31 Jan Why are you in business?
Here’s a question that I’ve asked many entrepreneurs in the past. “Why are you in business?”
It’s not always phrased in that way, often I’ve asked about their ambition for their business, or where they want to take it over the next 3-5 years. Sometimes, I ask why they started the business in the first place. But, however it’s phrased, it’s really just one question – why are you in business?
In reality, I’ve found that many entrepreneurs struggle to answer this simple question. But when I think through the answers I do get, they usually fall into four different areas. There are 3 distinct types of entrepreneurs who understand why they are in business, and then entrepreneurs who really just don’t know. These three types have a clear purpose and are aligned with their business goals. I call the 3 types:
- The “Exit” Entrepreneur
- The “Higher-Purpose” Entrepreneur
- The “Lifestyle” Entrepreneur
The “Exit” Entrepreneur
This is the classic entrepreneur in the sense that they are focused on building a business and, in their mind, the business is everything. Also, they also have a clear goal of realising the value they are creating via an “exit”, which basically means they will sell their business at some stage (we won’t go into the different exit strategies here as there are many and often the most common are the least planned) Some entrepreneurs start out with the ambition of an exit in mind and they’ll tell you upfront that they plan to exit in 5 years. Others start their business because they are just creating something “cool” and then, along the way, they begin to think about an exit (usually around the time it all starts getting too big or too boring for them). The critical element, however, is that they are focused on creating wealth through building and then selling all or part of their business. When you ask this type of entrepreneur why they are in business they’ll start talking about the next level of their business and will have ambitious plans for growth. It’s not that they don’t enjoy running a business, typically it’s the opposite, and many of these types of entrepreneurs go on to create, invest in and exit multiple businesses as a classic “serial entrepreneur”. But the goal remains the same: build it and sell it.
The “Higher-Purpose” Entrepreneur
The next type of entrepreneur I often meet is focused on something that’s beyond their business. A good example is a “social entrepreneur”, who is running a business to deliver a specific social impact. Their goal and reason for running their business is something that goes beyond profits and they’re certainly not looking for the exit (usually because the business ownership is shared or in some form of social enterprise trust) Another, example is a “family business”. If their great-grandparent’s name is over the door then the motivation and purpose of the business can become something bigger, such as continuing the legacy for the next generation. It also includes entrepreneurs who are driven by the output of the business, or the work they are doing, rather than running the business itself. Often they’re involved in creating something that has more meaning than the business itself, such as producers of artisan or traditional products. In all these examples the focus and motivation goes both beyond the business and beyond the entrepreneur – it’s about a true calling or higher-purpose.
The “Lifestyle” Entrepreneur
Our third category of entrepreneur is the “Lifestyle” Entrepreneur. This is a term that’s often thrown around in a dismissive way – “it’s only a lifestyle business” – particularly in investment circles. And, to be fair, you wouldn’t want to invest in this type of business because where’s the financial return for an investor? But for the lifestyle entrepreneur, the return is all about what’s important to the entrepreneur, which typically means their lifestyle, income and personal ambitions. Now, this doesn’t necessarily equate to a small business. It’s not about size; that’s a limiting view. Rather, it’s about consciously running a business that fits with what you want to personally achieve and creating a business that supports that ambition. For the lifestyle entrepreneur, running a business that fits with their personal goals is usually more important than the business itself.
The Fourth Answer
So, that’s the 3 main types of entrepreneurs but, at the start I mentioned that there’s a fourth answer I get to the question “why are you in business”? And the answer is basically “I don’t know”. The really sad part is that it’s actually the highest proportion of all the categories. And, even worse, many entrepreneurs don’t know how they got there. Maybe this story sounds familiar. At some point you decided to start your own business and took the leap. Trouble is, either you never really thought through why you were doing it or, more often than not, you just forgot sometime along the way. And then you woke up one day, a few years down the line, and you’ve realised that you don’t know why you’re here. You’ve lost your purpose and vision for your business. The energy’s all gone. It’s so easy for this to happen. And, believe me, this is not the place you want to be. One problem is that you can end up working hard in a business which is unlikely to offer any financial exit. The most common reason for this is because your business couldn’t exist without your efforts running it, which means that at best you might be able to sell it on to another unsuspecting owner-manager who hasn’t really thought it through either. The reality is that the top 2 exit strategies for most business owners are either walking away (either voluntarily or forced) or in a box. Neither is very attractive. Also, if you’re a “Fourth Answer” Entrepreneur then you’re probably working so hard that you’ve forgotten what work-life balance is all about. This is No-Man’s Land with a business that neither fulfils you personally, nor provides you with an exit that will give you a decent return for all your hard work. So, if you’re in this place, how do you get out? The solution is to find an answer to the original question – why are you in business?
This means you have to do some hard, honest thinking and reflection. You need to invest time in understanding and evaluating your business model and how it fits with your aspirations. And then create a business that works for your life. Once you do this then your answer will naturally fall into one of the 3 categories we’ve discussed. It may be that you need to scale back and adopt of more lifestyle approach. Or maybe you’ve decided that you want to build value for an exit, which creates a need to reshape your business and put in place changes to fulfil this ambition. Alternatively you may uncover a higher-purpose that restores the drive you once had. Whichever it is, it all starts with your desire to make a change and find an answer to that question – why are you in business? Originally published by David Regler on LinkedIn in 2014