why is the lifespan of companies on the S&P 500 decreasing? Why are they disappearing so quickly? It’s because the speed of business is increasing. Companies are able to reach profitability faster, capture market share sooner, and hit their stride earlier. Because of all this, they are becoming acquisition targets more speedily. All of these factors also mean the largest companies can be overtaken by new startups in ways that were never thought possible in the past. Startups are going public in fewer years and technology is advancing at an astonishing pace. Systems have been created that accelerate sales, marketing, customer relationship management, and finances, spinning the business life cycle faster and faster. You no longer have to be an apprentice to the titans of industry to become the next big thing. You just need to tap into the principles of entrepreneurship that have already been discovered and avoid the most common pitfalls.
To begin with the end in mind means deciding what kind of business you want to run. This comes down to a choice between the three mountain ranges found on Entrepreneur’s Island:
•The Lifestyle Range. Adorned by the smallest and most navigable mountains, this range is marked by small, typically one-shop businesses focused on earning enough cash to support a desired company culture and/or lifestyle. But there are plenty of pitfalls for the unwary: it looks deceptively easy (but it’s not). One of the greatest risks is a loss of passion.
-Real-world example: The Wasatch Range; Mt. Timpanogos.
•The Buy or Be Bought Range. Marked by significantly higher mountains with more technical paths to the summit, this range consists of entrepreneurs building businesses in preparation of an acquisition or a merger with another company. For many, the mountains found on the Buy or Be Bought Range represent the most compelling reward for the time and effort required to get to the top. Mountains found on this range can be exciting to tackle, as things take off quickly and it’s likely others around you will take note. Recognition and awards may come quickly, but climbing a mountain on this range requires a greater degree of preparation, team support, and leadership prowess.
-Real-world example: The Eastern Rift Mountains; Mt. Kilimanjaro
•The IPO / Private Offering Range. Home of the very highest and most technically demanding Public Offering mountains. This range is impossible to navigate without highly trained experts, careful planning and preparation, and a willingness to follow a very exacting route that allows little or no error. This is not a range for novices to attempt. It is fraught with pitfalls at practically every step. Making the final ascent to the summit, however, can be truly life changing.
-Real-world example: The Himalayas; Mt. Everest.
The need to start with the end in mind and determine where you want to take your business is essential to success—you simply cannot wait. So let’s take a closer look at the three types of businesses in more detail:
The Lifestyle Business
A lifestyle business is what you typically think of as the flower shop on the corner, the piano teacher, the blogger with wanderlust, or the local fruit stand—a typical “mom and pop” establishment or a freewheeling hipster traveling throughout the world. It’s about work/life balance without a pressing need to grow dramatically, grab market dominance, or have an incredible Initial Public Offering (IPO). Lifestyle businesses are not trying to get bought; they’re just doing what they do day in and day out and produce revenue. That doesn’t mean they have to be small, either. I know several multimillion-dollar lifestyle companies that go out of their way to build a culture that’s bigger than just what happens at the office.
It’s important to note that, while lifestyle businesses can succeed, of the three options, they are the hardest to sustain long-term. In today’s business climate, if a company’s not adequately growing, it’s slowly dying. For example, consider a lifestyle start-up that in year one, given their small niche, managed to earn $200,000 in revenue. Then, in year two, they realized $215,000, on track for $235,000 in year three (and so on). Although the numbers look positive, that won’t tell the entire story. The market growth might be 20 percent in their industry, so growing at less than 10 percent per year actually means they are losing market share. One of the risks in a lifestyle business is that, given today’s speed of business, a competitor could be eating up the market share. Or, market forces could have changed so rapidly, the product or service may be on its way to irrelevance—despite steady increases in top-line revenue.
In my experience, lifestyle businesses are the most difficult of the three. This isn’t to say a lifestyle business isn’t a viable option. In fact, if your focus is having more time or flexibility, and you love the satisfaction of the creative process, this can be a great goal. History suggests this is not the ideal route for producing extreme wealth, but some companies do achieve great results. One such company I’m familiar with is called TestOut. This is a company that does certification training for popular IT and computer technologies and has been able to attain and maintain a profitable business that provides a great lifestyle for the owner and employees. In fact, they are profitable enough that they have provided a yearly cruise for every employee and their significant other as a year-end bonus. You can imagine the expense of doing this. The founder, Noel Vallejo, has learned to navigate the mountain and avoid the pitfalls as outlined in this book.
In my home state is a majestic mountain called Mount Timpanogos, my real-world equivalent to a Lifestyle Mountain on Entrepreneur’s Island. The mountain is named after a beautiful American Indian princess, and if you look closely, the ridge of the mountain outlines the resting maiden’s form. This peak rises from the valley floor to a height of 11,752 feet. To get to the top of the mountain, you hike along a well-worn trail traveled by many others, which is beautifully adorned with wildflowers. It’s common to see herds of mountain goats, bighorn sheep, and maybe even an elk or moose. The hike begins just above the famous Sundance ski resort and is seven and a half miles one-way (fifteen round trip) with an elevation gain of 4,580 feet. Many will embark in the early twilight hours to reach the summit in time for the sunrise. The hike is not easy, but it’s also not hard. Children make the trip as well as eighty-year-olds. In order to make it up, one requires a good set of lungs, a couple liters of water, a nice peanut butter and jelly sandwich (or two), and enough time to get up and back. People do this hike in nice hiking sandals and shorts, and some people even run the entire trail! If that sounds like the metaphorical equivalent to the kind of mountains you want to climb as an entrepreneur, the lifestyle business model may be the one for you.
The Buy or Be Bought Business
Most entrepreneurs dream about this end. In today’s economy, many companies are seeing successful exits through acquisition. Some haven’t even reached profitability, yet they’re still being acquired by either investment firms, private equity, strategic buyers, or competitors. One advantage of the “Buy or Be Bought” strategy is that in order to buy other companies, a start-up either has enough profit to fund the acquisition themselves or they have an investor who believes in their business model and execution enough to give them cash to purchase other companies. My most recent company, eLearning Brothers, was one of these companies, and has purchased eight other companies in the last six years. At first, the acquisitions were small. But as the company grew, the acquisitions grew and became more strategic. If the two original brothers who founded eLearning Brothers hadn’t decided on a buy or be bought mountain climb, such acquisitions would have never happened.
The real-world equivalent to the Buy or Be Bought Mountains is Mt. Kilimanjaro, the largest freestanding mountain in the world. It towers over the African continent at 19,341 feet and is a behemoth not to be taken lightly. It requires both physical training and altitude training before embarking on the expedition. Climbing is a multi-day trip, and the governments of Tanzania and Zimbabwe require guides and porters be hired to lead adventurers along the way. Much
