Business Thinking for Entrepreneurs
– Ram V. Iyer
Many entrepreneurs fail because they lack ‘business thinking’ – a way that successful business people think – you know, the people who seem to have business in their blood and are considered business-savvy? It is a skill that can be learnt. With regular practice, you too can become good at business thinking, business-savvy and more successful in business.
Since starting a business today is easy, many people mistakenly believe that succeeding is easy too. As many as 3 out of every 4 startups fail. Even many smart and credentialed people with abundant resources and guidance fail. There are many reasons startups fail and they have been studied ad nausea, but the failure rate has not changed much. People look at visible and conventional reasons like capital, technology, talent and credentials. They fail to see the invisible reasons for failure. This article discusses a different set of reasons for failure and argues that success requires a combination of things to be done correctly. I have labeled that as ‘business thinking’. We also discuss a tool, the ‘business thinking canvas’, that you can use to think and act to increase your chances of success.
“Success comes from doing many things correctly in the correct sequence; failure requires just one thing to go wrong.”
Entrepreneurship is not an end unto itself, except for some entrepreneurs. It is a business venture where there is an exchange of value between two parties.
The cost of having an idea is very low. Once you have an idea and get a few people around you excited (or you get super-excited), the success of the idea becomes wedded to your ego. Many entrepreneurs create products and solutions that they think the market wants but the market doesn’t. They are either ignorant or deliberately indifferent. Either way, the disconnect will cause the venture to fail – sooner or later. Checking to see if the market needs whatever you are building should be fundamental for an entrepreneur. If that is so ‘basic’, why is it the #1 reason for failure? Amongst many reasons, the biggest one is the lack of business thinking.
A product, service or solution is valuable if it meets a need or solves a problem, and somebody is willing to pay for it. That connection between the product and its use is what determines value. If an entrepreneur creates a wonderful product but fails to connect its usefulness to potential buyers, the value could be low or zero. If both parties agree on the usefulness of the product, you could fetch a high value AND have happy buyers and sellers. Entrepreneurs with business thinking add more value and flourish; those without business thinking add less value, waste resources and often fail. Many entrepreneurs lack business thinking and few practice it consistently.
If you want to become good at business, you must become good at business thinking – developing and practicing a method to have regular internal conversations with yourself about various aspects of business.
“Better business thinkers are better at business.”
Many people have difficulty thinking about business, or at the very least thinking about it consistently. If you are a techie, you may be thinking about technology and not business; if you are a marketer, you may be thinking about marketing and not about business; if you are focused on recreation, you may be thinking about the weekend and not business. If you are interested in succeeding in business, you must develop and constantly practice business thinking. But what are the right areas to think about and what are the right questions to ask yourself?
“People who consistently think about business are better at business.”
For example, in any business venture, there is an exchange of value between two parties. One party may provide a product, service or solution and the other party pays for it with money. Each party receives and provides value. Those who focus only on providing value but not getting adequate compensation for it, end up as suckers, generally exploited for their ignorance or naivete; those who focus only on receiving value are ‘thieves’, either lose customers or have ‘one success and are done’. For sustained business success, the transaction must exchange equivalent value between both parties in every transaction. If you go look at long-lasting business relationships in any part of the world, each of the two parties in the transaction believes that he/she is receiving adequately compensated for the value provided.
We human beings are driven by our desire to get what we want, and constantly seek the easiest and quickest ways to achieve our ends. We also focus on what we want or should get, but don’t necessarily think about the other person (who is also looking out for himself or herself). You may want better compensation or recognition as an entrepreneur, but your client on the buyer side is looking for more value from you too. Business, after all, is an exchange of value between two parties and one of the parties pays money to the other party for the value received. We often forget that. Instead, many entrepreneurs spend their time following the herd to raise more money, developing better technology and recruiting a more stellar team. While those are important elements for success, the fundamental requirement is consistent business thinking.
“Conventional ways of doing things are often the cause of many problems because they overlook the business thinking required for success.”
Business thinking is the deliberate consideration of the various stakeholders, their needs and problems, and the value exchanged between the parties in a business transaction. You can read more about BUSINESS THINKING by clicking here.
