chesky and Joe Gebbia coupled their need for cash with a shortage of hotel rooms in San Francisco and rented airbeds in their living room – and Airbnb was born.
You create value for someone when you make some aspect of their life better. So the best field is one where you not only understand the problems, but you also know enough to figure out the solutions.
Mike: You should start a business in a field where you have strong interest and passion. Ideally, it should also be an industry where you have relevant skills and contacts. Often, if you have the passion, then the skills and contacts follow closely behind because you’ve enthusiastically invested your time and energy.
Why is that?
First, running your own business requires incredible energy and commitment. You’ll inevitably experience emotional highs and lows. Your passion and conviction is what will get you through the most challenging times.
Second, if you’re passionate about an industry, you’ll be more naturally curious about the dynamics of that industry. You’ll invest more time learning which will serve you well.
Third, the economy is cyclical. Every industry goes through boom and bust cycles. Choosing an industry based solely on current economic considerations makes no sense as it is not critical to your long-term success, if you intend to run this business for many years.
Fourth, the half-life of learned skills has shrunk from 30 years to 5 years today. Your passion will lead you to become a life-long learner in your industry. This is critical to the long-term success of your business.
It’s clear that entrepreneurs can be successful in virtually any industry if they apply themselves, target the right customer segment and deliver significant value. For example, there are still book shops and music stores that profitably cater to enthusiastic niche markets, even with the dominance of Amazon.
James: The entrepreneurs I’ve researched always had either experience of working for someone else in the sector in which they started up, or otherwise a hobby or interest relating to their start-up sector. You’ve got to be motivated by more than just the money to be made in the sector – you’ve got to be genuinely passionate about it.
Warren Buffett was asked a similar question by a young entrepreneur at the 2014 Berkshire Hathaway AGM and he advised the questioner to talk to the top ten players in the industry you’re interested in, as you will learn a huge amount from their experience.
As Peter Thiel, the founder of Paypal, has discussed in his new book Zero to One, it is not easy to predict future trends. He says what’s clear, however, is that the next Bill Gates will not build an operating system and the next Mark Zuckerberg will not create a social network. He suggests there are two key options for entrepreneurs: to copy an existing idea, modifying it slightly and/ or spreading it geographically to a new location. The other option, arguably more challenging, is to develop something wholly new.
Howard: I’m not sure what you mean by fields? But overall, I would spend perhaps one or two days planning the business (no more), you don’t need a full business plan, just a business model canvas would be fine. For example, see the Business Model Generation site.
Then start selling your product to your customers. If people want to buy it, then build the product. If they don’t, refine what you’re selling and try again!
Q3) I have the opportunity to take redundancy at work. I was thinking I could use the redundancy money to start a business - is this a good idea? Or should I invest the money in business school first?
Howard: It depends what your end goals and/ or personal situation is. If you know that your end goal is to ultimately set up a business and you have an idea you wish to pursue, then you may never have such a perfect opportunity. So if your personal situation allows for it, then I’d say go for it!
On the other hand if you don’t have an idea you’re passionate about, business school is a good option - I learnt tons during my MBA in Durham, and set me up well for what I do now.
That said, if you have an idea and your personal situation allows it, then don’t wait for any reason, start it tomorrow!
Stewart: This doesn’t have to be an either/ or decision. There are a lot of business schools that feature entrepreneurship – including courses and programmes to help you develop your business idea. By taking advantage of faculty and staff mentorship, as well as finding potential partners among like-minded classmates, you may be able to significantly advance your business concept while learning the skills you can use to launch, operate and grow the company.
As a student you may also gain access to funding through internships and grant programmes, as well as prize money offered in business plan competitions. Finally, your ability to raise money in the future – which most growing companies eventually need – will be improved if you have the knowledge and credentials from a great business school programme.
Jonathan: You are not alone in considering this option in your situation. Academics like David Storey at Sussex University have tracked the significant growth in start-up activity in the UK during the 1980s as unemployment rose to above three million people. While many of these people had no choice, for others redundancy was the catalyst for trying that business idea they had long been considering but putting off.
As you rightly point out, redundancy gives you something essential to getting a venture off the ground – seed capital. Unlike a bank loan, you do not have to pay interest on this money, and unlike an angel investment you do not have to give up a stake in your business. This is an opportunity that does not come along very often.
I would question whether you need to choose between starting the business and going to business school. Could you not run your fledgling venture while getting the support of a business school with strong credentials in supporting entrepreneurs?
James: Going to the right business school for you could give you certain clear advantages to start a business. I would consider carefully the faculty of the schools you’re interested in. For example, do they have good links to entrepreneurial community and investors? Are there leading experts on the faculty in the sector you want to start up in? For example, Warren Buffett chose Columbia Business School for his postgrad studies because he wanted to learn investment approaches from Ben Graham.
Some schools have great extra-curricular activities for entrepreneurial students which enable you to meet like-minded students from other disciplines and also to meet entrepreneurs who’ve been there and done it.
Mike: It is important to make sure that you have the right skillset before you start your business. These required skills include both basic business skills such as marketing, accounting and management as well as the most current entrepreneurship methodologies, including Human-Centric Design, Lean Start Up, Customer Development, Lean Value Canvas and Value Proposition Design.
