Once each year I’m asked to go and lecture at my Alma Mater Brigham Young University for their entrepreneurial program. This is something quite frankly that I look forward to and, although I’m not always sure how much value it gives, I feel it is a way to give back and to connect with the students. Indeed today is my lecture at BYU and as I was preparing for this presentation my heart has been joyful and melancholy at the same time based on several interactions that I’ve had with young entrepreneurs.
My presentation today is going to be dramatically different than in years past. I’m not going to use slides or do a big fancy presentation or get right to the nuts and bolts and gritty details of The Zig Zag Principle which everyone knows that I love so dearly. My presentation today is going to start out telling three stories. These are three stories that all came from Brigham Young University entrepreneurs. These stories indeed highlight three ways NOT to start a business.
Story Number One:
Last year at this very lecture there was a young man that kept having tears come to his eyes during the presentation. He was taking notes almost faster than I could speak and I could tell that there was great impact. After the lecture he asked to visit with me and we had a dialogue and he proclaimed that, “Everything you said to do, I did the exact opposite and I’m paying for it.”
This young man now has visited with me several times. He was in my office last week again with tears in his eyes as he explained that he had great desire to be an entrepreneur as did several of his dear friends and roommates. They’d all jumped in without an operating agreement and chewed off a great opportunity for a service industry in the local area that required high capitalization. This happened to be a massage business.
This young man then highlighted to me how he’d signed personal guarantees as well as collateralized the one asset that he had, which was a piece of real estate, shortly into the venture while he was an undergraduate. He got married and began having children. Ironically his partners exited without signing the personal guarantees and he ended up getting stuck with all the liability.
Indeed the business model, although superficially looked great, the reality was it was not financially viable. Each year, despite tremendous efforts, it would lose as much as thirty, forty, fifty thousand dollars in a year and membership base in the business grew. It appears to be somewhat high profile but now the young man in preparing to graduate from college with a Master’s degree. He has a great and promising future before him, indeed several very large and well-known companies desire to employ him. His situation led him to ask me, “Rich, do I declare bankruptcy or do I try digging my out of this? I can’t stay in this anymore. It will disrupt my marriage, furthermore I’m moving. Do I pay this debt off for the next period of life?” He estimated that he lost around $150,000 while going to college. Although I have great respect for this young man and his tenacity to try being an entrepreneur he exposed himself to risk that wasn’t appropriate or necessary.
Story Number Two:
A young man at the age of twenty-five years old was working for a company and saw that the model was just slightly askew. The company ended up going out of business. Well, this young man saw a solution to the model, put $15,000 on his credit card at the age of twenty-five, and indeed he was right. He instantly had a team, they started having tremendous success and before long the company was doing several million dollars a year on a kind of an edgy business model, but a brilliant business model nonetheless, and he started buying all his employees BMWs. It was a pretty darn arrogant company, full of swagger.
He sold that company and within a couple of years, I think at the age of twenty-eight to the tune of $12 or $13 million. Great win, right? Twenty-eight years old, done! He’s got it made! What did he do? Well, he kept the swagger up, kept driving the fancy cars, acting like he had it all made, but he couldn’t resist from violating the non-compete agreement.
What’s the result? He violated the non-compete with the company that he’d sold. They came back and sued him, taking basically every bit of the payout that they had given him, completely decimated the new company he had created, and in many ways I think really damaged his future potential. Devastating.
A young man who for twelve years now comes to me at least twice a year. I expect the call every spring, every fall. “RICH! Great idea! I’m ready to start the business now! I’m finally gonna do it!” Twelve years later he still hasn’t created the company he’s been talking about.
These three stories highlight the reasons I passionately believe in zigzagging, failing efficiently, and not exposing yourself to more risk than you are prepared to deal with. Now I realize, some people have a higher risk threshold than others. The first story was dramatically higher risk than the second one. I’ve come to the conclusion after many years of battle wounds, cuts, and scars, and scrapes that failure is very good and important. And going forward I will not be consulting, helping, or supporting or enabling anyone who can’t show me two or three really good failures.
The secrets to success aren’t really secret at all.
Secret Number One: Fail efficiently and learn from your mistakes
Secret Number Two: Avoid risking what you can’t afford to lose
Secret Number Three: Maintain a proper balance in life so you don’t end up destroying the most important things in your life
That’s what defines entrepreneurship. I think in my next post I’m going to talk about the three ways TO start a business with great success and it’s going to involve a young lady, my mentor Alan Hall, and I’m going to pick one other just for joy.
Go forward. Zig Zag. Don’t be afraid to be an entrepreneur. Keep these key things in mind. Don’t risk what you can’t lose. Fail very efficiently. Avoid destroying the most important things in your life.