A few years ago a friend of mine, who I will refer to as Jane (not her real name), opened a high-end women’s clothes shop in an affluent residential part of London. She had always been incredibly passionate about fashion and it had been a long-time dream of hers to own her own shop. She lived in the same affluent area her shop was in and spent a lot of time socialising with her prospective clientele, local affluent young women. When the business launched she hosted a party in the shop and invited all of her friends. Champagne was poured, a DJ was hired, models were hired to put on a mini fashion show. Some of the attendees – mainly made up of friends and family - even bought clothes. Jane was excited and optimistic about the future, and we were all rooting for her. Less than a year later, the business failed and a “for sale” sign went up in the shop window.
Why did it fail? The answer is one word: motivation. I’m not referring to the daily get-up-and-go motivation here - Jane, by all accounts, worked incredibly hard every single day, to the point where it took a visible physical toll on her - I am referring to her original motivation for starting the business. She opened the shop purely because it was her dream to have a shop and she loved fashion, and any experienced entrepreneur will confirm that this is rarely a good enough reason on its own to start a business. Yet it is consistently one of the most common types of reason people do so.
You may be scratching your head at this statement. After all, the startup world is overflowing with trite slogans like “do what you love” and “follow your dream” that suggest pursuing your passion is precisely the best thing to do. If you have ever frequented a WeWork you will have been subjected to garish neon signs and graffiti art on the walls ramming such slogans down your throat at every turn. But there is a reason why 40% of WeWork’s tenants are actually Fortune 500 companies: WeWork needs stable tenants, and most startups fail. Many of those failures are due to the founders being motivated by the wrong thing and ending up with their heads stuck in the clouds while their business drives inexorably off a cliff. People simply misunderstand the slogans.
Of course there are many other reasons why startups fail in their early days, but making sure you go into business for the right reasons in the first place is a crucial preventative step you can take before committing yourself to any risk. In this chapter I will cover some of the most common bad reasons for launching a startup, then explore the right reasons before putting those “bad” reasons into context again. In doing so I hope to dispel the myths and help you understand what all those slogans really mean.
Bad reason #1: you want to own your own business
This is one of the most common pitfalls people make when going into business for the first time. They are so enamoured with the dream of being a business owner that they jump into creating a business at any opportunity, without fully evaluating it first. This is the mistake I made with my first business and it’s one that is made by countless other first-time founders.
There are several reasons why this is a bad idea. Firstly, the minute you incorporate a company and become a company director you become legally liable for the running of that company. That means you are responsible for keeping accurate accounts, updating records at the company registrar (in the UK that entity is Companies House), and ensuring the business remains solvent. At best, having a company entails additional admin headaches that are often unnecessary until you’re properly making money. At worst, you can find yourself on the wrong side of company law and be forced into closure, bankruptcy or worse. Owning a business is a serious responsibility that you should only take on when absolutely certain that it’s the right thing to do and the right time to do it.
The second problem is that your strong desire to own a business will potentially blind you to bad business opportunities. In your desperation to start a business you may evaluate business ideas through rose-tinted lenses and find yourself manning a ship that was never intended to float. Objectivity is critical when evaluating opportunities and it is really important to do the groundwork before launching full-scale into a business.
What you should do instead
Take your time to properly evaluate business ideas and opportunities before launching your startup. Keep your day job and test the market as much as you can until you have objective evidence that the idea is viable as a business. This is the fundamental characteristic of an entrepreneurial mindset, and will help you ensure your dream of being a business owner is realised in a realistic and sustainable way, at the right time and in the right way.
Bad reason #2: you want to be your own boss
This is probably the most quoted reason for people wanting to launch their own business. Shackled and hampered by the constraints of corporate life, fed up of being told what to do and what not to do by managers, struggling to progress in an organisation and not feeling listened to, many people decide that the best antidote to these ailments is to start their own thing so they can “be their own boss”.
Let’s think about the statement itself and what it implies if this is your motive. Rather than thinking about getting into something, your motivation is instead defined by a desire to escape something else. You want to own a business because you don’t want to be bossed around, rather than because you have a great validated business idea. This, like reason #1, is a recipe for trouble for many of the same reasons.
