Two vital ingredients for entrepreneurs are a product and market.
Successful entrepreneurs add a strong culture that clearly defines the purpose of their business and how decisions are made. They also add mentors and advisors to help them through new horizons.
Successful sustainable entrepreneurs have three capitals in common: Financial, Human and Psychological.
Everyone is aware of the need for Financial Capital. Without cash for product ingredients, salaries, marketing, production and delivery there is no business. Start-ups use cash from friends, relatives and credit cards. Established businesses grow through leveraged purchases of assets and bank loans. Larger organizations may use venture capital, equity investors or other funding options. But there remains one constant. There never seems to be enough.
Borrowing money is leveraging future profit. Sometimes it is a necessity. Slower growth with lower debt is typically more sustainable. Entrepreneurs should have three to six months of reserves. They should also establish lines of credit before they are needed. A common phrase in the growth period of the 1980’s was OPM – other people’s money. After the latest recession, we found out how foolish that could be.
Sustainable entrepreneurs understand the need for capital, reserves and when to use other’s money.
The core of every company is Human Capital. Excellent human capital that works in harmony with a strong culture is present in every high producing company. Employers that are loyal to their staff discover that their staff is loyal to their clients resulting in clients that are loyal to the organization. That is a circle that benefits all stakeholders.
Building excellent human capital starts with a clearly defined Mission, Vision and Values (MVV) statements. Hire staff that can accept and be held accountable to the MVV statements. Screen for skill, but hire for attitude. Sustainable entrepreneurial organizations have recognition and reward programs. Once an employee’s basic fiscal needs are satisfied, the most powerful motivator is recognition. Employees that use cognitive skills are more rewarded by recognition than cash.
Transparency is another key element in developing human capital. Everyone has a need to know. Why clutter staff’s brains with projected thoughts when transparent fiscal reporting and strategic planning can satisfy their curiosity and uniting them in a common purpose.
Life long learning is a vital, but often overlooked human need. Successful organizations have programs that provide task based education, tuition support and certification programs.
Psychological capital (Psych Caps) is he most used and least understand capital of sustainable entrepreneurs. My favorite expert in this area is Dr. Fred Luthans of the University of Nebraska. The components of Psych Cap are:
- Self Efficacy – the confidence to reach a goal in a specific situation
- Hope – a positive motivational state where determination and planning interact
- Optimism – a realistic construct of what can be done. This supports self efficacy and hope.
- Resiliency – the ability to deal with conflict, stress, failure and other negative forces.
Experienced entrepreneurs understand that failure is part of the business life cycle. Those entrepreneurs that possess strong psychological capital examine failure, make adjustments and continue. The business world is littered with brilliant entrepreneurs who did not possess enough Psych Cap and collapsed when they met failure.
My favorite question to ask experienced entrepreneurs at connecting events is “what was your biggest disappointment in the past year, and how did you get past it?” That invariably brings a smile, an interesting story and a great Psych Cap example and a learning experience.