Posted on Thursday, July 9th, 2020
There are two types of entrepreneurship. And subsequently, two types of entrepreneurs.
There are those driven by profit: spot a problem, spot a market need, figure out a better way of doing things, sell the solution.
Then there’s the passion-driven kind: “I really love doing [insert hobby here], I’m going to try and turn it into my business.” Little thought or regard is given to all of those metrics that you should really look at before going into business. Is there a high demand? Is there a demand at all? What sort of money can I make from this? What problem do I solve? Who will pay for this? How much will they pay?
Which type are you?
For most of my career so far, I have been a passion-driven entrepreneur. Until around two years ago, I had an epiphany and began, over a period of months, to think about business, entrepreneurship and creative endeavours very differently.
As somebody who sees only two good reasons to either helm a project or be involved in one (either it will be an adventure or it’s something I’m really passionate about), I’ve laid out my personal rules for passion-driven projects.
That may sound obvious. It’s business – obviously the point is to make a profit. Well… yes. But if you are driven more by love than by money, it’s very easy to but profit second to some other form of pay-off: fame, attention, status, or any of the other psychological intoxicants humans can crave besides cash.
Maybe you set out to create the most beautiful property you can, and you exceed the renovation budget on your buy-to-let, which then takes money out of your pocket as it crushes your ROI yield.
Hint: Passion makes you spend. Be conscious of that. And don’t.
Many years ago, a career coach introduced me to the Japanese concept of Iki Gai, which translates from Japanese as “reason for being”. This eastern philosophy dictates that for us to find our place in the world, our true calling, so to speak, our occupation must satisfy four criteria:
These criteria are often found displayed as a Venn diagram:
This is a really useful graphic representation because it allows to see what happens if all three criteria are not met:
Enjoyable and well paid, omits the necessary skills: rich but anxious.
Well paid and good enough but not enjoyable: rich but bored.
Good enough and enjoyable but not well paid: happy but poor.
But what the diagram fails to do is to prioritise any of those criteria over and of the others. But let’s remember, it’s an occupation. The primary purpose of it is to make money. And if that’s the case, wouldn’t it make sense to prioritise profit above the other criteria? I think so. Happy but poor is what hobbies make you.
I’m definitely not recommending you ignore the other criteria. That, I can tell you from personal experience, is a recipe for misery. But to put them at close second is wise.
In any venture, the most passionate member of the team – especially if they’re a first time entrepreneur – is the most prone to delusion. They believe that they are somehow different and somehow exempt from becoming a statistic, failing to see the irony that the statistics are basically made up of thousands and thousands of first-time entrepreneurs who thought exactly as they are.
Testing a business idea is fairly straight forward: Make an offer to the market place and see how many people bite. If nobody bites, it means the market doesn’t see enough value in the offer and it needs to be tweaked into… well… a better offer.
This could simply mean better communication of the value. It could mean improving the product. Or, it could mean reducing the sale price. It means doing whatever is necessary to get the market to give you money – which they won’t do if they don”t consider your offer a good deal for them.
Business is easy IF you listen to the market. However, when it is passion that drives you and not profit, many would-be entrepreneurs decide to ignore what the market is telling them and try to push a bad offer. Of course, no amount of stubborn assertiveness is going to create a market for an offer that is deemed to be a poor deal.
This is generally a very powerful skill to have for life in general. I’ve never known a really self aware person absolutely bomb repeatedly. It always pays to be aware of exactly why you are doing something. The human mind is often very deceptive and can successful hide true motivations from your consciousness. If you’re pursing a venture in order to live out a dream, it’s good to know that up front. And maybe not to expect it to make much money.
Disagreement can be a good thing. Because the chances are that you are not always right. Nobody is. There are going to be weaknesses in your knowledge and skill sets which are going to hamper or completely derail your efforts.
Check out Johari Window for more on this.
Even make an effort to populate your team with one or two people who are not remotely passionate about the product or service.
If you’re pursuing a venture in order to live out a dream, that doesn’t necessarily mean you shouldn’t do it, but if you’re doing it under the delusion that you’ll make money out of it, then perhaps it could be a good idea to have a CFO who is not yourself to keep you in check. See where I’m going with that?
When people disagree with you, it’s because they can see things where you have blind spots, like a lighthouse, showing you rocks that, if unseen, will sink HMS Venture.
You really need to know what you don’t know and you need to know what you can’t do.
This isn’t what the rest of the Internet is telling you. But sometimes, I have found, too much passion can cloud your judgement. So it pays to have somebody on the team who isn’t in love with the business, the subject matter or the idea and who can view it objectively, as a small part of a wider economic ecosystem.
For example, suppose you want to go into business making Cola. You know it’s a very popular drink – one of the best selling drinks in the world, actually – so you figure that there’s a fortune to be made. People have tasted your recipe and they say only good things. You think that the quality of the product will speak for itself and as the word spreads, people will come running.
But wait – there are some very very big players in this space. And if you can widen your view and see your business as part of an overall ecosystem, it becomes clear that the type of competition you’re up against pretty much makes the venture a waste of time. The chances of success are slim to nil. It’s like trying to plant a seedling at the base of a huge mature oak tree. It will die, regardless of its merits, because of where it is.
I define a dream job as “being paid to do something you would happily pay to do.” And that’s a problem. Because if you would pay to do it, the chances are you will.
You’re so excited to get started that you may jump the gun on all the due diligence that should be done before starting your engines. And because you want to believe that you will be successful, you approach the venture with a foolish degree of optimism.
You need a clear idea of every step of the plan: specifically who your customer is and your route to market? Passion driven entrepreneurs all too easily get really bogged down on the product. Because it’s something they really love. Very few products – if any – throughout history, have ever sold just because they’re awesome.
If your route to market is either a question mark of a black box, your venture will more than likely fail. What you’re really asking is to get lucky. And while it does happen, the whole point of luck is that it’s completely out of your control.
I think passion is an important ingredient when starting a business. There’s so much effort involved in actually getting something off the ground that if you don’t have passion for it, it can sometimes be very difficult to find a reason to keep going.
However, in my experience, passion should never be the primary reason to start or get involved in a venture. Without strong evidence of market demand for the product or service you aim to sell, no amount of passion is going to make a business work.
I am not a day trader. I generally hold positions for between a few weeks and several years and any opinions I share have this sort of time scale in mind.
Nothing on this blog should be considered to be anything more than entertainment. It is certainly not to be considered to be financial advice.