The second problem is that wanting to be your own boss implies some kind of desire for freedom, but freedom is often incorrectly defined by first-time founders as freedom to do your job in the way you want to do it. What that really means is you want to do the job you’re already doing but just get rid of your bosses. If that’s the case then you should consider freelancing or contract work, because running a business is much more than just doing the work you’re currently doing, it also involves taking care of the finances, hiring and taking care of staff, winning new business, dealing with contracts, working with partners and much more. Many people who quit to be their own boss find themselves shell-shocked by the additional workload imposed on them when they start their business. Instead of freeing themselves up to do their work as they wish, they make it harder for themselves to do their work because they now have to juggle with all these other responsibilities as well, not to mention the loss of income security.
There is a great book called “The E-Myth Revisited” by Michael E. Gerber that covers this problem in great detail. In this book the author describes this as the divide between the technician, the manager and the entrepreneur, where the technician is the person who performs the actual work. In most cases of people wanting to be their own boss, they are merely experienced technicians who crave more autonomy. To run a business, you have to also be the manager and the entrepreneur.
What you should do instead
If you find yourself telling people you dream of being your own boss, stop for a moment and think about what the problem really is. Perhaps it’s just your boss, and your best option would be to go and work for someone else. It might be the culture of the company you’re currently at, in which case you should go and look for another job somewhere else. If you want to choose your own hours of work and be beholden only to yourself, then consider freelancing over launching a business. Many people find happiness as freelancers as they are free to move to other projects whenever they wish. However, before even making this leap consider the financial insecurity of freelancing compared to your current position. With freedom comes responsibility, whichever way you cut it.
Bad reason #3: you want to make lots of money
This one comes with a caveat. Of course the function of business is fundamentally to make money, but when I hear first-time founders speaking of their desire to get rich as their main motivation for starting a business, I always raise an eyebrow.
It’s not that you can’t make lots of money running a company, but the caveat is that big money will only come if the business itself performs well. That may sound obvious, but it points again to the importance of thinking about the viability of the business first and foremost rather than your personal desires. An insatiable pursuit of money can often lead people down the road of ill-judged shortcuts, or taking unnecessary risks to try and push for the big bucks sooner. While some risk-taking is inevitable in business, you should always keep your eyes firmly locked on the goal of building a strong, sustainable company first and foremost. That means avoiding being seduced by overhyped trends like cryptocurrency (which is, at time of writing, in a state of collapse), avoiding overstretching yourself too early by going after big contracts that will cripple your business when you try to deliver, and avoiding taking on leverage in the form of loans or investments so you can grow when it’s too early to sensibly do so.
You’re probably detecting a trend here, that you should only launch a business when you have a viable business idea. In the context of wanting to make lots of money, your assessment of any potential business idea should therefore factor in scalability as part of the assessment metrics. Without that, you will likely find yourself chasing money that will forever be out of your reach.
What you should do instead
If you just want to make lots of money there are several ways to do it, and building a business is only one of them. Bearing in mind that most businesses take 7-10 years to really start making the big bucks, you should consider what other options you have to achieve wealth in that same time frame. Building an investment portfolio is one option, developing your skills so you can advance in your career is another (salaries for software engineers at some of the big tech companies go up to around £500k per annum, plus stock options!). Building a business is something you should consider only once you’ve made an objective assessment of the viability of whatever idea you’re considering, as well as your own ability and appetite for building a company. Then consider the odds of actually building a really big company… I’ll give you a clue: they’re not in your favour.
Bad reason #4: you want a better work-life balance
The first time I heard someone quote this as their primary reason for wanting to start a business I actually laughed out loud. Then I asked them to show me an example of a business owner with a good work-life balance and they seriously suggested the Kardashians. Now, I’m not a particular fan of Kim and co but I do know for a fact that they work very hard despite appearances. The fact is that most business owners work extremely hard and very long hours, whether they’re running a small shop or a multi-million dollar business. See bad reason #2.
