Do’s and don’ts to get ahead in the game
By Luke Johnson
Published: June 15 2010 23:15 | Last updated: June 15 2010 23:37
When I am interviewed, I am occasionally asked: “What is the secret of business success?”
If I knew the perfect answer, I would have made far fewer mistakes over the years; in truth I suspect there are many ingredients. Nevertheless, as an exercise, I have noted below a number of contributing factors that I think matter more than most.
● Work for yourself To be self-employed can be lonely, and is likely to be hard work. But ultimately you will gain the rewards for your efforts if you are right – as long as you are lucky. You can certainly earn a handsome living working in a big bank or an accountancy firm, but you will never achieve a spectacular capital gain, or change the world in the way that an entrepreneur can by fulfilling their dream.
● Be in the right place History shows that growing markets, where entrepreneurs are encouraged, offer greater opportunities than places where there is stagnant demand, high tax and lots of regulation. On that basis, anyone with little to lose who is living in the west should emigrate to the east: it’s what I advise anyone under the age of 30 to do. This is a harsh verdict, and inevitably there are thousands of exceptions. But it is undeniable that far more new millionaires and billionaires are being minted in countries such as India and China than in Europe. Growing gross domestic product, expanding populations,low costs and modest tax rates offer a powerful combination that the west simply cannot match.
● Learn how to borrow An ability to find and use debt is a factor in most stories of great wealth. Even if banks are not extending much credit right now, the cycle will turn and eventually they will reopen for business. I was slow to realise the fundamental importance of using debt. Many entrepreneurs overdo it at the top, and end up losing many of their leveraged assets when prices fall. But somehow they rarely go bankrupt, and very often reappear with new bankers in tow when the cycle turns.
● Keep hold of the equity Do not sell out or dilute too early, but retain ownership if you possibly can. Individuals get rich through capital growth in the value of shareholdings, not through salary or dividends. Often, entrepreneurs give away big chunks of shares early in the project to junior partners; you should do this only if you have no choice. It is better to use other forms of currency if you can, especially since it is unlikely to be highly valued at the beginning.
● Know when to lunge for glory For most of us in business there come a few great opportunities in life that require a huge leap in ambition and scale. It might be a new factory, a big acquisition, a breakthrough product launch. On these occasions, boldness is required if the transformation is to be successful. Of course, such steps will carry risk as well as reward. But all investment involves downside possibilities – as well as the chance of sunlit uplands. Winners have an intuitive sense of when the time is right to really go for it.
● Build a team Almost no one makes it on their own. Businesses that do reach the big league do so by hiring excellent managers and having strength and depth among their top people. Great leaders know how to pick the best recruits, and how to delegate and motivate. They are modest enough to realise their shortcomings, and hire colleagues who compensate for those weaknesses.
● Resilience Constructing a substantial company demands both physical stamina and emotional fortitude. There are likely to be occasions when the prospects appear bleak, and giving up seems the only option. More often than not it is these moments that separate the victors from the rest – because they never despair, and press on when others fade.
● Domain knowledge It generally pays to focus on a particular industry, and truly to understand the technical aspects, the market, the competition, the best people, the margins, the trends and so on in your chosen field. And picking a large sector that is undergoing rapid change increases your odds of making a fortune – such dislocations allow newcomers to take advantage.
lukej@riskcapitalpartners.co.uk
The writer runs Risk Capital Partners, a private equity firm, and is chairman of the Royal Society of Arts
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