You have a number of choices on how to acquire these competencies, including attending an MBA programme where they teach entrepreneurship in a practical, hands-on manner or, alternatively, by taking the most relevant business courses online and supplementing your new business skills by attending entrepreneurship conferences and workshops in your community, such as Lean Start Up Meetups.
Regardless of choice, you should invest time in attending events with Startup Weekend and entrepreneur MeetUp, and by immersing yourself in your intended field by reading periodicals, books and blogs to stay current.
Q4) What is the best advice you can give me for starting your own company? Where do you start from besides having an idea? ~ Boyana, France
James: A good piece of advice is to research your market carefully if you already have an idea, through talking to industry players and using market analysis like Mintel reports. However, don’t spend too long developing a complex business plan, before trying your product or service out with potential customers.
You will learn the most about how to develop your business opportunity once you start getting real feedback from real customers. A good place to find out more about launching a new venture is The Art of the Start by Guy Kawasaki, an investor with experience of working for Apple and Google.
Mike: Do a self-inventory by asking yourself some key questions:
- What are my motivations to start this business? Is it to stop being a wage slave and have independence or to grow into something significant?
- What skills, interests and experiences do I have that I want to use in my new company?
- What skill gaps do I have and how can I mitigate them?
- Should I consider taking on a partner / co-founder who brings the complementary skills which I do not have?
- What mentors can I draw upon to support me in my journey?
- How will I fund the early losses of my business as I begin to grow it?
- Can I afford to do this?
Howard: Not one, but two pieces of advice:
1) Read The Lean Startup by Eric Ries and do what he says in the book.
2) Find someone who has successfully build a business similar to what you are planning to build (similar industry, business model etc) and convince them to become your advisor.
Stewart: Sometimes the best test is whether you can live with not starting a company. If you’re indifferent about an idea, or perhaps only a little excited, it’ll be very hard to push through the really tough times that all entrepreneurs experience.
Ask why you would rather spend all of your time, talent and energy on this particular project rather than all of the other possibilities that the world has to offer. When you find something that you simply MUST do, that’s a great indicator.
Making money is a nice outcome if all goes well, but money is a poor motivator late at night when self-doubt is echoing inside your head. Find the thing that you can’t resist and then commit completely. Half measures won’t get the job done.
Jonathan: My best piece of advice would be to prepare to be wrong about your assumptions and adjust what you are doing. It is what people mean when they talk about the importance of embracing failure. Some of the best business ideas have been afterthoughts or the result of an original business plan failing.
Twitter’s founders originally wanted to develop podcast sharing tools. Google’s founders started their business with no intention of using advertising. The difference at both of these companies was that the entrepreneurs behind them adapted their model. Many founders fail to do this.
As to where do you start from besides having an idea, then the best place to start is with something small, which you can adapt and test. Then you need to look for customers. If you cannot find those then that may tell you something about whether the idea is viable or not. If you do find them, you have validation of your proposition and valuable cash to further your endeavours.
One of the most significant innovations of recent years to support this process is crowdfunding, in which you can put your idea out to a massive audience through websites like Indiegogo and Kickstarter. After you have launched and found customers, start looking for people who can support the growth of your business. This might be angel backers (most likely to be friends, work colleagues and family in the first instance), mentors or initial hires. If your business is a success, you need to think about how to expand your headcount to enable growth.
Q5) What is the best way to raise funds for a new venture?
Jonathan: By far the most common way for people to raise money is from the 3Fs: friends, family and fools. However, this ignores the fact that many people use personal savings, or a redundancy cheque, as seed capital. If you have some “skin in the game” you are far more likely to get the support of others.
In the UK and the US, a considerable number of companies are funded in their early days through credit cards, which are often easier to get hold of than a bank loan or overdraft – whether or not it is the best way to raise money is another matter given the high interest rates charged. What very few new companies do is to start with a bank loan, despite what politicians around the world appear to believe.
Stewart: Your ability to raise funds will depend on the stage of your business, the associated risks, and the amount of capital you need. In the beginning, it will be VERY risky and most entrepreneurs rely on personal savings and family/ friends to get started. At this stage, the business isn’t worth much, so they’re really just investing in you.
Once you develop to a point where you can attract arms-length investors (usually individuals or angels are next in the progression), you need to understand what they’re looking for. Investors want a return on capital. The riskier your business, the higher the return they’ll demand. And if the risks are too high, they won’t invest at all.
As an entrepreneur, your job is to understand the risks (e.g., the technology takes longer to develop, a new competitor enters the market or new regulations affect your ability to sell). Control the factors you can and demonstrate an ability to respond effectively when things happen outside your span of control.
Like family and friends, angel investors are betting on the entrepreneur more than the business. Show that you can handle the unexpected, and you’ll go a long way to earning the confidence and respect that the investors will be looking for.
Howard: 1) Build a working demo of your product (don’t spend more than one / two weeks doing this, it can be basic).
2) Go to meet some known investors (can be VC’s and/ or Angels), and simply say that you are not raising money right now, but would love to get their feedback on your product as you rate their opinion highly (they’ll be much more open this way).
