Reflection Ten
In Chapters 17, 18, and 19, Rao expands on two more strategies that finance-smart entrepreneurs use: pace to lead the industry and adjust to take-off with limited cash. Chapter 19 concluded the book.
To lead your industry, in Chapter 17 Rao mentions accounting for 3 speeds: speed allowed by your cash and cash flow, speed of your market, and speed of your competitors. Also, as an entrepreneur, you need to grow along with your customers and your cash flow faster than the industry. Key factors come into play, some external, some internal. External factors, Rao describes as the speed of the market and the growth rate of direct competitors. He describes internal factors such as cash flow and cash availability. Growing at the right speeds allows for
*surviving in lean years-Rao suggest staying lean, patient, and persistent.
*time and opportunity for customers to test out products and services
*avoiding being left behind as the industry takes-off ( be able to sustain sales and margins and to be ready/able to pay added overhead)
*watching, or slowing growth (signs may need to expand or sell)
In Chapter 18, Rao points out that Billion-dollar entrepreneurs change direction as time goes and their venture unfolds. In order to succeed he says entrepreneurs must
*test and adjust
*find new wedge opportunities
*find better business models
Change is inevitable and Rao emphasizes that industry changes, customers change, and technology changes, so entrepreneurs need to stay flexible. He reminds the reader that the market will not adjust to the entrepreneur, so the entrepreneur has to adjust to the opportunity. Adjustment should happen when reality differs from expectations. Rao points out that with start-ups, reality will always be different than expectations. He suggests entrepreneurs constantly track the market and stay one step ahead.
In Entrepreneurs: Remember That it is Never Too Late to Change Direction, the author describes his beliefs on change: “I believe that the best organizations are the ones that operate in a constant state of evolution, quickly adapting to the opportunities and challenges they face.”
In conclusion, in Chapter 19, The Right Model for You (to build your business), Rao describes two models to choose from:
*opportunity-based model (focuses on the idea, the plan, the technology, and the strategy) The entrepreneur develops a plan, seeks financing, and launches.
*entrepreneur-based model (focuses on the skills of the entrepreneur). Rao says
entrepreneur develops the right skills, exploits their passion, develops their opportunity,
finds the right strategy based on market feedback, adjusts to the unmet needs where they
can get a long-term advantage, take-off without VC
After take-off and after proving their leadership skills, they either seek VC if competitors do or they develop a capital-efficient model and grow without VC.
What do you as an entrepreneur think of changing your business plan if the market points it in that direction? Have you ever had to change before? Would you?
References:
Myers, C. (2017). Entrepreneurs : Remember That it is Never Too Late to Change Direction. Forbes. https://www.forbes.com/sites/chrismyers/2017/04/15/entrepreneurs-remember-that-its-never-too-late-to-change-direction/
Rao, D. (2020). Finance Secrets of Billion-Dollar Entrepreneurs: Venture Finance without Venture Capital. FIU Business Press, Mango Publishing Group.