When you’re young and just getting in started in business, the tendency is to follow your gut instinct and, by extension, to tune out many of the people around you. This mentality is helpful in the beginning stages; frankly, it requires a kind of confidence that borders on stubbornness to venture into the world of entrepreneurship. You need to have a drive and singularity of focus that isn’t easily derailed by other people.
However, like most virtues, it can ultimately transform into a vice. Entrepreneurs, particularly younger ones, should make sure their confidence doesn’t turn into arrogance. While I’ve learned much through personal experience, some of the best business lessons have come from other people. Below, I’ve shared five of the most valuable pieces of business advice I’ve received that I still think about to this day:
“Don’t count money until it’s in the bank.”
Thinking about this lesson makes me want to take a nap, because it’s so emotionally exhaustive. This advice was given to me by Stan Kats, a good friend and founder of Abbot Capital. It’s a lesson that all entrepreneurs should heed, because failure on this point can lead to big problems. Getting a customer or investor to commit verbally is not money in the bank. Signing a contract is not money in the bank. Money in the bank is when you look at your bank statement and you see that the funds have been deposited. This is especially true when you’re raising capital. Entrepreneurs make this mistake all of the time, because they’re looking for good news. This is a lesson that, unfortunately, often doesn’t truly resonate with entrepreneurs until they learn it the hard way.
“Great products succeed in spite of, not because of, an executive team.”
I once asked a venture capitalist named Al Reyes about the types of businesses he likes to invest in. I thought he’d say a strong management team, because that was my perception of the conventional wisdom in the VC world. His answer surprised me and sticks with me to this day. He said that he looks for a business whose product is so strong that it will be successful despite poor execution. He actually assumes poor execution as an inevitability. Therefore, the idea has to be so compelling that it washes over ineptitude. This lesson should be taken to heart during the idea-generation and product-development stages of any work that you do. Focus on making your product excellent, and the rest of the pieces will fall into place.
“Being profitable is incredibly important.”
In the early stages of my current company, Sageworks, William Seidman, the former FDIC chairman who also sat on our board of directors, used to consistently ask me when the company was going to be profitable. It was almost his exclusive focus. However, like a lot of companies in those days, we tended to emphasize customer acquisition and rapid growth. I realize, in retrospect, that we probably wouldn’t have lost any real value by accumulating customers at a slower pace, in order to be cash-flow positive and profitable at an earlier stage. This is where a lot of entrepreneurs fail: They give away huge chunks of their business because they’re not cash-flow positive. These points were passed along to me by Bill and a few others, like Fred Luconi from MIT, but they didn’t really sink in until much later. As always, hindsight is 20/20, but I think this model would have been fine, without many trade-offs. For most businesses, rapid growth should not serve as a substitute for profitability and cash flow.
“Sometimes there is no solution, only an optimization.”
A good friend of mind, Ferris Chandler, explained to me about 15 years ago that I was trying to view business as an equation. By extension, I was trying to solve unsolvable problems, operating under the guise that there was always one perfect, totally correct solution for everything. I’d run through each problem like a computer on an endless loop, looking for the answer. But Ferris was right. In reality, most business decisions are optimizations, not solutions. The best possible choices are often the ones that have less negative consequences than the other possibilities. This point, in coordination with the next piece of advice below, has allowed me to operate a lot more efficiently in business.
“Don’t swing at balls in the dirt.”
Another good friend of mine, Jim Sharman, gave this advice to me once, and it resonated with me instantly. The image really hit home, bringing back memories from childhood baseball: Often, when you’re up to bat, you’ll see a pitch coming at you that you have no shot hitting, only to inexplicably take a swing anyway. In business, you’ve got to distinguish between the items that are solvable and productive (the balls you swing at) and the ones that can do nothing but derail you (the balls in the dirt). These “balls in the dirt” can manifest themselves in countless ways. A specific example: You’re giving a presentation, and someone makes a point that’s totally outside the realm of what you’re discussing. While you may be tempted to address and explain why this point is off base, the right move is to, politely, avoid engaging the point whatsoever. To even address the point would only take you off agenda. Sometimes the best move is to make no move whatsoever. This one may seem a little bit abstract, but it’s a concept that has helped me tremendously in business.