Consumer Strategies Report / April + May + June 2006

A decade after its creation in 1953 under Eisenhower, when, in an effort to continue encouraging entrepreneurship (after a Depression and two wars) with lending programs - it assumed the responsibility of throwing tax-payer money around like it wasn't a democratic government - the SBA finally decided to create a separate counseling organization to reduce the risk of their loan-guarantee portfolio by screening these entrepreneurs. That organization is called SCORE. Originally an acronym for the Senior Corp of Retired Executives, it was solely administered by those good-natured Americans too old too work, but still willing to do their part for America by advising, on a pro-bono basis, the next generation. (The SBA is also a clearinghouse of information for resourceful entrepreneurs.)

So Vincent and Hugo get tossed over to SCORE for some "free" consulting. But Vincent and Hugo, like all entrepreneurs seeking "professional" advice for the first time, seek specific advice. They have a question regarding who to contact at the organizations they'd like to target and not general management and financial advice.

The SBA has a mandate to help Vincent and Hugo because they are entrepreneurs, but more importantly, because they are part of a minority group. And to the SBA, the most important quantifiable help means delivering a loan. And the more loans they deliver (to minorities), the more they can request in their budget proposals. But the SBA doesn't just stamp their seal of approval on anyone asking for cash - or having it forced upon them. In fact, just 1.2% of businesses screened by SCORE get SBA-guaranteed loans (

1).

Vincent and Hugo were not looking for cash. But after explaining, in painstakingly broken English, the (actually fascinating) intricacies of their technology recycling business to not one, but two, septuagenarian "experts" in manufacturing and textiles, they did get what nearly 99% of those who visit SCORE get: the frustration of wasting their time being screened for something they didn't want.

Fortunately, they were ultimately able to extract their answer, but only after nearly 2 hours sitting in a cramped, crusty cubicle, 30 minutes of which was spent by their counselor, who just had to grab a cup of coffee right in the middle of his session. Did SCORE help? Would they return for more "advice"?

Of course there are no reliable records showing the number of return "engagements" by specific SCORE counselors, only the memories of 70 and 80 year olds. Yes, SCORE has a computer system wherein counselors must input various details of every engagement, but the system is not only outdated by today's standards, its users are even more outdated. And actually learning and using the system is so much of a hassle for volunteer advisors - who surprisingly, haven't all been entrepreneurs themselves, but also middle managers or senior executives at large corporations - that many details never see the light of the plasma screen.

Evidence of the unreliability of the system was obvious when a former client, started his second session with a new counselor by complaining about his first counselor not returning his phone calls or emails. Upon attempting to locate his information in the system as a returning client, his name didn't turn up at all, no record of his being a client or his emails requesting advice having been inputted by his first counselor.

And you can forget about political correctness. In their heyday, these counselors expected all "Orientals" to be from one country, Indian-born immigrants were still British subjects, and African-born immigrants were formerly slaves. And Spanish, a language as much "lingua franca" as English across the Western Hemisphere, was rarely even heard in their presence.

A casual observer will note that only the most "experienced" counselors, who hold administrative responsibilities within SCORE, and utilize an unbiased structure for counseling, and possess a common expertise, receive the most return engagements. However, the average lifespan of these counselors isn't very long, many retiring even from volunteering, or simply expiring from old age.

Besides pointing out the obvious flaws with free consulting, detailing SCORE's challenges points to something even more critical: exactly what does an entrepreneur need to know to be successful, anyway?

Presented here for the first time is al berrios & co.'s survey of pro-bono entrepreneurial resources, emphasizing not-for-profit and government services and integrated into a description of a superior framework on which to deliver advice to entrepreneurs:

Almost without exception, at the mere whiff of entrepreneurship, potential moguls are advised to either a) don't do it or b) if they are serious, to seek the expertise of a lawyer, an accountant, a banker, and sometimes even an insurer. And, in fact, this is good advice, but so common, it's also not recognized for what it is - the first, real strategic recommendations an entrepreneur ever receives.

