Love, money and business — the three things Carol Roth, author of New York Times bestseller “The Entrepreneur Equation,” says people tend to be irrational about.
Roth is a part of the University of Missouri Trulaske College of Business’s Vaughan Executive in Residence program. She gave a presentation about “The Dirty Little Secrets of Entrepreneurship” Thursday on the university campus.
Roth started her first business when she was eight, taking toys from her younger sister’s room, setting them up in her room and inviting her sister to buy back the toys with allowance money.
“It was a really good business model,” she said. “I had a captive customer who wanted every single thing in the store because it was hers to begin with…I had no cost of goods sold because I took (the toys) from her, and I didn’t pay any rent because it was in my parents’ house.”
Since then, she has been an investment banker and an entrepreneur. She’s been involved with more than 1,000 businesses in some capacity, and she currently owns a consulting business, focusing on bringing her entrepreneurial advice to a broader platform with contributions the New York Times, Huffington Post and Crain’s Chicago Business/Enterprise City and appearances on CNN, Fox News and MSNBC.
The highlights of her presentation are as follows:
“Ideas sometimes don’t look so good the next morning”
According to Roth, an easy trap for entrepreneurs to fall into is lust. Lust with an idea.
“I call it ‘business beer goggling about an idea,'” she said. “You may find something that looks really good, you get into it and you wake up the next day or maybe a couple of months down the road and you say ‘Boy, this isn’t really what I thought it looked like.”
She cautioned against getting too attached to an idea when the important part is usually what comes after the idea. What an entrepreneur is doing day in and day out with the idea is what matters.
Passion vs. opportunity
Roth emphasized a distinction between passion and opportunity, and not letting a passion lead an idea astray.
“If you want to be successful with your business, find an opportunity that you can become passionate about instead of trying to come up with a business from your greatest passion,” she said.
She gave the example of Tony Hsieh and Zappos.com.
“How many of you think that you could walk into Nordstrom, Bloomingdales, Saks Fifth Avenue and find a whole bunch of women in the shoe department that are more passionate about shoes than Tony Hsieh?” she asked the audience. “That’s not why Tony started his business. He saw an opportunity. The things he’s passionate about are things like customer service in building a community.”
She also made the point that turning a hobby into a business can often turn an outlet into a professional relationship.
Marriage is not about the wedding; business is not about the idea
“Execution trumps ideas,” Roth said.
Coming up with an idea has little risk and could happen at any time.
“Then, hard part starts,” she said. “Then you have to write the business plan, then you have to figure out a business model, then when you get going you have to build the store, train employees, figure out marketing strategy, do things over and over again.”
She made the analogy that just like marriage is not about the pomp and circumstance of the wedding, business is not about the idea. What makes marriages and businesses successful is the work that goes in after.
The idea alone has no value.
Entrepreneurship is not a solution: ‘I can’t get hired’
Roth said that entrepreneurship and business should not be seen as a solution to a personal problem.
Starting a business is not going to solve the problem of not getting hired by other businesses, she said.
“If you can’t get one or two people to hire you, you can’t sell yourself, how are you going to get dozens, hundreds maybe thousands of customers to buy from you every single day?”
Entrepreneurship is not a solution: ‘I want to be my own boss’
Another problem she said people think entrepreneurship can solve is the ability to “be your own boss.”
When working for a corporation, the typical trajectory includes starting at the bottom and working toward upward mobility.
“When you start your own business, you never get to move up that totem pole,” she said. “The top of that totem pole every single time is your customers. Because if you don’t have customers, you don’t have business.”
After customers, she said, people like investors and landlords get to set the rules. Then there are employees to pay first, and the list goes on and on.
According to Roth, as a business owner, you are at the bottom of the totem pole.
Entrepreneurship is not a solution: ‘I don’t like to work with people’
Roth also said entrepreneurship is not a solution to an aversion to working with people.
“Unless cats, dogs and trees start stepping up and paying for things and becoming vendors and suppliers and employees, I’m pretty sure that if you start a business you are going to have work with people in some capacity.”
Ultimately, customers are going to be the most important people you work with.
Roth emphasized the importance of having a realistic idea of what going into business means.
“All of these things that set people into business set them up to not be happy in business.”
There is no “Field of Dreams”
Roth said that the notion that “if you build something, people will show up” is outdated and no longer realistic.
“The good news is, it’s gotten really easy to start a business,” she said. But because of the same technology that makes starting a business easy for you makes starting a business easy for everyone else, there is a lot of competition.
“It’s easier than ever to reach customers, but it’s harder than ever to get their attention,” she said. “Everyone is tuned into their favorite radio station: WIIFM, What’s In It For Me? and they are bombarded with so many different messages every single day.”
This makes it harder for businesses to gain traction, she said. Just because the business owner is excited about the business, doesn’t mean every one else will be just as excited. It takes a very long time for the business to get going.
“To be an entrepreneur, you have to be able to fail.”
According to Roth, there are three ways to look at failure: “Fail fast, fail cheap and you never fail the same way twice.”
She said, if you spend years building up a dream and it fails, it’s a “colossal waste of time,” not to mention the opportunity cost of other potential ventures you could have been working on. Of course, theres the a physical, capital cost of putting all of your money into a project and not having it work out.
“You want to make sure when you are trying things out entrepreneurially, that you’re testing to see if it works,” she said. “And when it doesn’t work, you recover quickly and you recover financially.”
An entrepreneur must also be able to learn from mistakes.
“It’s okay to make mistakes once,” she said. “But you don’t want to be making the same mistakes over and over again and over again.”
The Rule of Three
Roth said that time and time again, she has had entrepreneurs come to her with projections that have been too conservative.
“It doesn’t matter who is involved, somebody is going to drop the ball along the way,” she said.
For timing, Roth used the example of Oprah, who has all of the best resources at her fingertips.
“If Oprah is going to take a couple of years to get her business to a point that it had a foundation, then it’s probably going to take everybody else that too.”
To combat this problem, Roth’s ‘Rule of Three’ is as follows: “Everything takes three times as long, is three times as expensive and is three times harder than you project it will be.”
Money does not fix a bad business model
Roth also busted a common entrepreneurial myth that, ‘If I had just had enough money, my business would be successful.’
“The problem is, if you don’t know how to employ the money, if you don’t have all the right skills, if you have a business model that’s pretty shaky, all the money in the world is going to fail,” Roth said. “In fact, money is one of those funny things where the more you can do without money, the better off you are.”
She said that an entrepreneur needs to make the most of all of his or her resources.
“If you can find a way to work around (money), to beg, to borrow, to barter — not advocating the stealing part — but to beg, borrow, barter, to find different ways to get things done, that is what an entrepreneur does,” she said. “And if you do that, when you have your model solidified, then the money can come in.”
Roth’s blog can be found at CarolRoth.com, and she can be reached via Twitter at @CarolJSRoth.