Are you entrepreneur material?

Let’s assume that the sight of people walking the business districts everywhere with boxes in their hands becomes more prevalent and the unemployment rate continues to climb. For some, finding employment is not going to be that difficult. After all, there are critical worker supply issues in industries like health care, engineering and computer programming. But, for others, it may become more difficult to rejoin the rat race. For example, what are hedge fund traders going to do now that the entire industry is shrinking?

Over five years ago, I made the decision that perhaps being associate #286 in a large law firm was something I probably did not want to do (not that anyone would have me either) nor did I want to become a foot-soldier in a large multi-national firm. Every position I have had since then has been self-created or I own more than a nominal stake in the business.

Yet, if you met me circa 2002, you would have not pegged me as entrepreneur material and many entrepreneurs I have met along the way are not the stereotype that the media portrays of a bunch of 20 year old kids, in khaki’s with some far out idea they are attempting to bring to market. In fact, I have met stodgy, by the rules entrepreneurs that would make Jim from accounting blush.

I am not sure if there are “essential” characteristics that you need to be an entrepreneur but, if you are thinking of becoming an entrepreneur (voluntarily or not), here are some factors to think about:

1. Entrepreneur = hard work. There are, indeed, life-style entrepreneurs who work lighter hours but most people who start businesses remark how much work it is (if you are a blogger think about how much time it takes from your life and that’s your hobby). You have to remember you are now the accounting, human resource, legal, IT and stationary department. An entrepreneur wears many hats during the course of a day.
2. Narrow specialist don’t survive too long as entrepreneurs (without help). I have met people who know some programming language, engineering technique or some esoteric knowledge like the back of their hand and all they want to do is tinker with that knowledge. If they don’t have a non-specialist with them, they don’t last long in business. Entrepreneurship is about being the jack of all trades. You have to know some book-keeping, some sales and marketing and some client service skills. It is, in many respects, the flip-side of big business where you execute 5 specialized functions over and over again.
3. Better get some thick skin. I remember the first time someone threatened to sue me for $2 million dollars (a bit of a nut…), the time I had to yell at someone to get paid and the time I had to fire an employee. You need some thick skill and some courage to survive.

Those are all the flip-side things to think about lest you think entrepreneurship is always sipping coffee at a Starbucks sending emails on your laptop dressed in jeans and a t-shirt. But you know what? It is one of the most satisfying things I have ever done. You grow something from scratch, you challenge yourself and you meet some wonderful people along the way (I find entrepreners generally more “real” than corporate fat-cats having lived in both worlds).

From the personal finance side, these are some things to consider:

1. You have to get your family on board. Based on my own experiences, the cash flow cycle of a start-up which does not need much capital expenditure (i.e. personal service type businesses) is that  you peak early since your friends and family buy your good/service to support you and there’s an inital excitement. Then, after that initial surge, some businesses go side-ways or back down. The question becomes how do you feed yourself after that surge? You have to set expectations for your family that you may not have predictable and steady income for the first couple of years and everyone has to pitch in.
2. Learn cash flow cycles. When you are an employee, you always know what you are going to get paid. If you are self-employed , you don’t. So you have to understand your cash flow cycles in terms of when you get paid (a/r aging), seasonality (i.e. no one does business in August in Toronto so don’t ramp up expenses in that month if not that much cash is coming in) and your fixed and variable costs.
3. Find the balance between pumping cash into your business and into your portfolio. Entrepreneurs can be terrible asset allocators. They pour all their free cash into their business and forget to build their portfolio. Businesses always take more time and money than everyone estimates but you have to remember to set goals to build your personal portfolio as well.

Anyone else care to share?

I don’t write much on entrepreneurship. Is this something people would like to hear more of?