3) You’ll get good feedback from them, and if they like it - they will suggest a next step towards giving money (if they don’t like it they won’t, trust me).
Remember the saying: Ask for money, get advice. Ask for advice, get money.
James: Firstly, it’s important to say that many entrepreneurs start a business through savings, friends and family, or cashflow, rather than raising funds from banks, VCs or angels. You are more likely to need external investment later to grow your business to a significant size. Learning how to raise finance can take time, in terms of understanding particular forms of funding.
For instance, I know an entrepreneur who tried to raise venture capital funding at the start-up stage but was only able to get friends and family funding. But as he grew the business and learned more about VC funding, he successfully obtained it.
Getting funding from a business angel may take time as they often like to establish a rapport with the entrepreneurs they invest in. Avoiding capital intensive sectors is key if you are not able to obtain significant start-up funding.
Mike: Today, you have more choices than ever to raise growth capital for your start-up or new venture. These choices depend to a large extent on what type of business you plan to build.
If you plan to raise capital for a lifestyle type of company than you will have fewer choices, including traditional financing from commercial banks and potentially government loans to supplement your own savings. Crowdfunding has become a new means to raising capital here as well, for the right kind of business.
In order to raise capital for a high growth venture, your choices expand to include angel capital from both individual angel investors as well as organised angel groups. Angel List is a great platform to become familiar with. It matches entrepreneurs with angels on a global basis.
In many countries, federal and regional governments provide grants and very low interest loans to help companies get started by building their new products and exporting them.
Q6) How long should I give my start-up before admitting defeat? I launched last year and am still looking to make a profit. I have been advised to stop now and look for something else.
Howard: That’s probably one of the hardest questions, and I’m not so sure I have an answer for it. There are so many stories of start-ups that weren’t working for years and right at the brink they turned a milestone and became millionaires (Drawsomething is a good example of this I think). But for every millionaire story there’s probably 100 companies that didn’t turn a milestone and went out of business.
I would just ask yourself a question: Are you still enjoying it? If you aren’t then consider an alternative, if you are then stick with it.
It’s not always about profits (you can grow a company in revenue but not be profitable, that’s fine for many industries). But no enjoyment and no profits equals difficult.
Stewart: Clearly, there’s no one-size-fits-all answer to the “should I stop?” question. But there are a few issues that might help reframe the decision.
Do you have a clear sense of why the business isn’t profitable? If so, can you do anything to mitigate those factors? If you persist for another three or six months, will you learn things about the business that you don’t already know? Can you try some things that will give you useful information?
In many ways, new businesses are experiments. If you’re gaining useful data that you can use to continuously improve what you do, that’s a positive indicator that more time will put you in a better competitive position. If the experiment isn’t producing useful data that can help you change, then it’s much harder to make the case for continuation.
Jonathan: A key point is who is advising you to stop? A marriage is more important than an enterprise, so if it is your partner then listen carefully. If it is one of your backers, it may be that he or she is not the really the right person for you, or he or she may have a point. That is a difficult one to call.
The fact that you are not making a profit after a year does not mean that you need to stop. Some of the fastest growing businesses, with the highest valuations, have not made a profit for years. I am not saying that your venture falls into this category, just that it is not such an easy question to answer.
Q7) Which entrepreneurs do you most admire and why?
Howard: Dan Martell, founder of Clarity. He’s driven by giving back to the start-up community and regularly gives up-and-coming entrepreneurs a chance.
Mike: In general, I admire so many of the entrepreneurs that I have met in my career, from my co-founders to those entrepreneurs whom I mentor and whose boards I serve on. Many toil away in elative obscurity, but are heroic in how they serve their customers and withstand adversity.
When it comes to more well-known entrepreneurs, I have great respect for Elon Musk, the chief executive of SpaceX and Tesla Motors, as he is simply fearless in pursuing his vision and relentless in removing obstacles as he takes on the challenge of making electric cars a mainstream choice.
Jeff Bezos is as hungry today as he was when he started Amazon, and is tireless in his advocacy for improving the shopping experience for customers.
I have great respect for Brian Chesky, the founder and chief executive of Airbnb. He has completely revolutionised the travel experience and has turned it into more of an adventure.
James: Leading entrepreneurs can be great role models. I’ve enjoyed reading the biographies of well-known entrepreneurs like Bill Gates, Richard Branson, Felix Dennis and Steve Jobs. The most common benefits entrepreneurs get from them are inspiration to start up and learning about the life of an entrepreneur.
But the more interesting learning from reading about these ground-breaking entrepreneurs comes when you take a business idea from their biography and apply it to your own company and see if it works for you.
Jonathan: Some of the people I most admire and ones you have seldom heard of because they shun the press in favour of getting on with building their businesses.
The problem with highlighting people is that you risk turning entrepreneurs into celebrities and we have probably had too much of that in recent years. I also admire founders who are able to talk about the challenges they face rather than trying to present an image of commercial serenity in which everything is moving forward and getting better.
The most attractive quality of successful entrepreneurs is their ability to achieve things against the odds, which is another way of saying that anything worth doing is going to face significant barriers along the way.
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