The other aspect which most first-time founders are unaware of is the mental load that comes with running your own business. You may manage to work a blissful schedule, but you can bet your life that you won’t be able to fully switch off from your work when you’ve finished. Business comes with so many more responsibilities than a normal job and that carries over into your non-work life in both a practical sense - having to work evenings and weekends whenever needed, because nobody else will do it - and a psychological one. You will go to bed thinking about your business, worrying about challenges you face, and have your sleep disrupted by constant vivid dreams about your work. I have experienced this myself and have heard the same from many other business owners.
Of course, work life balance can be achieved in different ways. I went into business with my wife so that we could spend more time together. I was already working crazy hours on a company and not spending enough time with her so this was a logical solution which has worked very well in my case. It’s also possible to build a business that requires very little time to run once set up, if you are smart about it. That’s the whole premise of the famous book “The 4-Hour Work Week” by Tim Ferriss.
Most of the time though, even businesses like that will take a fair amount of time and effort to get off the ground in the first place, so be prepared to roll up your sleeves and put in the hours for your new baby. If you’re not at least prepared for that, you risk being thoroughly disappointed.
What you should do instead
Probably anything but starting a business, to be honest. Although the real answer depends on how much money you need to make. If you don’t need that much then it’s perfectly feasible to set up a part-time business that allows you work a few hours a day for a reasonable amount of money. The key is to make sure your operational costs are minimal, and you don’t have particular expectations for growth. Many people run small lifestyle businesses like this that keep them perfectly happy.
If you want to take it a step further you can look at life-hacking your way to a better work-life-business balance. Try reading Tim Ferriss’ book for some inspiration.
Other than that, if work-life balance is all you’re looking for then the first thing you should do is try to achieve that within your current career, as that will offer the most stability. If you can afford to earn a little less, see if you can work part time hours at your current place of employment.
Bad reason #5: you want to pursue your passion
If you love what you do, you’ll never work a day in your life. This quote has been thrown around so often that I’m not even sure who said it in the first place. And it’s probably one of the most misunderstood quotes of all time.
Many budding founders take this to mean that they should turn their hobby into a business. After all, they love doing their hobby so it would be a dream to be able to do it and earn money from it at the same time, right? It wouldn’t even feel like work! Unfortunately it often doesn’t work like that. What the quote really means is that you need to fall in love with the work you’re doing, not turn what you love doing into work. Because no matter what you do, it will become work and that means you will not always enjoy it.
The other problem is that, in all likelihood, your hobby isn’t a viable business. There’s a reason it works as a hobby, and that’s because it can be performed easily by a single person in the comfort of their own home. If it’s that easy for one person to do, then it’s a statistical inevitability that some larger company figured out how to mass produce whatever it is your hobby outputs a long time ago. In other words, the market for your hobby is very likely saturated to the point of overflowing. This means you will need to have something both incredibly unique and very desirable in order to successfully trade on your hobby as a business.
The final consideration is that trying to monetise your passion can actually ruin your love for it. I have seen many a creative person try to turn their creative endeavours into a business and end up, years later, drained and resentful of the very thing they once loved so much. Hobbies and passions are great, but most of the time they should be kept as exactly that.
Now, the type of passion that can work in a business is the kind that carries purpose. Being passionate about reversing climate change, for example, can absolutely be a strength in business as it can form the basis of a strong company vision that will help guide decisions and buy people into your company’s mission. Being passionate about improving the world in general can be a great foundation for an entrepreneurial mindset if deployed in the right way.
Turning your craft birthday card hobby into a viable business is, on the other hand, a very tall order indeed unless you’re exceptional.
What you should do instead
If your goal is to spend more time doing your hobby, then your problem is really time. You don’t have enough of it and are trying to reconcile the need to make money with the desire to do your hobby. In this case you should look for a different source of income that will allow you to free up your time to spend on your hobby. It likely won’t let you go full time with it, but you may find that just being able to spend a few more hours a day is enough to make you happy.
Alternatively, your problem might simply be that you’re bored of your job. In this case the temptation of turning to your hobby as an escape from that drudgery is understandably compelling, but this ignores all the other risks of opening a business. The solution here is probably just to look for another job or career, ideally within the industry that your passion sits. This way you can try your hand at turning your passion into a job without exposing too much.
