First published in Finweek, I was asked to share some tips for aspiring digital entrepreneurs. Here is what I put down, being a collection of my insights from experience in the entrepreneurial industry.
Put 20% of your net asset value at risk
Entrepreneurs usually start working on their business before leaving the support and financial stability of a job. For two reasons, being able to risk losing a significant portion of one’s net wealth is important when making the decision to become a digital entrepreneur. Firstly, the significance of the business must be scary enough to keep someone focused on their objective and up at night worrying about how they’re going to make it a success. It’s their skin in the game that puts the business on the map of their personal wealth portfolio with upside significant enough to justify having left their job in the first place. Secondly, digital is a fast moving industry where businesses must scale or grow, or fail, and fail fast. Entrepreneurs should be prepared to spend on marketing and systems and hire someone to sell. Digital isn’t an organic growth industry – and is the reason why M&A activity is so high in the field.
Found your business with your alter ego
Entrepreneurs often make the founding error of starting a business with a likeminded friend. At the outset, this appears to be a good idea because they think the same way and agree on the same things. In Walter Isaacson’s biography of Steve Jobs, he highlights that creativity comes from when science and the humanities intersect, Jobs saying, “I like that intersection. There’s something magical about that place.” The quiet maths nerd should pick out an extroverted artsy type, rather than compounding their blind spots by hiring or founding with like-minded people.
Don’t issue your company shares all at once
“Let’s go 50/50” makes sense starting a company. It aligns the merits and share in the downside. All too often, the founding shareholders’ commitment and value-add in the startup years change, and then the equal shareholding makes less sense. One simple approach is to agree to issue new shares every year for the first three or five years of getting the company going, and allocate to those that have contributed in the prior year.
The Founders Dilemmas is a great read on the subject and discusses various scenarios for founders.
Integrate industry with digital
In much the same way as the industrial revolution inspired mechanisation of processes and moved people from physical labour to mental challenge, the digital revolution has the ability to connect ourselves with the world around us even more deeply. Digital entrepreneurs’ initial foray into economic value creation was somewhat obscure – building platforms like Facebook and Twitter and only later worrying how to monetize them. The next chapter will involve braver moves where the efficiency of digital systems revolutionize industry. Think Uber for transport, Nest for self-learning home heating.
Diversify your hiring plan
One of the benefits of running a digital business is that younger staff usually “get it” before the more experienced staff. The lower cost of overheads and ease of integration with the youth appears at face value to support hiring a team of smart university graduates. While growing one’s own timber might be attractive, what ever it is the entrepreneur is selling, still needs to be sold. The bigger purse strings are still held by corporate executives, who also probably don’t “get it,” at least just yet. So for every youngster hired, another experienced person who brings network and impetus to your team should also be appointed.
Give it away to get it back
Control over your company is indirectly related to your financial success. Be the king or be rich, there is no being both. By hiring A-team players with similar values and work ethic to the founders, they’ll still be able to delegate and delight in the work that the employees deliver. Success is more closely associated with the team that is hired than what the founder can do in a day. Consider fostering collaboration and creativity in your work environment by exploring options like coworking space Sydney to enhance your team’s productivity and innovation.
Begin with the end in mind
At some point in a company’s future, entrepreneurs will either be speaking to a bank, an investor or an acquirer about their interest in it. If one keeps their house in order, have processes and policies in place, and see to the right financial and regulatory governance is adhered to, they’ll find favour sooner than later.