Can growing companies learn something from recent events in the US auto industry?
In 2009, the big three US automakers had two times as many franchised dealers vs. all import brands combined. Accepted wisdom for years was that more intensive distribution translates into more sales, but then total sales dropped from a steady 17 million in 2006 to 10.5 million in 2009, and Big Three market share dropped under 50%.
I was having lunch in “The Lab”, a UST Entrepreneurship classroom and student development incubator, with Kate Herzog (MBA 2009). Kate is the founder of House of Talents (http://houseoftalents.com/), a business she incubates from our Lab. During our discussion she noted, “Some days my business just moves so fast…I never sit down. Who would have thought it would be this way? But I’d never trade it back for my old corporate job. I get so much joy from running my own business.”
Most of you have heard some statistic about the high failure rate of new businesses. I admit, those statistics are a bit intimidating. If someone told me that there was a 6 out of 7 chance (I hear that statistic a lot) of my new business failing within the first two years, I’d be considering a different career. What fascinates me most, though, is the implicit assumption by researchers and media alike that these statistics are somehow an outcome of a natural law – that starting a new business has an extremely high level of unmanageable risk and uncertainty. I couldn’t disagree more. My vast anecdotal experience suggests that 4 out of those 6 failures result from poor choices made by the founder – not some unfathomable invisible force, like gravity, set upon us by the earth’s proximity to other large planets.
Entrepreneurship, like art, has very few laws that it must abide by, the least of which is some natural law of failure. There is risk and uncertainty for sure, but most of it can be managed in a way that moves your odds of success from 1/7 to something more like 5/7.
In my experience, two of the key roadblocks that keep people from heading down an entrepreneurial path have to do with risk. The first is the risk that if they start investigating their concept, they will be told they have a “bad” idea. The second is what happens if they start the business and it doesn’t work out?
This is why programs like our practicing entrepreneurs group and our entrepreneurial lab are so important.
Moving from idea, good or bad, to a sustainable business is the goal of every entrepreneur, but this is a very difficult task. Ideas don’t matter much. I call this the “Twinkie Theory.” If I put a group of folks in a room and told them I had an idea for a golden sponge cake filled with whipped cream, they would most likely say, “Hmmm, no one needs that. It’s not healthy.”
Twinkies are arguably a bad idea, but Hostess makes a great deal of money selling them. Its a sustainable business. Likewise, I’ve come across numerous ideas and you might think, “That’s a great idea!!!” but never had a chance at being a sustainable business.
I am guest lecturing at the University of Ljubljana this semester and am helping with an introduction to entrepreneurship course. Yesterday after class, a student approached me and asked, “Why do good businesses have to involve innovation and new products?” I get this type of question often, and it appears to be fairly universal.
While innovation and new products are part of it, entrepreneurship is really about meeting market needs. The fact is that the market needs car washes and coffee shops just as much as it needs iPods. That’s not to underplay the importance of innovation, but students (and others) should be identifying opportunities based on trends and underserved markets, along with what is of personal interest to them, rather than tossing out business ideas that are not “unique” enough. It may take innovation or a new product to meet a market need, but it may not. And one way isn’t better than the other.