Why is it that individuals incredibly successful in building and selling a business then lose their fortune trying to repeat the feat?
When one starts a business for the first time, it is hard to spin all the plates. Customers need to be found and served, teams and structures need to be established, while cash flow and cash burn are constant concerns. (see Accountabilities: Making it, flogging it, counting the beans) Enthusiasm and dogged determination fuel the round-the-clock endeavour – exiting with a substantial sum is no mean feat.
Those that achieve it are justifiably proud of their success. But how that pride and confidence then manifests itself can become a problem.
The invincible problem
Success in a business should not be mistaken for success in business.
This confusion is the invincible problem.
One should never forget to doff one’s cap to the capricious Lady Luck, if one has had the good fortune of her favour. But entrepreneurial ego can have an unfortunate tendency to dismiss her contribution with exceptionally fortuitous PEST (Political, Economic, Social and Technological) conditions. After all, entrepreneurs make their own luck!
Imagine, for instance, starting a service business a year or two before government began outsourcing to the private sector, and then stumbling on a municipal contract …and another …and another. These are remarkable conditions to be selling into as a privateer which may seriously distort one’s view and expectations of business.
Popping out the other end a successful multimillionaire is where the trouble starts. Non-compete clauses may prevent returning to familiar territory; alternatively our confident hero may simply prefer pastures new.
Paradox
The example above provided no exposure to multi-channel marketing, tiered sales channels, supply chains, research & development, manufacturing or international trade. In any business involving any of these the multimillionaire investor is a novice. A rich, self-made novice.
Rich, self-made novices are a paradox. Consider the scenario of a start up looking for an investor. The start up’s principal has plenty of enthusiasm and expertise about their idea, but is probably a commercial novice. Enter Invincible: apparently been there, done that, got the t-shirt – and flush with cash to prove it. Neither is really equipped to judge the other objectively and they readily fool each other with assumptions about one another’s knowledge.
The indulgent parent
The first hard-won fortune can be compared with a tough childhood. In adulthood it is tempting to shield one’s own offspring. But tough childhoods often generate precisely the kind of energy that propels future success with respect for the value of earning through endeavour. It can be a tricky balance to provide better than one’s own parents without spoiling the child.
With ‘second generation’ businesses Invincible is wont to sprinkle them with resources in a bid to ease their growth. As with children this indulgence can have a detrimental effect – the business has resources it has neither earned nor deserves. Bluntly, its cost base is prematurely and disproportionately high.
Unknown unknowns
Invincible is prone to invest in lemons and buy basket case businesses. Worse still, they do not know when to stop, for exactly the same reason they got in: they do not know that they do not know what they are doing.
A simple solution is to live by the rule: “Only invest in businesses one truly understands”. There is great and obvious merit in a known sector, and being known in that sector.
Beyond that, in the immortal words of Dirty Harry: “A man’s got to know his limitations”. Do not confuse success in a business with success in business.