Many first-time entrepreneurs fail.
And when they fail, everyone inside their inner circle suffers – spouses, children, business partners, their banks, creditors, and others feel the pain of their failure.
So, why do so many entrepreneurs fail?
Thanks to my Rich Habits research, I have an enormous amount of unique quantitative and qualitative data that I gathered from the 119 Self-Made Millionaire-Entrepreneurs in my Rich Habits Study who eventually succeeded and became very wealthy from that success.
What did I learn from my study?
I discovered that there are five Laws of Success every wealthy entrepreneur followed. And they didn’t follow some of those laws – they followed every single one of them because failing to follow even one of the laws resulted in failure.
What are these five Laws of Success for Entrepreneurs?
Law #1 10 Years Industry Experience
The successful entrepreneurs in my Rich Habits Study had at least ten years of industry experience before they started their business. This industry experience helped them gain critical knowledge and skills.
Law #2 Forge Power Relationships
No one succeeds on their own. It’s always team effort. And the better your team, the greater your chances for success.
The successful entrepreneurs in my study, due to their long tenure within their specific industry, had developed strong, powerful relationships with influencers within and without their industry. These influencers, or Power Relationships, helped to keep the entrepreneurs moving forward, opened doors that were otherwise closed, assisted the entrepreneurs in securing working capital and referred business to them.
Law #3 Crate a Business Plan
Every successful entrepreneur in my Rich Habits Study had created a business plan before embarking on their new business venture.
A business plan is critical for success because it forces entrepreneurs to peel back the onion and really understand the variable assumptions that underlie revenues and expenses. Those variable assumptions, when they are wrong, helped my Rich Habits entrepreneurs gain valuable insight and wisdom, which helped them pivot and make important adjustments. Without confronting those initial incorrect variable assumptions, it’s difficult to see what you’re doing that is wrong, which means you will continue doing things the wrong way.
Law #4 Secure Adequate Working Capital – The 3:2 Rule
During my quasi-venture capital days, I learned from reviewing over 200 business plans that the amount of revenue you will make during the first five years of a start-up will be about one third of the amount you expected. I also learned that the amount of your expenses will be twice what you expect during the first five years.
I call this my 3:2 Rule.
Under my 3:2 Rule, the working capital you will need should be enough to keep your start-up business alive in the event your revenues are one-third of what you expected and your expenses are two times what you expected.
So, in crafting your business plan, you need to create projected financials that reflect one-third expected revenue and two times expected expenses over a five year period and determine if you have enough working capital to survive this scenario.
Law #5 Find Great Partners
One bad partner or one bad critical employee can and will sink a start-up business.
When partnering with anyone, here are the ground rules:
#1 Five Year Rule: Intimately know your partner/partners for at least five years – You should never partner with anyone you have not previously worked with, within your industry. When you work with someone, you learn about their work ethic, values, general habits, mindset and emotional state.
#2 Inner circle Rule: Intimately know the spouse of any future partners. Spouses can and will affect how your partner performs at work. If there are problems at home with your future partner, they will bring those problems to work with them.
#3 Finances Rule: Intimately know your future partner’s financial status. Are they struggling financially? Do they have good or bad money habits?
Finding the right partner will significantly improve your chances for success in any start-up business.
If you fail to follow even one of the above Laws of Success, the risk of failure dramatically increases.