… IE Business School professor advises Namibian entrepreneurs
By Business Reporter
IN the current decade, the word ‘entrepreneurship’ has become a popularised buzzword, with traits such as success, independence, and self-sustenance.
Globally, entrepreneurs are a source of admiration. However, what does it take to be an entrepreneur?
In a recent interview, IE Business School professor, Alvaro Navarro, shared his advice for those who wish to advance as entrepreneurs in a world where globalisation is increasing exponentially.
According to Navarro, who is also an experienced investor, many entrepreneurs fail because of their failure to grasp the concept of what their value proposition is to customers.
Value proposition defines a business and is the marketing statement that a company uses, to summarise why a consumer should buy a product or use a service from it.
“As an entrepreneur, who is just starting, the main question is what and to whom are you selling. What is your value proposition? Do you know your customers well? If you think you know and if you can provide it (the product), then you can make money,” Navarro said.
He also explained that many entrepreneurs generate wonderful ideas. However, they fail when they forget to monetise them effectively.
“When we talk about a business model, the whole idea is that a successful business model has to create value,” the professor explained.
“You have to provide something that the people want, and you have to be able to capture some of that value back for your company, in order to survive first, and then eventually make money.”
Navarro said that entrepreneurial failure occurs due to reckless decision-making in the early stages of the company. According to him, it is imperative to focus on risk minimisation, while launching an enterprise.
“As an entrepreneur, you cannot simply eliminate risk. Instead, you have to minimise it as much as possible. The whole idea about entrepreneurs being people who take wild risks and just jump into the unknown, without worrying about failure, is misleading,” he said.
“They are people who carefully evaluate opportunities and then pursue them tacitly.”
Navarro divides risks into three categories – production, market and life risk. The production risk emerges when a new company launches its product into the market and tends to overproduce.
“If you’re not certain that people will want your product, then don’t make 2 000 units before selling it,” he explained.
“After making a few units, start test selling and gradually improve the product, based on the customer feedback, in order to avoid a full warehouse of unsold and unwanted products.”
Another form is the market risk. To minimise it, you must assess the economic and financial opportunities of your environment, by conducting marketing and industry research.
“Market risk is simply the market willingness to want what I have to sell”, Navarro said.
“If the market doesn’t want what you have to sell, then it wouldn’t matter how good your team is, how efficient the company is and how cheap it is. If the market doesn’t want it, then you will fail.”
Finally, the most crucial risk that every entrepreneur must assess is the life risk they are willing to take when launching a company. You must evaluate the risk that you will be putting your life under, if you decide to start a venture.
“Normally, if you’re an entrepreneur, then it’s acceptable to put some of your savings into the company. You should be aware that the chances of failure are very high, so don’t put all of your eggs in the same basket,” the professor advised.
“If you’re going to quit your job, at least start doing so step-by-step and always evaluate your personal situation. It’s not the same to start a company when you’re single with no children and no job than if you’re married, have three children and a job.”
Another challenge that all entrepreneurs face is the problem of initial costs. In business jargon, costs are divided into two major categories – fixed and variable. Fixed costs do not change with an increase or decrease in the number of goods or services produced or sold. Variable costs vary depending on a company’s production volume. They rise as production increases and fall as production decreases.
“My advice is to avoid as many fixed costs as possible. As a new venture, you should try to have as many variable costs as possible and as little fixed costs as possible,” Navarro explained.
“Because if you have a very high fixed cost and you’re new to the market, then your fixed costs are going to eat all of your financial resources. Instead, you can have high variable costs and very low fixed costs, and as a result, you will simply spend more money, as you sell more.”
Think about the team
Besides costs and risks, another key element of launching a successful enterprise is its team. According to Navarro, the choice between family members, close friends and professionals can produce different effects.
“When discussing how to start a company, it makes sense that the initial team, your co-founders, partners or even the early hires will be people who are in your network, who you trust and who you want to provide with a new opportunity,” he said.
“But you have to be very clear that communication will be more difficult. In essence, you must remember that in an entrepreneurial environment a company is not a democracy and personal relationships might drag you down in the long run.”
Navarro emphasised that when entrepreneurs include their family in their businesses, they must understand that their pay levels must be calculated according to their professional contributions to the company.
“It’s normal to have family members in the company. However, that doesn’t mean that entrepreneurs should pay them above-market salaries, because other companies will do the opposite to minimise their costs,” he said.
“You have to distinguish between salary and dividends. Salary is what you get paid for the work you do for the company. Dividends are what you get paid when the company makes money and you hold a share of it.”
Set your priorities straight
Another key element of launching a start-up is setting your priorities straight. As the professor explained, during the initial stages of creating a successful company, it is easy to lose focus by doing multiple things at the same time. Instead, it is imperative to start slow and build the company step by step, to ensure that all of its mechanisms work coherently.
“Once you become an entrepreneur, there are always many different options that become apparent. You start talking to many people, suppliers and customers,” Navarro said.
“You think of so many different options that essentially force you to lose your focus. Instead, you must focus on one element, and then move on to the next one, as a company.”
You’re always selling
Finally, it is crucial for all entrepreneurs to understand that having a company means that you are always selling your product, company and ideas. Navarro’s words, understanding this simple principle is an essential characteristic of successful entrepreneurs and businesspeople.
“I know this is difficult for some entrepreneurs, if they don’t have a very strong commercial attitude, but you have to always be sales-oriented. It’s understandable that many people just don’t like sales,” Navarro said.
“But you have to understand that you’re always selling your products; you’re selling your company to suppliers. You’re selling your company to your employees, in order to make them want to come and work for your company. You’re selling your company to investors. You’re always selling and you have to get used it.”
Confidente. Lifting the Lid. Copyright © 2015