As you can see, all the so-called bad reasons for starting a business share common features, and the lessons to be learned can be summarised as follows:
- Don’t start a business for personal reasons, make sure it’s actually viable
- Be realistic about what running a business involves
- Explore other options first before committing to launching a business
- Make sure it’s a business you want to start, not a freelancing career
There are many more bad reasons for starting a business that I haven’t covered here, but the above are the most common ones I have encountered in my advisory life. Jane failed because of bad reasons #1 and #5. She opened a shop without first doing the groundwork of validating the market and business opportunity, making the business more about herself than her customers.
Next, let’s explore what makes a good reason for starting a business.
The right reasons to launch a business
There really is only one reason to launch a business, and that’s to build a business. Obvious, right? Yet, as we have seen, many people still go into it for reasons that have little to do with wanting to build businesses and more to do with personal motivations. To understand what building a business means we first need to understand what business actually is.
In 1776 the famous Scottish economist Adam Smith described the purpose of business as a mechanism for generating profit and increasing shareholder wealth, and variations of this definition are still widely used to describe the fundamental raison d’être of businesses to this day. The reality in my experience is more nuanced however, which is why I personally prefer this definition offered by the consultant Alan Weiss:
“The purpose of a business is to offer value (through products and/or services) to customers, who pay for the value with cash or equivalents. Minimally, the money received should fund the costs of operating the business as well as provide for the life needs of the proprietor. Any money in excess of these needs of funding and salary—”margin” or “profit”—may be used to reinvest in the business; to be invested for future needs and security; and/or to be used for philanthropy and the environment.”
I think this more accurately accounts for the nuance that Adam Smith’s definition lacks, and allows us to break the purpose of business into three simple points:
- To offer something to customers who are willing to pay for it
- To make enough money to cover the costs of running the company as well as the owner’s needs
- Optionally to make profit on top of that to either increase shareholder wealth or invest in some way
Some of you reading this may baulk at the word “optionally” in point three, because profit is, as it was in the wake of Adam Smith’s declaration, so often publicised in the startup community and stock markets as the main purpose of business. There’s a simple reason for this: the startup community is dominated and heavily influenced by the Venture Capital community, whose own purpose is to create a return on their investments by growing their portfolio companies’ values, and as company value is inextricably linked to profit (or the potential for future profit), it makes sense that this is the message they would push. Meanwhile, stock market investors are looking for returns via dividends, so the more profit made the more dividends produced.
Outside of the markets and VC-fuelled startup world though, many millions of small businesses exist without making any significant profits, run by proprietors who are quite comfortable enough with the salary they draw. These are often referred to as lifestyle businesses and are by far and away the most common type of business in operation. On the other side, businesses that focus on increasing sales and profits (whether to increase shareholder wealth or otherwise) are commonly referred to as growth businesses. This is a simplistic dichotomy but it does underline the mindset split inherent in top-level business thinking.
The first question you have to ask yourself before setting off on your startup journey is, therefore, which type of business you want to create: a lifestyle business or a growth business. While it’s perfectly possible that you will change your mind about this once you have been in operation a little while, deciding on your initial goal in this respect will help guide you in making good decisions early on. Once that decision has been made, your other reasons for starting a business matter only inasmuch as they influence your strategy, meaning they serve the purpose of the business rather than being the purpose of the business. The goal of building a business should always remain front of mind, with everything that entails (and I will cover much of that in the following chapters).
With this core mindset established, we can reposition the bad reasons given above as key strategic drivers of your business rather than the central motivation, in which case their main impact is on what type of product or service you will sell and how you will choose to build your company.
Reframed bad reason #1: you want to own your own business
If simply owning a business is a motivating factor then your strategy doesn’t need to be focused heavily on growth and profit. You should focus instead on building a healthy, sustainable company with the initial goal of it being a lifestyle business, and steer clear of cutting-edge or experimental industries which carry a lot more risk. If you have the capital, you could even look into purchasing an existing business rather than starting your own. This will bypass all of the early startup risk and allow you to enjoy the fruits of being a business owner with a stable enterprise from day one.