But we're getting ahead of ourselves. The most important advice any budding entrepreneur must receive is an inquiry into why they're interested in becoming an entrepreneur. Considering that entrepreneurship occurs for more than one reason (

2), and considering that depending on that reason, a goal for entrepreneurship must exist in order to execute a business successfully, without first receiving advice in this area, three things will be inevitable should the entrepreneur launch a business: a) the business will become uninteresting, b) growth will get stale and/or stall, and c) an exit strategy, most typically a passing-down to children, risks a higher likelihood of failure.

The National Foundation for Teaching Entrepreneurship, (NFTE) a New York-based not-for-profit, developed a curriculum to teach the fundamentals of starting a business to inner-city, low-income high school students. But because of the stage in their lives, many of these young entrepreneurs require guidance in life as much as guidance in business. To many, the opportunity to learn entrepreneurship is the most powerful "anti-poverty" tool ever invented. But many just aren't cut out to run their own business. Thus, an advisor is responsible for helping that student get passed the razzle-dazzle of being a business owner and focused on why they even want to be one.

There is no question that putting together a business plan has some merits. It keeps an entrepreneur focused and provides a necessary source of confidence for anyone the entrepreneur requests an investment, or any level of involvement, from. And without exception, all entrepreneurs are advised to put one together. What they're never told is what goes into it.

Even Microsoft Word has a business plan template, but the problem isn't structure - its content. As evidenced by Vincent and Hugo's inquiry into the sales process, it is not likely that a new entrepreneur will be an expert in every functional area of the business. (Later, they'll seek advice on each area after they've made a commitment, which explains the propagation of functional consultants.)

As a result, what entrepreneurs need at this stage of their development is prioritization of the areas which are most critical for them to master in order to launch their idea. Specific insights into the size of their market, pricing, potential profitability and costs, and expectations are more critical for them to understand at this stage than management team, target audience profile and marketing plans. If such cold-hard economic analysis is convincing, commitment follows.

The American Women's Economic Development Corp, (AWED) a defunct New York-based non-profit, helped countless women entrepreneurs by arranging classes, manned by a volunteer faculty, to instruct on very specific functional areas, such as insurance, creativity, and marketing issues. As women learned more about specific topics that they were most interested in, they enhanced their chances of launching their ideas. More importantly, what many of these entrepreneurs learned was how to profit from their favorite past-times, whether art, caring for their children, or even health and wellness.

Note that many entrepreneurs should not only take notes throughout this stage, but should be advised by their advisors on what notes to take, since many entrepreneurs are simply not sure as to what information is most relevant; and when they are aware of the most relevant information, they utterly fail to take notes. Advisors must always take notes.

Also note that it is at this stage of an entrepreneur's development where the most innovative ideas may originate.

Because most entrepreneurs are merely launching an idea which is an incremental improvement over another idea, they rarely take into account planning, projections, and alternatives. In other words, they never think of strategy. Consequently, when it stares them in the face, they don't see it. The business plan is supposed to help them see it, since they're put through the process of thinking - strategically - about the entire business, including the business model.

The Workshop in Business Progress (WIBO) is a New York-based non-profit instructing predominantly minority entrepreneurs on whipping up a business plan. Regrettably, a challenge of the program is integrating its various workshops into an early-stage strategy session for entrepreneurs. Many entrepreneurs are not yet ready for this level of instruction, either, making the 6 week program more like a philosophy class than a practical application course.

When an entrepreneur is ready, completing a business plan isn't just easier, the entrepreneur is able to formulate very specific questions about very specific issues, which, when answered, allows the entrepreneur to self-progress to the next stage of their development. Their advice-seeking consequently becomes much more refined, even to the point where they begin to value different types of advice, as their inquiries to various professionals begins to give them a benchmark about advice quality and its value.

Regrettably, many early advisors who offer volunteer services, like WIBO and SCORE, believe that every entrepreneur across the board warrants Level 3 advice from the beginning, whether or not the entrepreneur is actually at this stage in their development. And in observations, pro-bono mentors, advisors, or counselors consistently talked more than they listened to their client's issues. In fact, much of the feedback from clients of free consulting programs is rarely integrated into the service-delivery format of these free consulting programs.

Without understanding, nor being able to distinguish the various types of entrepreneurs, it is impossible for any advisor to direct their client towards a business endeavor, but more unfairly to discourage them, as is often the case with SCORE's elder statesmen who readily dispense discouragement in the form of yarns recounting their own experiences.

