Many entrepreneurs start up their own businesses because they are relative experts in their industry/profession. Most want to achieve greater financial and personal control by “going it alone”. In many cases, these people have also identified ways in which they can do things differently and better to the industry norm and want to do just that.
What none of these motivations automatically address is the requirement to transition from an employee mindset to a business owner mindset.
This is a vital shift to understand and act on early as the remit of a business owner is much broader. Being a business owner includes multiple roles, competing priorities and skillsets, all of which to be mastered or managed in order to become truly successful.
Four mindsets to your finances
Rich Dad, Poor Dad author Robert Kiyosaki has defined the difference between an employee’s mindset and that of an entrepreneur and business owner, based on their attitudes towards finance.
The four personas he described were:
- Employee persona – focused on exchanging their time for an employer’s money. They spent almost all of what they earned as their income rarely exceeded their cost of living.
- Self-employed persona – this is where a person employs themselves within a business structure that they own. Their rate per hour is slightly better than a true employee but they also adopt the risks and stresses of running a micro or small business.
- Business owner persona – Here, the person is not only paid their direct wage, but they also employ others, and benefit financially from selling those employees’ time to their customers. The systemisation and scalability of this business structure means wealth can begin to be accumulated.
- Investor Persona – At this stage, the individual can invest their extra capital, and therefore “make money from money”. The investment activity is often managed by third party experts, and therefore time is also freed up for these people.
Financial mindset to SME business reality
When you think about Mr Kiyosaki’s categories, it is easy to see why a dramatic shift in mindset is needed to move from an employee to becoming a thriving business owner.
To shift between those mindsets, we need to take a rounder look at the reality of business ownership. Finances are important, but they are not the only aspect or mindset shift required when becoming a business owner.
I’ve refined Kiyosaki’s model to better reflect the reality of specifically becoming an SME owner and entrepreneur, and how mindset relates to business progression phases.
- Start-up – When businesses are in the start-up phase, they are volatile, highly at risk, and often experiencing an almost constant flux of ideas, systems, clients, and more. There is inconsistency in what marketing is done, how sales are achieved, how services are provided or what products are delivered, turnover and profit levels and much more. It is a rapidly changing, evolving animal which takes serious effort to control.
- Basically functional – This is where you work for yourself, and make some money, but the business is totally dependent upon you. In most cases, the business owner works long hours, has many hats to wear, and makes modest earnings not dissimilar to those of an employee in a similar situation, except for the fact that as a business owner you carry much more risk and experience much more stress.
- Growth and scaling – this requires a refinement to the business model as well as the “business owner mindset”. It is about looking at how the 10 core elements of a business can work better and more efficiently together. Although growth is relatively straightforward, the ability to scale a business up is often less so.
- Independence – Achieving independence is about systemisation, processes and developing staff, so the business can have a “change of pilot” should you wish there to be. The key aim of this stage is reduction or eradication of reliance on the owners – in essence, changing from having a required direct involvement to being independent and the company becoming an autonomous asset.
- Exit – This stage is about preparation of the business for maximum valuation or easy succession. There is work to be done to attract investors and deliver the business’s value proposition as an investment.
Each business stage comes with its own challenges and opportunities, as well as specific advice and support requirements. There are some common themes though across all of these progress stages which separate the truly excellent from the mediocre.
The nine actions you can take to help your business ownership skills:
#1 – Recognise what you don’t know – you can’t be an expert at everything. Figure out where you need help with running a business, whether that’s systems, recruitment, finances, HR, leadership, strategy etc and get the support or education you need!
#2 – Be prepared to invest in yourself – it’s very tempting to do everything yourself or use a “free guide” to plug the gaps you have in your knowledge and skills. Your performance directly impacts the success of your business, so be prepared to spend money to improve your own outcomes.
#3 – Plan the future of your business – knowing where you are going and why, makes the journey a whole lot easier. Business planning is often something SMEs put off doing because the plans aren’t useful to them, rather they are for a bank, an accountant or investor and then gather dust on a shelf. Instead, why not make a plan that inspires you, and gives you the blueprint to how to progress your business.
#4 – Plan a future business that can work without you – as scary as that sounds, at some point your priorities will shift and you won’t want to or be able to work as much as you do currently on your business. So plan the roles needed in your business, not the people, and work towards that in recruitment, systemisation and training. This gives you the option to work where, and for how long, you want in your business.
#5 – Work on your business, not for your business – business owners wear many hats; from CEO, finance, HR, supervisor, sales, marketing, IT, premises manager and more. It is incredibly easy to focus your time on the demands in the here and now – they tend to shout loudest and often will fall within your comfort zone. But is that where you add the greatest value to your business? I guarantee the answer is no! So schedule your time based on the different roles you perform and make sure you have time to work on the business’ future.
#6 – Ask yourself the hard questions – being complacent, staying in your comfort zone or just thinking that you know it all is a dangerous place for a business owner to be. We guarantee there will be a competitor who isn’t doing this, and your consumers won’t be either! Ask yourself the hard questions and give honest answers; you are only lying to yourself and damaging your business otherwise. This is one of the most valued aspects of having a business coach – someone to ask you these questions but who has the right intentions – to make you and your business better.
#7 – Not everything needs to be done perfectly – it is very tempting to focus on one aspect of your business and get that working perfectly, before working on the next. In actual fact, the compound benefit of improving all aspects of your supply chain, sales process, operation etc by just a couple of % points, will give you a far greater return on your investment. It’s also a lot more achievable.
#8 – Hold yourself to account – if you are going it alone, it’s again easy to let yourself off the hook and come up with excuses. Entrepreneurs with successful and growing businesses do not do this. They hold themselves to account and take responsibility for their actions, and inaction. Having an external, trusted advisor, such as a business coach is a great tool for this.
#9 – Do not learn from trial and error – as an employee I doubt you simply were left to it on day one and allowed to get on with things unsupervised. Would a plumber or solicitor be expected to give things a try and see how it pans out for them? Of course not. Just because you are transitioning to being a business owner, doesn’t mean that the support network ought to disappear. My final point is to actually maintain that structural aspect of being an employee – by making sure you have the education, training, support around you which you need. The fundamental rule here is, give yourself the best chance of success and develop your business owner skills from those who can help you, rather than choosing to learn through trial and error. The cost of failure and the errors is too great to risk that approach.
Business coach Tim Rylatt is co-founder of UK Growth Coach, which provides business owners with coaching to help them simplify the business of business.
Tim’s coaching background comes from working with the world’s largest business coaching firm for over a decade, and since then, from running his own profitable coaching enterprises. He has worked with around 250 companies throughout his career and is a published author on the subject. Alongside being a co-founder of UK Growth Coach, he is also a Director of two award-winning marketing agencies and has real-world experience of being a business owner too.