When you know nothing, even fools can sound like geniuses.
This is a vital lesson that all entrepreneurs need to learn as soon as possible – one that I and other entrepreneurs I know have had to learn the hard way, many times over.
When you first start out in entrepreneurship – by this I mean as a founder or co-founder of your first business – your entrepreneur knowledge base is likely to be missing many of the important skills, knowledge and experience required for success.
Often you and your co-founders may have some industry experience and job experience, but most of the time you and your team will be missing experience in at least a few of the following business areas:
- Startup and entrepreneur strategy
- Raising capital
- Marketing and promotions
- Accounting and financial management
- Management and HR
- Systems and process creation
Not to mention just the general entrepreneurial and business building experience you only get from having been through the process before. The learning that comes from experiencing the highs, the lows; the mental, emotional and physical trials and tribulations that inevitably come with the problems and challenges of creating something great out of nothing.
Now as a smart entrepreneur you will have enough self awareness – through your reading, research and learning – to know that there will be some skill and knowledge gaps you and/or your team needs to fill, and you will eagerly consume any and all information that you can get your hands on.
As a smart entrepreneur you will also endeavour at some stage to seek advice from experts in business building, and/or specific areas you need help and advice with.
And this is where my warning applies. Because you’ve never done this before, how do you know whose advice you should take on board? And how do you tell good advice from bad or irrelevant advice?
Because while seeking advice is the right thing to do, taking the wrong advice can be catastrophic.
Not only that, but because you are new, you will find every man, woman and their dog eager to give you their ‘two-cents worth’. And some of them will want you to pay hundreds or thousands of dollars for it.
While it’s fairly easy to take advice offered to you by friends, family and colleagues with a grain of salt (because you are more aware of their backgrounds and experience), it can be very difficult to filter the advice offered by people you don’t know. This includes all the various kinds of business coaches, business mentors, consultants, professionals and all the people you may meet in the entrepreneur ecosystem – other entrepreneurs, startup mentors, incubator and governmental advisors, and of course, investors.
This is because you do not yet have enough entrepreneurial knowledge yourself against which to filter and assess the validity or ‘usefulness’ of any information or opinions coming your way. So in the early days of your entrepreneurial journey, relative to your limited knowledge, even those who know just a small amount more than you (let’s call this the ‘knowledge differential’) can sound like a genius!
Over time, as your own entrepreneurial knowledge base grows, your ability to filter advice increases. (Some entrepreneurs call this their ‘bullsh*t meter’, but I don’t believe irrelevant or non-qualified advice should necessarily be classified as BS.)
So here are five questions every entrepreneur should ask when people offer advice on entrepreneurship, along with a weighted scoring system, to help figure out what you should pay attention to, and what you might want to ignore.
1) Has this person personally started, built or turned around a business as a founder or co-founder?
The first thing you want to know is, do they have personal experience in doing what you are setting out to do, i.e. starting and building a business? This is important because giving advice about things you’ve never personally done is easy. Actually doing it is difficult. Would you rather take advice about how to climb Mt Everest from someone who has done it themselves, or someone who just read the theory? Unless they have tested and proven the theory they are advising, and experienced the mental, emotional and physical challenges themselves, they cannot possibly understand the challenge you’re facing.
Scoring: For an answer of yes, score 2 points. For an answer of no, score -1 point.
2) Has this person started, built or turned around a business with no or little capital, i.e. ‘bootstrapped’?
Building any business is challenging. But building businesses with no or very little capital is even more so. If the person offering you advice has started a business themselves that’s good, but was it a business with access to capital (i.e. started with plenty of capital or achieved funding early on) or did they have to bootstrap it? That is, their only funding was from personal funds and/or sales revenue. Because starting and building a business with ‘more’ money is quite different to starting one with ‘less’ money.
In addition, many mentors and advisors you will meet will be from corporate or professional backgrounds, or businesses where resource is plentiful in comparison to those of startups and small businesses. If they are going to be advising you on what you should do to make your fledgling cash- and resource-poor business fly, you want to know they have experienced the pressure and emotional turmoil of making decisions and taking action when there is no money or in-house resource to delegate work to.
Scoring: For an answer of yes, score 1 point. For an answer of no, score -1 point.
3) How successful were they?
Did their ventures fail or succeed? How long did they exist before they were sold or closed? How big was their exit?
There is nothing wrong with ventures failing, as they are a valuable source of lessons and experience. Most entrepreneurs will fail several times before they succeed. But hopefully there is evidence of at least one or two success stories. If someone is telling you how to succeed in climbing Mt Everest but they have never succeeded themselves, you might want to take that into account.