Second, without understanding the nature of the business and business model, especially a service business, recommending a business structure based solely on statistical likelihood of tax concerns or implying an entrepreneur secure office space when, in fact, most businesses overestimate their space needs because of mismatched expectations and utility, is a great disservice to the entrepreneur. Most service businesses can easily save the expense of setting up a complex legal structure and may not need any space - or insurance, for that matter - to successfully operate. Lamentably, without a clear format for advising entrepreneurs, these early advisors inadvertently contribute to what ails a business between its second and fourth year (Figure 1).

The entrepreneur may have a wife, kids going to college, a mortgage, and health insurance, which, although he's never used, is as important to him as his accumulated airline miles, which, he'll probably also never use before the airline they're parked with goes bankrupt or merges his miles out of existence. But yes, because of the entrepreneur's lifestyle, funding his business creates the very first opportunity for him to focus his awesome powers of concentration so intensely that he may actually feel his hairline recede. Sacrifice suddenly takes on a new meaning, one that not even buying his first car, his first home, or having his first kid ever took.

The anticipated strain will be crushing, but he'll already be expecting it thanks to having gone through the prior stages of his development. And hopefully he will feel as though it is worth it if he'll be able to achieve the goals he set for himself in the first stage of his venture.

To find the money, he'll always default to the impulse of "saving it up". But saving it up takes months, if not years, during which enthusiasm wanes and external forces change his circumstances. He will also learn a new skill, one which he always frowned upon, but must now force himself to do - begging for money. He'll call it sales, or even business development, but painting a lemon in any other color doesn't make it less sour. An entrepreneur will typically go through credit cards, go to banks, and possibly venture capitalists before this new lifestyle becomes too jarring and he decides that being an entrepreneur is not a lifestyle he prefers.

The entrepreneur will typically face another fork in his journey: a) get mad and keep going until he gets a "Yes" or b) give up, cutting his losses. But, an entrepreneur that's tasted this economic opportunity once will always want to taste it again. And at this critical juncture, a simple opportunity cost analysis will usually reveal the logic behind getting mad and keeping on. This journey naturally adds to the time it takes to move on to the next level and altogether is the stage that takes the longest to get through.

With a re-energized and clear plan of action and a commitment often referred to as passion or ambition, it's at this stage that it's recommended that the entrepreneur close himself off from any other advice and seek encouragement and entrepreneurial stimulation instead. The entrepreneur will then discover that there are other ways to get funding including factors, equipment financiers, and even some friends and family (which although is always suggested as a first stop, doesn't really help when you don't know what to ask your family for, and even if you did, your whole family is broke or doesn't get along and your friends have all just started, changed, or retired from careers).

Other alternative sources of funding an entrepreneur can explore are government programs, charitable grants, corporate funds, and even business school business plan competitions. At New York University's Berkeley Center, for example, anyone can compete for a kitty of $100,000. All that person needs is a current or former Stern business school student on his team. And the competition even helps an entrepreneur find that one student, plus mentors, boot camps, and other resources like computers, offices and meeting rooms, until an entrepreneur can take his business to the next level.

Only commitment, resourcefulness, and willpower brings an entrepreneur to the point of executing their idea. This is certainly a milestone for any entrepreneur, but unfortunately, a mediocre one celebrated like only Americans can celebrate mediocrity. More than a hearty pat on the back, an entrepreneur just having launched their business requires constant encouragement, help with time management, help with prioritization, and another person to share the experience with.

This latter need of human interaction is more critical than any entrepreneur or non-entrepreneur ever realizes, especially if that person has never launched a business.

An entrepreneur's worst enemy at this stage is actually his homelife. Accustomed to a consistent standard of living and without a compass or timetable for success of the business, the family circle begins to strain under the sacrifices and lack of attention.

Ironically, the entrepreneur also begins to feel lonelier without peer stimulation; with a wife who works for a large corporation and doesn't quite "get" him anymore; and kids who have their own lives with their own friends, so they're rarely seen anymore. The novelty of telling friends that he has started a business wears off quickly when he realizes they're working (or sleeping) when he gets the urge to hang out and chat.

