Why you should not be an Entrepreneur

I listened to a podcast from Barry Nalebuff of Yale University and founder of drinks brand Honest Tea (sold 40% to Coke for $43Min 2008; apparently Barrack Obama’s favourite drink is “Black Forest Berry”) as I sat on British Airways flight BA10 from Sydney to Bangkok. He spoke compellingly of why a decision to be an entrepreneur is madness, bordering on lunacy.  I added a few thoughts myself to create 6 reasons why you should not be an entrepreneur:

Why you should not be an Entrepreneur

  1. 90% of business start-ups fail (and… yes, you really are part of this statistic)
  2. Not all great ideas can be good businesses
  3. You are just test marketing for the big guys. Once they see your success what do you think they are going to do?
  4. There is no way you can compete with the big guys on cost
    1. Purchase of raw materials 50% disadvantage
    2. Distribution – half empty trucks, no back haul, fight for shelf space
    3. Plants with excess capacity – because nobody wants to produce there
    4. They get the talent
    5. They get first offer at the best retail space, and without those guarantees that you have to sign personally
  5. It can easily turn into a more stressful day job.
  6. You won’t find fulfilment between 9 and 5, it is always the other 8 hours that count.

I am going to do it anyway.

So, you’ve listened to my 6 reasons, and you’re still planning to do it? “Yeah, but I am in the 10% of successes; I must follow this path…” Then I give you 6 important tips as you build:

  1. You must create a brand with religious zealot customers. They are your marketing. This is the one thing that the big guys cannot take away. You cannot have a product that is 20% or 30% better. You will not have much money to advertise.
  2. You need a brand name that is “brand-able”.  (Google, Amazon, Dell, Sony…)
  3. Mistakes will take control of the company away from you eventually. It won’t necessarily be you making the mistakes – but you will be the one needing money to deal with the mistake – and it will happen.
  4. You are always raising money – you can never depend on having just one potential investor – you can never wait until you really need the money. Not all investors are good people. Not all investors are ethical.  (Some are fantastic and I have been very lucky in this regard).
  5. Never sign any deal with an investor that gives them right of first refusal.  Be careful with drag along clauses. You will only really make money if multiple buyers get into a bidding war over your brand. Be careful with anti-liquidation clauses. Be careful with strange debt structures. Do not accidentally become a slave.
  6. Don’t let your self-worth be totally connected to the success of the company – in the end, luck will play a huge role and you will need highest energy in the tough times (when you most feel like a personal failure and you envy your friends with stable jobs in banking/corporate)

If only somebody told me seven years ago; but I know that I would not have listened as I thought that I knew it all. Any other entrepreneurs with simple lessons?

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