Some people shouldn’t start a business in retirement. The encore entrepreneurship minefield is a big risk. The wrong personality or the wrong startup process risks the nest egg and invites failure. Diane Mastrull suggests that Baby boomers should be aware of the perils of entrepreneurship.
3 Outcomes of Lean Startup Process
Under my day hat as an entrepreneurial coach I talk about three possible outcomes from working the lean startup process before you launch:
- No — entrepreneurship isn’t for me, or this business idea won’t work.
- Not now or not this way — need for other life conflicts to resolve, need more cash for working capital, or need to pivot to what willing and able customers want. So, not now, not yet, but maybe in the future.
- Launch — all systems go.
We hear about the third result. These get counted as a success. And get celebrated when the bloom is on the rose. We don’t always hear about the crash and burns from skipping steps in the preparation.
But we should. It’s important to know what to do. It’s even more important to know what not to do.
The first two outcomes are actually more common than the third and are good outcomes. The alternative of launching and finding out 1 or 2 too late is business failure, lost money, lost time, and burned relationships. Bad, bad, bad.
For more on the lean startup methodology, see, It Just Ain’t So — Startup Killing Hidden Assumptions.
Working Capital and Cash Flow
This is an example of often misunderstood encore entrepreneurial minefield or risk. We mention working capital for a reason. Too many entrepreneurs fail to understand the cash flows and cash demands of their business.
A bank will not lend 100% of your cash needs. The bank wants you to have skin in the game. Also known as risk. And they want to lend to you when you don’t need it. Not after you’ve dug a hole. Made a mistake. Face it, debt is itself a risk.
Even a successful, growing business can be a cash flow risk because inventory or differences between when you pay out expenses and when you get paid income require cash to bridge the difference. Just like your personal checkbook, you need some cushion of cash in your business account.
How Much Cash or Working Capital?
There are three big sources of working capital demand for a startup:
- Ramp-up — the customers don’t all show-up day-one. This is why burn rate and time to break-even are so important.
- AP ≠ AR — Accounts Payable (AP) is the money you pay out. Accounts Receivable (AR) is the money you receive. Any time gap between the two requires cash also known as working capital to cover the expenses or liabilities before the matching income arrives.
- Cyclical Income Variations — Most businesses have a pattern of income through the year, with good days, weeks, or months. And slow days, weeks, or months. Payable expenses occur more steadily through the year (or another period). You need enough cash to get from your best month (period) back to your best month. If you can’t pay your bills during a slow month, it doesn’t matter how good December was going to be.
Many entrepreneurs mistake business revenue for profits. But in fact, the income is already committed to matching, previously incurred expenses. It’s essential to keep cash in the business as working capital. You can’t spend the same money twice.
High Purpose: Entrepreneurship
We’re evangelists for High Purpose in our Third Act. That includes entrepreneurship. Smart entrepreneurship is a home run for High Wealth, High Health, and High Purpose. Our trifecta. Done wrong, it’s an encore entrepreneurship minefield.
Leadership is Essential
I do have a pet peeve that high-paid corporate denizens mistake big company process success for capacity for entrepreneurial success. Startups require leaders, not executives. Some former executives are (or can become) leaders. Many cannot. Business Administration or Management are not sufficient for entrepreneurial success. Leadership is essential. Perseverance is necessary.
Navigate the Encore Entrepreneurship Minefield
Consider the risk of your encore entrepreneurship minefield. Plan ahead. Use the lean startup process to identify and manage knowable risks. Don’t be surprised by common mistakes. Only risk what you can afford to lose. Your biggest risk is always your ability to manage your own strengths and weaknesses. You cover your weaknesses by delegating and inspiring others to do what you can’t or won’t. That requires leadership.