Patrick Burke is a managing partner at both Burke & Schindler PLL and Concentric Wealth Management, a member of two corporate boards, and a lifelong entrepreneur who has, over the course of his career, advised more than 200 startups. His latest book (he has written several), The 10 Biggest Business Mistakes And How to Avoid Them, is an effort to save other entrepreneurs from learning the hard way what he has learned on the ups-and-downs of his decades long business career.
A long standing entrepreneurship cliche is that success require more than a “great” idea, so we asked Patrick Burke what else is required to an entrepreneur to grow a startup to success, what sort of person is likeliest to succeed as an entrepreneur, and that perennial favorite, are sales professionals born that way or can anybody learn to sell (he thinks it’s sort of both). Here is what he has to say.
Grit Daily: It is well documented that most new businesses fail, yet people keep founding businesses. Is there a mental checklist entrepreneurs should work through before launching?
Patrick Burke: Before entrepreneurs take on a new business, or buy an existing business, they have to take both personal and financial stock.
We will cover the financial first. Although entrepreneurs tend to rush in, the best practice is to create a proforma for a new business including not only a profit/loss statement but also a balance sheet. I tell clients, let’s solve for the negative cash that’s going to not be generated by your new business and let’s compare that to the balance sheet at the time the cash is needed and figure out how much a bank may be willing to lend and how much you will need to invest personally or find someone to invest with you. This is when the critical question of “Do I bring in a financial partner or should I tap my family, friends and fools (FFF) first”. It has been my experience that it is much better to borrow money from the three F’s than bring in a financial partner that you will later be sorry you brought aboard.
With respect to the personal questions, I have 10.
Can you live with the uncertainty associated with running your own business? If you are used to that weekly paycheck and you are living week to week, you may want to rethink the whole idea of being a business owner. How would rate your tolerance for risk? It’s not that you have to eat risk for breakfast but it likely shouldn’t be on your luncheon menu. In addition to the uncertainty of running a business, I put risk in a completely separate category since it is potentially existential. Most business owners, particularly in their first venture, have put 100% of their cash plus net worth on the line. So, although next month’s sales are uncertain the risk you have associated with sales not happening at all is the real deal.
What is your relationship with money? Some people have plenty of money and treat it more or less like a baseball card collection. They pull it out every once in a while and look at, but they are really not looking for their money to be anything but a safety net. It is not something they necessarily look at as means for significant and significantly risky financial growth.
Can you lead people? Employees are generally an unruly group. You have to get to know them, know their dreams and aspirations, and help them to achieve those if you are going to be a topflight employer. Frankly, it has been my experience, that although money is a motivator, being part of an interesting, fun and fair environment is the best way to attract and retain topflight people.
Are you competitive? Every owner must understand there is someone across the street who is trying to beat them at their own game. If you are not ready for this kind of competition, the competition will be eating your lunch.
What is your work ethic? Owning you own business is a highly consumptive task. It is not 9-5 and certainly is not five days a week. The good news, however, is for most entrepreneurs working on their own business really isn’t work. It’s fun and rewarding. For some reason, seeing your company’s name on the check from a new customer is way more motivating than receiving a paycheck.
Are you a good listener? I often tell those that work with me that the customer is always right particularly when they are wrong and mad. It is at that point that you have to listen, take your medicine, correct the situation and, if they truly were wrong, wait a few days to let the situation cool and then relay the information.
Can you sell? Even if you are not part of the sales department you are going to have to do some sort of a sales job on customers at some point and certainly new employees since you are likely a start-up. They have to believe in you and the concept, or you are not going to get them in the door.
Do have a skill that adds real value to your new business? I would say this is one of the most common mistakes in business: buying or starting a business where you add no significant value. I have found that the owner needs to be the best employee in the key position or the second-best employee at a number of positions to make a business run profitably.
Do you have a financial goal for your business? Even though you don’t know exactly where your business might be going you should be looking at it as a potential transaction down the road since at some point either someone or no one will be owning this business. It is best to set that goal right up front. Once the goal is achieved it is probably time to move on from that business and start a new one.
Grit Daily: It’s often said that a great idea is not enough for a startup to succeed. First of all, do people tend to exaggerate just how “great” their idea is, and if their idea is genuinely great, what else is required?
Patrick Burke: I would say that most entrepreneurs do tend to exaggerate how great their idea is since great new ideas are truly rare. Entrepreneurs, are, by nature, optimistic folks. As a result, they are probably perusing their financial forecast with rose colored glasses. It is also true that a lot of “great” ideas are for new businesses that have not been tried before. In general, one should leave it to the “Trekkies” to go “where no man has gone before” since the Starship Enterprise burns a heck of a lot of fuel. Even if it is a great idea, the old adage that if you build a better mouse trap people will beat a path to your door is patently untrue. People are inundated daily with new products and ideas, so there is an immense amount of clutter. A highly refined go to market strategy is required to insure early growth.
Grit Daily: Entrepreneurs are routinely lauded for their willingness to take risks, but where does necessary risk-taking end and recklessness begin? How do people caught up in the thrill of running their own business recognize the line?
Patrick Burke: A reckless risk is generally associated with sunk–cost bias. Entrepreneurs that just can’t believe that the business they conceptualize, started and are now running is not what they had projected. So, what do they do? They put in more money, even when it becomes obvious that the idea is just not going to work. Of course, the more money they put in, the more they feel obligated to continue funding the business. They don’t believe they are throwing good money after bad. This is compounded by the fact that running their business is not only thrilling, it is their identity. So, they tend to double down when they should be heading the other way… on the double.
Grit Daily: Is selling a skill that everyone can learn?
Patrick Burke: Selling is also absolutely a skill anyone can learn, but it is a mandatory skill for a business owner.
I put salespeople in two different categories. We’ve all met this person. They’re great on the phone, great in person, indefatigable and truly love the pursuit, negotiating and closing. It is my opinion that these folks are born, not made. I call them “inspirational sellers.”
The other type of seller is the “perspirational seller.” These are the folks who sweat the details. They create a pitch, get a list, make the calls and don’t stop until they get the sale. They may not be big personalities, or even necessarily friendly, however because of their persistence they are bound to catch someone at the right moment and make a sale.
Either of these types can be effective. So there really is no excuse not to be a top salesperson for your own company.
Grit Daily: What can you tell us about your entrepreneurial journey and what lessons have you taken from it?
Patrick Burke: The are two important lessons from my own entrepreneur journey. The first is, do not take on a partner until you are absolutely sure that you need one. As I’ve noted in a couple of my books, only give a percentage of your company to an individual who possesses a skill that is necessary for your that can’t be acquirable for money alone. I made this mistake early on and paid dearly for it.
The other principal lesson is, don’t buy or start a business when you don’t add significant value.
I got into the rent–to–own business because I had an idea that rent–to–own products could be leased through a resident manager at an apartment complex. This was a bad idea; it didn’t work and the whole premise for getting into the business was shot down within months of starting. However, it took years to unwind.
My brother and I also got into the cleaning chemical cleaning business with two unsavory characters. Unfortunately, like true business neophytes, we projected our high moral code onto two individuals who clearly had no moral code. As a result, we were duped out of more money than I am willing to admit. Clearly, an extremely expensive lesson. In fact, expensive enough that I’ll never forget it.