Scoring: If the person has had at least one success (i.e. made money from selling/exiting a business, or they still own the business and it is profitable) score 1 point. If the person has had at least one success and one failure score 2 points. If the person has had less than one success score -1 point.
4) Does this person have experience, knowledge or connections in my industry?
Ok, so now you know what entrepreneurial experience and success they have had, you now need to understand whether their advice is valid for your particular field or industry.
Now if the advice they are offering you is in respect of a particular business function (for example accounting, or marketing, or HR) then this is not necessarily so much of an issue. These are like the ‘hard’ skills of business, simply a matter of following a proven process; there is a right way and a wrong way to do things. For example, calculating a GST Return is the same in any industry.
But if the advice they are offering is anything to do with whether or not your idea is valid, or how to best execute the opportunity in your market, or anything which requires knowledge of your industry – it is vitally important. Using the mountain climbing analogy, there may be numerous different ways to conquer Mt Everest – but would you ask a world class chef how to climb it? Only if they are also a world class mountain climber…
Scoring: If this person has experience, knowledge or connections in your industry, score 1 point. If this person has no experience, knowledge or connections in your industry, score -1 point.
5. Lastly, what does this person stand to gain?
This is about understanding your advisor’s motivation. Most of the time people’s motivation will simply be that they are good people, and they care about you, want you to succeed and will do anything they can to help you – including offering their advice, be it solicited or otherwise. Many of the most enlightened people you meet will have an ethos of ‘paying it forward’.
On the other hand, many professionals will tell you that cheap or free advice is the most expensive advice there is. After all, if the person giving you the advice has no vested interest in the advice they are giving you, how can you be sure that it is valid? So at best we need to apply a neutral outlook to free advice, and let the scores from the earlier questions speak for themselves.
If the advice is from a professional, that is someone who makes a living selling their advice, then obviously you will either already being paying for it… or it could be that they want you to start paying for it; that is, they want you as a customer.
This can be a double-edged sword – if they make their money from selling their advice (e.g. as a consultant, mentor, professional director etc), there’s a good chance they have some advice worth paying attention to, otherwise they wouldn’t be in business. On the other hand, they may simply want to win you as a customer. The key here is to look for evidence that the advice they are selling has helped other entrepreneurs and business owners. You want references, testimonials, case studies – whatever you can find that supports their claims of expertise.
If the advice is from a potential investor you need to be even more wary, because the lure of potential funding can cloud your vision and cause you to lower your guard. In your desperation to find money, you may be tempted to overlook any potential negatives – after all, who are you to doubt the expertise of someone who has already made the money you need, right? And don’t forget that, by necessity, the investor/entrepreneur dynamic requires a certain element of tension. Both investors and entrepreneurs want a deal that gives them the best possible return for the least possible risk. By definition, the investor wants to ‘win’ from whatever situation they are engineering just as much as you do, and again, you need to be mindful of this when listening to their advice. (If you are seeking funding, I highly recommend researching how to perform due diligence on potential investors.)
Scoring: If this person stands to gain financially from helping you and there is evidence that their advice has helped other entrepreneurs be successful, score 2. If this person stands to gain financially from helping you but there is no evidence that their advice has helped other entrepreneurs be successful, score -1. If this person has nothing to gain financially from helping you, score 0.
As far as this suggested entrepreneur advice scoring system goes, the maximum anyone can score is 8, and the minimum is -5. By no means do I believe that this system will enable you to differentiate good advice from bad advice – it can’t – but hopefully it will provide you with some sort of framework to figure out how much stock you put in the advice that you are receiving.
To this end, it should be fairly obvious how much trust you put in advice from each end of the scale. Advice from entrepreneurs who have ‘walked the talk’ gets the highest weighting. I’ll let you make up your own mind about how to treat advice that falls somewhere in between. (Which includes the advice I am giving you right now, which by my calculations is only likely to score around 4–6 depending on your industry!)
While at their core entrepreneurs need to be optimistic, trusting and open when seeking and taking advice, this needs to be tempered with a healthy dose of cynicism – or perhaps a better way of looking at it… wisdom. Taking full accountability for the advice you seek and choose to act on is key to your learning as an entrepreneur.
Because as the saying goes, “Fool me once, shame on you. But fool me twice, shame on me.”
Richard Liew is the founder and editor of NZ Entrepreneur magazine and Espire Media. He is an entrepreneur specialising in sales and marketing, and holds a bachelor of commerce in finance from the University of Auckland.