Like a Virgin: Secrets They Won't Teach You at Business School

LAUNCHING A BUSINESS

When talking with young entrepreneurs, one of the questions I get asked most often is about the pitfalls they will face. What are the most common mistakes that entrepreneurs make when starting out?

Asking about mistakes is a good sign because, while making them is a big part of the process of building a company, quickly recovering from them is what’s most important. It’s all part of the adventure of entrepreneurship, which will require all of your stamina, drive and determination.

But your way forward is not entirely uncharted: when you notice an opportunity that has never occurred to anyone else, there are certain steps to turning your vision into reality. You must formulate an innovative business plan, find funding, hire the right people to carry out the plan and then step back from your role in the business at exactly the right moment.

Let’s take a look at these steps, and also at ways to avoid some of the most common mistakes new entrepreneurs make.

A mistake often associated with the first step is signalled by an entrepreneur’s inability to clearly and concisely communicate their idea. You have to be able to generate buy-in from investors, partners and potential employees, so nail down your ‘elevator speech’ – what you would say if you ran into an important potential investor and had literally only two minutes to tell your story. Try using a Twitter-like template to refine the essence of your concept into just 140 characters. Once you’ve done that, expand your message to a maximum of 500 characters. Remember, the shorter your pitch, the clearer it will be.

An associated error is lack of focus. If your start-up has been tagged as ‘the next big thing’, the adrenaline rush that comes with building buzz can lead to impetuous decisions and a loss of a sense of purpose. Many entrepreneurs end up sprinting in many directions instead of taking assertive steps towards their target. Clearly define your goals and strategies and then establish a timeline. Don’t let the other possibilities or hazy dreams distract you from achieving your goal.

Getting too far ahead of yourself is also dangerous. If your product or service is still on the drawing board, don’t get sidetracked by plans for future versions. As a general guideline, looking two or three years ahead is best, but the nature of your business and feedback from your investors will help you determine just how far ahead you should plan.

Be flexible, because, just as lack of planning can be a problem, adhering blindly to your plan is a sure-fire way to steer your company off a cliff. A successful entrepreneur will constantly adjust course without losing sight of the final destination.

Don’t short-change your start-up when estimating the funds you will require – you’ll just diminish your chances of success. Keeping your expenses under control is vital, but don’t confuse capitalisation with costs. The playing field is littered with undercapitalised start-ups that were doomed from the outset.

Start-ups almost always draw up plans that are seriously underbudgeted on overheads. When you have come up with a number for your overheads, don’t just tack on 10 per cent for contingencies, add 75 per cent or double it! You are guaranteed to have overlooked any number of hidden costs, fees and taxes.

David Neeleman knew this. In 1998 he told me he needed $160 million in start-up capital for what would eventually emerge as JetBlue – a huge sum, much more than any other start-up airline had ever raised. Most of the so-called experts scoffed at the notion that he would be able to find the money and launch a low-cost airline when established companies were failing one after the other. However, he stuck to his guns and raised the money. As a result, JetBlue had one of the most successful airline launches of all time, and turned a profit only six months after its launch in 2000. (It was very nearly called Virgin Blue, but that’s another story.)

As tempting as it may be to staff your new business with friends and relatives, this is likely to be a serious mistake. If they don’t work out, asking them to leave will be very tough.

When Virgin starts any new business, we always hire a core team of smart people who already know the industry and its inherent risks. Take full advantage of the knowledge pool you’ve created; when a problem comes up, remember that nobody has all the answers, including you.

One of your goals should be to find a manager who truly shares your vision, and to whom you can someday confidently hand the reins so that you can carry out the next step.

A great entrepreneur knows when the time has come to leave the CEO role. It’s seldom easy, but it has to be done: very few entrepreneurs make great managers. In my own case, managing the daily operations of a business simply isn’t in my DNA (or, as I’ve said to friends, ‘It’s not bloody likely’).

Stepping back doesn’t mean turning your back on your business. At Virgin, I’m always involved in the launch of a new business, and then I gradually hand over control to the new management team as it starts to jell. But no matter how long it has been since I was at the helm, if I see something that I don’t like I’m not at all shy about making my thoughts known and asking some very pointed questions.

Founders shouldn’t hesitate to reinsert themselves into their businesses when necessary – look at Larry Page, who returned as CEO at Google. That said, I had to laugh when I heard this news, wondering how many managers at Virgin businesses had thought, ‘Wow, I hope this Google thing doesn’t give Richard any ideas.’

It didn’t!