The situation wears the entrepreneur down faster than anything else because he wasn't advised of it (nor the solution - professional networking), and if he was, he certainly didn't anticipate it. The entrepreneur's mental health is suffering because he doesn't understand how his mindframe has changed, nor that he'd thrive among other entrepreneurs. And as his mental health suffers, so does his relationship with his family.

There comes a point where he's not secretive, but rather neglects to tell his family much about his business. And when an entrepreneur fails to include his family wholly in his venture and fails to explain to his family the things he's feeling, his family will be sacrificed. The national divorce rate today hovers in the 50-percentile range. For entrepreneurs, it's closer to 80% (

3).

The role his family played in his life gradually shifts to other sources, particularly any subordinates the entrepreneur has brought into his organization. After a while, without a process for recruiting, hiring, training, and managing, an entrepreneur begins becoming emotionally dependent on subordinates - they become his "family". (He may even spend so much time with his subordinates that thoughts of infidelity may be lurking in his subconscious).

It's this aspect of launching a venture that propagates the paternalistic HR model of a "core team of people" which the entrepreneur perceives as "us" against "the world"; it's at this stage where partners become more than merely business associates; and it's this aspect of launching a venture that plants the seeds of a culture, the DNA - successful or failure - of the organization.

Since at this stage the organization is non-hierarchical, but simultaneously taking its cues from the leader, it's important for processes, procedures, and standards to be established, contrary to the popular belief of "non-corporate" entrepreneurial ventures. If they're not, the basis for the relationships throughout the organization will be nothing but entrepreneurial spirit, and like any relationship, building it from a single relational aspect means you never learn whether or not you'd particularly care to spend time broadening your relationship with that person. Any minor dispute becomes an "issue" and worsened by the paternalistic way the entrepreneur manages workers.

Regrettably, at this stage, the only advisors the entrepreneur is willing to accept advice from are his investors, and depending on the nature of their business, any one of the other common counselors (i.e. lawyers, accountants, insurers). Why? Prior to this stage, nearly all advice on growing their business has been free and the benchmark most new entrepreneurs have for what advice is worth is the sporadically good, but mostly horrible advice dispensed by their earliest advisors. So when a professional business consultant, with legitimate insights into how to grow their client's business bills out in the hundreds or thousands, it's ludicrous. Of course it's crazy! What can this business consultant possibly know that the entrepreneur hasn't already thought of?

It's hard for the entrepreneur to fathom that his people, his "family", is dysfunctional in any way and that they don't have the answer to everything. And because clients rarely understand the difference between the advice and the implementation and the separate and distinct investments in both, they have an even harder time swallowing why they should pay any consultant so much for "so little", or in the parlance of new consulting clients, to tell them "the time with their own watches". But the seed has been planted; whether he realizes it or not, an entrepreneur is developing his own method of dealing with consultants and he will come to further realize that he may need to hire one someday.

Between 2 and 5 years in business, an entrepreneur will get burned out, either from too much work or lack thereof, and not having taken a single break since he started. At this point, the entrepreneur recognizes that there's something possibly wrong with his business, but can't quite put his finger on it. At this stage, an entrepreneur begins expanding his network of advisors to include elder statesmen of entrepreneurship, bigger bankers, and possibly even a marketing or business consultant.

Peer advisory groups like Mastermind, The Executive Council, and the CEO Clubs all cater to entrepreneurs at this stage. Pricier to participate in than the typical professional networking group, these groups are guaranteed to offer the entrepreneur something that their earliest advisors offered them - trusted advice. (The hurdle, of course, being the fees. But, the hurdle is quickly trumped by curiosity and opportunism).

The entrepreneur's advisory group may propose that as the heart, sole, and limbs of his business, it can't grow past his limits. So, they further suggest he revisit his business plan. These suggestions take the entrepreneur by surprise, even though he knew he'd have to do this years ago when he started. But more surprising was the practical application of these insights: the entrepreneur recognizes that he needs to stop "executing", get some fresh blood in his business, and delegate responsibility over his business to professional managers. Hopefully managers who are smarter than him.

