Why it pays to know your weaknesses when starting a business

Rightly or wrongly, many people have formed their impression of what it is to be an entrepreneur through watching television programmes such as Dragons’ Den and The Apprentice. They see larger-than-life characters with great drive and determination who are not afraid of sharing an opinion or two. So it should not be much of a surprise that there have been a steady stream of books offering advice from such participants in these shows as Duncan Bannatyne, Peter Jones and Deborah Meaden.

Now comes Shaf Rasul, of the Dragon’s Den online spin-off. Having made his fortune through businesses in information technology, property and asset management, he looks well placed to write Secrets of a Serial Entrepreneur (Capstone, £12.99). With chapter titles such as Ten Key Things To Know About Business Finance, Make A Business Profitable Fast and Drive A Hard Bargain, the book does not hesitate in getting to the nub of the subject.

Indeed, Rasul makes much of the fact that the book is about making quick returns by starting or acquiring a business, sharpening it up and then selling it and moving on to the next thing. Having started by dealing with the characteristics of entrepreneurs – self-belief, belief in others, an eye for detail – he moves quickly to the importance of establishing an exit strategy. Admitting that this looks counter-intuitive, he stresses it is important to have an end in sight: “Before you buy or start a business, make sure you’ve got a clear strategy of how, when and to whom you could sell it.”

Some might argue with his claims that “the point of being an entrepreneur is to buy companies for a low price and sell them for a higher one” and “if you picture yourself owning something and showing it off rather than picturing yourself going to the bank on the day you sell it on, then you’re not an entrepreneur, you’re a collector”. But there is no denying that if you are going to take a limited view of entrepreneurship – as a process of getting a business started or moving after a period of stagnation – then having a good idea of your aims and a strategy for achieving them is essential.

Moreover, Rasul is at least honest about his motivations. There are many businesses that started off well and ran out of steam when their entrepreneurial bosses lost interest. That is why entrepreneurs who stay successful tend to know their strengths and weaknesses and appoint steadier heads to run the business once it is established, or sell out.

John Mullins is another successful entrepreneur (his career includes a stint as vice-president in “the early high-growth days” of the clothing retailer Gap) who is now an associate professor at London Business School.

As such, his experiences are described in slightly less racy language than those of Rasul. But his book – The New Business Road Test (FT Prentice Hall, £24.99) – still gets straight to the point. As the subtitle, What entrepreneurs and executives should do before writing a business plan, indicates, he is trying to reduce the daunting odds of failure that

stalk entrepreneurs. “Right now, there are 2 million entrepreneurs in the UK actively engaged in starting a new business. Many of their ventures will never get off the ground. Of those that do, the majority will fail. There are more than 15 million entrepreneurs in the USA doing the same thing. Most of their ventures will fail, too. Of those who submit business plans to business angels or venture capitalists, less than 1 per cent will be successful in raising the money,” Mullins writes.

The fact that one in 10 Americans and one in 19 Britons actively pursue entrepreneurial dreams suggests that there are plenty of people with the inspiration and drive recognised by Rasul. But the problem is that not every opportunity turns out to be as golden as it appears to those attempting to set up businesses.

Indeed, Mullins cites research indicating that the vast majority of ventures fail due to opportunity-related reasons. These include market reasons, such as the target market not buying; industry reasons, such as it being too easy for competitors to steal your market; and entrepreneurial team reasons, such as members being unable to cope with the challenges thrown up at them.

As a result, he suggests would-be entrepreneurs pause and take stock before devoting themselves to producing the great business plan. The book’s title refers to the seven-part test that they should put themselves through to see whether it is worth moving to the next step. Doing so requires entrepreneurs asking themselves detailed questions about customers, markets, the industry, whether they have sufficient advantage to stay ahead of the competition, their commitment, their ability to meet the critical success factors and the extent of their networks that they can use to get going.

This might appear negative at a time when all and sundry are suggesting that entrepreneurs could play a prominent role in any economic recovery. But Mullins is unapologetic, claiming that the important thing is that businesses succeed and grow rather than just start. Entrepreneurs who have asked themselves tough questions before producing a business plan and raising finance will have the confidence to succeed, he says.

Somewhere between the approach of Rasul and Mullins lies yoodoo.biz, an internet service developed by a team of successful entrepreneurs and media professionals headed by Tony Heywood and Nick Saalfield with the aim of helping entrepreneurs to get started and then giving them the tools to succeed.

The service, which has the backing of banks and other big companies, is entirely free, and builds on the idea of the training video to take users through the issues associated with starting a business so that they can decide whether it is for them; and then – once they get going – can draw on various types of advice provided by more than 80 specialists as they require it. Because it is modular in structure and often concise, it is well suited to those who are currently in a job but who want to test out ideas, or find out more, before taking the plunge and going out on their own.