The Implications of a lack of business thinking among entrepreneurs
How many entrepreneurs do you know who think about the business implications of their venture or the product they are developing? You would think that every one of them would have the customer and the viability of the business venture in mind, but that is not the case. Many of them are ‘one-trick-ponies’, focused on the technology or fundraising or the office.
Many entrepreneurs do not have a clear idea about who the customer is or do not have customer concurrence of the problem and the proposed solution. For a product developer or entrepreneur scrambling to get their product to market, what they are working on is more important the need to research the customer, talk to them about their problem and needs(often different), verify that the proposed solution will meet their needs (through the development process), keep checking with them during the development and implementation and other such important details.
Many others are focused on the product or solution and fail to get it valued (priced) with customer input, or seek and get adequate compensation for the value being delivered.
These are some examples of work situations in which entrepreneurs can enhance their value by considering various important factors during the process.
Have you noticed that some entrepreneurs are more highly valued and successful than others? Besides essential and visible elements like technology, team and capital, many of them are better at business thinking. They think, act, and work on their venture and its outputs with clarity about the business benefits to their organization and themselves – and therefore reap bigger rewards for themselves and their organizations. Many entrepreneurs who start companies don’t practice business thinking and therefore end up doing less, getting less and often failing.
The Business Thinking Canvas
We have developed the business thinking canvas, a thinking and communication tool based on first principles and interviews with successful business people which, on a single sheet of paper, identifies the stakeholders and captures the business value chain of a task or transaction – starting with the customer who has the need and ending with an individual working on the project. It asks 16 thought-provoking questions, each important to the practice of business thinking which results in an exchange of the greatest value to parties in the transaction. The canvas can be used by anybody who wants to provide a product, service or solution in return for compensation. If one completes the canvas – whether an employee, entrepreneur, business owner or even non-profits – the individual and the business will become more effective at providing and receiving value.
Each entrepreneur may know the answers to some of the questions while customers, partners, suppliers and others in the organization know answers to others. The canvas enables you to figure out the unique value you can provide that aligns with needs or problems of customers (internal or external) who are paying for it. Many people fail to consider or act on the many steps between determining personal value and receiving compensation, resulting in failure or limited business success.
It may sound simple but most people often forget that success is an AND function – it requires many things to be done correctly. Failure, on the other hand, is an OR function – you miss or fail one step and you could end up with limited success or failure.
Entrepreneurs need to become adept at identifying, engaging, and discussing the value chain with the various stakeholders to obtain the required business outcomes, while also maximizing the value provided and received by each of them. The business thinking canvas is a simple and effective tool to facilitate this dialog between people across departmental, organizational and national boundaries.
Ways to use the Business Thinking Canvas
The canvas can be used to bring individual clarity. Entrepreneurs can fill out one canvas for each project he/she is working on. Each completed canvas will provide clarity about who the various stakeholders are and how value can be exchanged with each of them. You can fill one out for your entire venture or one for each project within your startup. If you are working on three projects, you will have three of these canvases. Completing the canvas requires each individual to identify the various stakeholders and engage them in a dialog about how best to provide and receive value.
The canvas can also be used to align the work of several people, whether they are working on a project or a venture. The tool can be used to map the needs of the customer to the individual or entity. A series of completed canvases will roll up to the head of the project or initiative. It will be easy for the project leader to check if the team members will collectively meet the various needs of the project.
Everybody Can Benefit
Entrepreneurs and their clients have tremendous information asymmetry. Entrepreneurs know the most about their idea (product, service or solution) while the customers/clients know their own problem or need and control the compensation. Since some entrepreneurs do not practice business thinking, they are often at a disadvantage when it comes to getting compensated or better meeting the needs of the market.
If boards, investors and venture capitalists made entrepreneurs more aware about the business side of things, they could create better solution for real customer needs and make more ventures successful, resulting in providing and receiving greater value for all parties.
This work can help entrepreneurs, business owners, employees and leaders become more successful. If you are an entrepreneur or a work in a startup and want to improve your organization, both individually and organizationally, please reach out to me.
Entrepreneurial Mindset + Business Thinking = Greater Success
I coach and conduct workshops for entrepreneurs, business owners and business leaders to help them achieve greater success – based on my personal experiences, interviews, research and thinking. You can learn more about the business thinking workshop for individuals and groups at https://www.businessthinking.com/workshops/business-thinking-for-business-success. If you are interested, please reach out to me.
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