This epiphany includes taking a different perspective on payroll and professional-fee services, a perspective that removes the guise of expense from these investments, investments, actually, on the growth of his business. He will call on his network of bankers and functional consultants, who have pitched him in the past, but which he ignored, to take a fresh look at his business.

But because he unknowingly permits his consultants to set his goals, rather than he set them himself; and because he has obsolete benchmarks on what's high quality management consulting versus poor quality, benchmarks based on his earliest encounters with free consulting services; and because he does not know what form consulting should take for his needs, nor what expectations he should have, nor how the whole process should all be managed, it is likely that his investments will be wasted

Nevertheless, an entrepreneur will find himself with more free time, which he now learns to spend on planning for the future and finding bigger fish to fry. This stage is in fact, the first actual milestone in an entrepreneur's life, one worth commemorating with investors, workers, friends, and of course, family, (if he still has one) by perhaps taking them on a well-deserved vacation, because through it all, an entrepreneur will decide on one of two alternative futures for his business. He can either: a) exit the business with a profit, a loss, or break-even, and pursue a new career with another organization or b) upon making this investment, the entrepreneur's entire perspective and business will re-energize.

No entrepreneur ever thinks that their business would ever have more than one profit center. The term itself seemed alien to him when he first came up with his nutty idea of launching a business. But surely, the idea to zig and zag came from a customer, worker, or even a consultant, and without impacting the current business, actually started making money. What now?

Enter management consultants. An entrepreneur is now an executive and finds himself setting up a more formal corporate structure that measures everything; getting himself a board of directors who help the entrepreneur find competent execs and distinguishes his performance benchmarks from his competitor's; and delegating P&L (profit and loss) responsibility over this new business to someone other than himself, who he subsequently holds accountable to their measurements.

The idea-factory jumps from 10% utilization to 110%. The entrepreneur's phone, previously ringing just a few times a day, now requires it's very own secretary. And the entrepreneur stops using public transportation. Not only can he afford to pay his consultants many thousands of dollars for their help, he actually doesn't mind. He even wishes he could compensate all the other advisors throughout his development that's helped him get this far. (But he won't, of course. It's just a thought.)

Congratulations are in order. At this stage, the entrepreneur is now part of the 0.03% of executives in the entire country to have the distinct privilege of knowing what (finally) strategy is, and actually dedicating time and money to thinking about it. If he finds himself so privileged, it is imperative that the entrepreneur not forget where he came from, because it's often at this stage where innovation, that commodity in earlier stages of an entrepreneur's development, becomes a rare precious metal.

At this stage, nearly 95% of the entrepreneur's time is spent downloading inputs from his various managers, advisors, and clients and yapping about his thoughts on those inputs. (The other 5% is spent making sure that when he yaps, it's not complete nonsense.)

At this stage, his personal history is indistinguishable from his professional. The entrepreneur may be on his 3rd or 4th wife. His kids are old enough to be senior executives at the company. His time is spent on charitable work, so his legacy isn't merely remembered by a company. A new title is created just for him, emeritus, which, until it was created just for him, he hadn't realized how cool it was to get paid to do nothing except travel free making peppy speeches about his industry. (Sure, any other entrepreneur would feel hurt that his company is "pushing him aside" with titles and free trips, and may even resent it enough to tighten his aging grip around his authority 10 or 20 years past his prime. But our entrepreneur isn't one of those guys.)

And finally, at this stage of the entrepreneur's development something else happens. He begins to feel as though his accumulated wisdom and experiences may have value to the next generation of entrepreneurs. Considering a "working retirement", the entrepreneur seeks out opportunities to "give-back" and finds himself drawn to public service, to a unique agency with 11,000 other "experienced, elder statesmen" who volunteer their time counseling young, naïve entrepreneurs. It has an extremely relaxed country club atmosphere, but with a suit and tie dress code, since, after all, image is important. It has just the perfect combination of work and fun (50%/50%, to be exact) to keep the entrepreneur stimulated. And because it's volunteering, the schedule doesn't inhibit spending time with family, old friends, hospitals and funerals, the latter two of which somehow, one day, seemed to get on the entrepreneur's agenda more regularly than ever. What a marvelous organization SCORE is for entrepreneurs.

This page is formated for printing. Add it to your brochure. . Privacy Policy . Get a fresh perspective on strategy.