Serial entrepreneur and investor Doug Richard outlines seven virtues of sound businesses he looks for in every investment he backs.
Every serial entrepreneur has a set of precepts that govern most of their business decisions. These "general rules" may not apply to every situation, but the exceptions are so few and so far between they are almost impossible to anticipate. While these principles may vary from one business owner to another, almost every successful business owner can agree with all of them. These principles also underpin what I teach at School for Startups but for those already running a business, they provide a healthy checklist to measure your company against.
Financially frugal
No matter how much money you have, you have no "extra money". A business never has money to waste. It just can't happen. Any thought that you may have to the contrary is wishful thinking. Extra profits from this month are not extra money, they are money you need to hold you over in a poor month that lies directly ahead. Until you have more than a year of your business' gross income banked against a future financial hardship, you are living on the very edge of failure.
A few bad months will put you out of business and will put your employees on the street. When you do have a year of income banked, you will be facing the dangerous prospect of expansion or diversification that kills many great businesses every year. That process is expensive, so you'll need to have money to pay for it. Once your business expands you will need to bank more income for that rainy day that could come at any time. Grim as it sounds, get used to the idea that there is a reason that so many business owners refuse to pay full price for anything. It is how they became successful.
Permanently pressed for time
You don't have time to waste either. In fact no one who works with or for you has time to waste, because time really is money. If you spend a year making what you need to make in a month, you'll be going out of business soon. You have to make more money in less time. You have to save time wherever it is economically responsible to do so. Two sales calls a week usually means a sales professional earns half as much as he would make if he had four sales calls a week. So, all other things being equal, he should do more calls every week.
The only time this rule doesn't apply is when haste is likely to cost you money. Don't send products to customers by expensive overnight delivery services unless that expense pays for itself. Don't use being pressed for time to avoid shopping for a way to get some product or service you need at a substantially reduced cost. Don't hire someone when you can cut back on activities that take time but don't make money.
Committed to customers
Unless your business earns its keep by knocking people on the head and taking their money, you have to be in business to give customers what they want. You have to give them what they want even when what they want makes no sense. Bottled water, by and large, is not safer or cleaner than tap water. But people buy it anyway. They buy it even when they will be sitting at a desk a few feet away from clean, fresh tap water all day long. This is why there are businesses that bottle and sell water.
You can get away with giving customers something they don't want only if you make them want it first. Even hardcore music fans probably thought £150 was a bit much for an overbuilt walkman - until they met the iPod. Always remember - and always encourage your employees and business associates to remember - to be on the side of the customer. By and large those folks will pay a profitable price for a good product, so make sure they have a really good product to buy.
Intentionally insightful
Good business owners, particularly those who survive to do more than one business, develop a capacity for insight and self-reflection. When things go right, they find out why. When things go wrong, they find out why as well. If you are the owner of a business, exercise your insight every day and ask those who work with, and for, you to explain what you don't understand. Ask your customers to help you when necessary.
Getting the real answers to questions such as: ‘Why didn't that mass mailing work?; ‘Why did we lose that customer?’ and "Exactly why didn't we make our numbers last month?’ can translate into much faster, much more profitable growth. Don't make the market teach you the same lessons over and over again.
Hard working
A good idea is never enough to have a successful business. Hard work is required. Generally speaking, entrepreneurs and those working for them work well over 40 hours-a-week, and many are working closer to sixty. They enjoy what they are doing so much it occupies their working days and their leisure hours. If you don't feel that strongly about your small business, if your team doesn't join you in your obsession, something is fundamentally wrong. Good investors and good venture capitalists look for passion because they know it means profit. Make sure your business is something you want to work hard for.
A sense of community
A business has to be a community of people working together toward a common goal. Time spent gossiping, plotting revenge, backbiting and hiding scurrilous love affairs is generally time wasted. Entrepreneurs need to create and foster a supportive, friendly and honest community within their businesses so time can be spent on things that actually make money.
Businesses have to be a part of the larger world. Contributing to the local school, donating to the local charities, playing a role in national and international affairs where reasonable and appropriate, creates good neighbors and good long term relationships.