New Focus: Energy Spent Acquiring Customers
Customers, not investors, create wealth, Powell contends. Digman agrees: "The investor is the enabler, but for anything to succeed, it has to have customers."
Spending too much energy on finding funding can cripple a growing business, adds Kaye. She spent most of 2000 drawing up business plans and presenting them to investors in hopes of finding expansion capital. "A lot of my energy, probably 90 percent of it, went to that-to no avail," she says. While she was wooing investors, she wasn't courting customers, and her business suffered for it. "It was a big learning experience," she says. "I stopped looking for equity, and now I'm focused on acquiring new clients. It's made a big difference."
6) Old Focus: Traditional Meat-Ax Marketing
New Focus: Creative Surgical Marketing
To entrepreneurs of even the recent past, marketing has been epitomized by the Super Bowl TV commercial. "That's what they think of first," confirms Young.
That idea is outdated, says Digman. "The mass market, for all practical purposes, has been dead for a generation," he says. "The effective companies are the ones that have been targeting, targeting, targeting."
A target market isn't necessarily a small market, Digman adds. You can assemble a number of niches into a mass nearly as big as that reached by a Super Bowl ad. But when you target your marketing to each of those niches, you can make far more money. "It's been all about that for some time," Digman says. "We've just finally realized it over the last 10 years."
Entrepreneurs like Kauffman have caught on. He made the decision early on to target the Fortune 1000. His reasoning: These companies have the biggest logistics budgets and the most sophisticated needs. "And I know where the Fortune 1000 is," Kauffman says, "so I don't need ads."
7) Old Focus: Major Milestone Is an IPO
New Focus: Major Milestone Is Market Share
If one thing is clear in the new entrepreneurial era, it's this: Acquiring and serving customers, not selling stock to investors, builds companies. Businesses like Amazon.com that made billionaires of their founders and pre-IPO backers while making paupers of their later-stage shareholders, aren't really creating wealth, Powell claims. They're just transferring it from investors' pockets to entrepreneurs' pockets.
For most entrepreneurs, of course, IPOs are something that happens to other people. But even for those with the option of going public, it's not always the ultimate objective. Kauffman feels his firm could be a legitimate public company. "We realize an IPO is there," he says. "But the question is, 'Why would you do it?' " His company might be able to grow just as well, and with a lot less trouble, by carefully partnering with larger companies.
"If your focus is a great IPO, you're building a house of cards," he says. "It sounds kind of hokey, but really your number-one interest is in building a great company, building great infrastructure and building great employees. The rest will take care of itself."
Not everybody agrees that refocusing is required. "The concept is vapid," snipped one business professor presented with Powell's list. "Smart entrepreneurs haven't relied on the 'old focus,' and the 'new focus' is not new." Many would contend, however, that even smart entrepreneurs fell victim to mistakes brought on by the billionaire dreams of the late 1990s.
Powell doesn't claim these focuses represent all there is to know about being an entrepreneur. "These are just seven pretty typical ways that entrepreneurial ventures fail," he says, and argues that it's simply appropriate for entrepreneurs to take a look at these ideas and see what they can learn.
Or, as Young puts it, "Sometimes it's better to go back to the basics."
|SOURCES FOR MORE|
|Learn more about what professors at the nation's top graduate business schools think about running small companies at Worthing Brighton's Web site, located at www.managementmasters.com.|
Mark Henricks is Entrepreneur's "Books" and "Smart Moves" columnist.
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- Logical Choice Technologies Inc.
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- Marketing Intelligence Service Ltd.
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- Thomson Financial/Venture Economics
- University of Houston Small Business Development Center
(713) 752-8444, Fyoung@uh.edu.