Reframed bad reason #2: you want to be your own boss
You will want to avoid taking on too many shareholders and especially be wary of raising investment from the VC world, as shareholders and VCs bring additional scrutiny that will feel very much like having bosses. This means you will need to grow your business organically and seek alternative methods of injecting growth capital if and when you need it. You will likely also want to try to limit the number of staff you have, as although they would not be your bosses, employees do bring additional hassle that will eat away at your time much like having bosses does.
Reframed bad reason #3: you want to make lots of money
The first thing you need to decide is the timeframe you want to make all this money in. If your goal is to make a lot of money in a short timeframe then your options narrow considerably and your risk level very likely increases as well. Rapid growth and accompanying wealth creation are generally restricted to either very cutting-edge industries (like the boom-and-bust crypto sector) or very particular niches that nobody has yet exploited. A lot of luck tends to be involved too. Meanwhile, if you have a slightly longer time horizon - say 7-10 years - then you should choose an industry that is growing by 5% or more per year, has either very high ticket products or services (like selling yachts), or is highly scalable without too much investment (like SaaS companies). There will still be risk and luck involved, but choosing the right type of business will be key here.
Reframed bad reason #4: you want a better work-life balance
What you really want in this instance is more time. In which case, the type of business you choose to build will need to be something that won’t require a large amount of your time to run. That means most service-based industries are out of the question as they tend to require a fairly hefty commitment in terms of meetings and/or actual delivery of work. You also don’t want to be dealing with things like stock, staff or hundreds of customers. This leaves middleman type businesses such as affiliate marketing or reselling as decent options. Then you will want to focus aggressively on automating as much of the work as possible so you are freed up to spend more time on whatever else it is you want to do. This rules out owning a physical shop in favour of e-commerce, for example.
Reframed bad reason #5: you want to pursue your passion
This is simply a case of making sure your passion has a market. If it does, then being passionate about your business can be a massive boon as I mentioned earlier. You will want to make sure, however, that your passion is balanced by an objective infrastructure for your key decision-making. If not, you risk falling into the trap of being blinded by your passion into making bad decisions, alienating your team and taking on miscalculated risks. Being passionate does not mean being a tyrant, but when harnessed into inspirational leadership it can be a powerful attractor of both employee talent as well as customers and partners. Provided, of course, that the underlying business is a good one.
At this point you may be asking yourself why on earth I listed out bad reasons for starting a business only to contradict myself. The reason is simply that too many of what I have described as bad reasons here are so deeply embedded in business pop culture that their meanings have become lost somewhere along the chain. Wannabe entrepreneurs, as a result, jump into businesses full of deeply-held convictions based on misunderstandings and are then disappointed and ultimately dismayed when their business fails. The reality is, when revered business figures like Richard Branson say things like:
“There is no greater thing you can do with your life and your work than follow your passions – in a way that serves the world and you.”
He doesn’t mean you should ditch your day job to try and turn your flute-carving hobby into a business. If you pay attention to the last part of the quote – “in a way that serves the world and you” - this is an explicit reference to ensuring that your passion serves the business rather than being the business. It is a quote in support of my reframed bad reason #5.
And this is why I harp on it. These are such fundamental misunderstandings that undermine the vast majority of people’s attempts to build a business, and for that reason it is so important to deconstruct these beliefs and embed a better mindset.
Business is hard, very probably much harder than you might think. It will fill your life with uncertainty, stress, financial pressure, self-doubt and existential challenges. It will also, in its good moments, give you feelings of accomplishment, reward and satisfaction that are hard to find in normal jobs. At times business is downright exhilarating and addictive. At other times it is soul-crushingly horrible. The two main reasons I keep building businesses are firstly that the limitations on what I can learn and achieve are confined only to myself and secondly, business is never, ever boring. But it’s business that drives me first and foremost, which is why I no longer work in the music industry and have kept music as my personal hobby instead.
So before you embark on your journey into business, have an honest conversation with yourself about whether your motivations are correct, otherwise you’re in for a painful reality check.