Build a profitable business- the baby steps part 15

It´s time we discuss the importance that luck plays in business. Or should we say, the importance that most people attribute to luck when it comes to business success. We have been entrepreneurs for the bigger chunks of our lifetimes. We´ve heard it all. In fact, we believe we´ve heard it all, and then some. One of the most popular illusions people hang onto regarding being an entrepreneur is that luck does play an important role in determining the outcome of any one business enterprise. Luck does play a part, but it is only a small fraction the size people believe it to be. So how come luck plays a lesser role than most people believe? And why do people in general believe that it is luck that brings home the bacon for the hardworking entrepreneur? Well, we have the answers to those questions and we are going to discuss them right here and now.

First of all we there is the role of cause and effect. Sometimes people get so caught up in one part of the equation they completely forget the other. People get so caught up by the lucky factor of the equation that they forget about what brought about that luck. Another way of putting it is that people spend too much time focusing on the factors that are considered the lucky part of the equation, which usually means a big check is changing hands, that they manage to forget the years of hard work that made that fat check a reality. We think an example will get our point across. So let´s do an example.

Let´s say you are a successful entrepreneur and you own a healthy business. Let´s say you spend a lifetime building your enterprise, improving it little by little each day, always looking to add more value to your customers and to your company, always choosing the option that are most benficial for yor long-term company health. Now, all of a sudden a big multinational company knocks on your door. Well, actually they are not really knocking. They are banging so hard the whole house is shaking. They have scrutinized your business. They have left no stones unturned and they like what they have found. In fact they love it. They have decided that your “little enterprise” is a gem that would suit their collection of gems just perfectly. So they approach you with an offer. You feel elated by it, as it is a fairly decent offer and a life-changing amount of money. The stiff corporate lawyers tell you it is a “take-it-or-leave-it-kind-of-deal” as their client is confident they are paying top money for the business. You contemplate upon it. You discuss it with your friends and family. You can hardly sleep at night. All that money is tempting, but you feel sick by the thought of having to hand over your baby into the hands of strangers. A week goes by and you finally reach a decision. You, say thank you but no thank you. You figure that is that and go back to work the next day.

But then something unexpected happens. Two days after you declined their (take-it-or-leave-it-) offer the lawyers of the multi-national company contact you again. They start feeling you out. You have basically come to the conclusion that you don´t really want to sell, and that it´s less about the amount of money on offer and more about the fact that you feel you are not done with your vision yet. There is so much more you want to get done. You are not nearly at the end of the road, you have merely picked up some pace. Still, there is so much more that needs to be done. And you are just the man to do it. But the lawyers are tenacious. They ask you what kind of money would need to be on offer in order for you to reconsider your position. After a long and tiresome discussion you blurt out a price that you know is well above what your business is worth. The price is in fact so high, it would be insane for anybody to pay up. The only reason that you mentioned the price in the first place is because they wanted a price and you didn´t really want to sell. So you simply stated a price where you know a deal would never be struck. Still, the lawyers are polite to you and thank you for your time. Smooth as silk they are, you think to yourself. You wonder how they are going to present your semi-ridiculous price tag to their client. After a week goes by you stop thinking about the incident. By now they have forgotten about you anyway. Or so you might think.

Two days later the phone rings. The lawyers are just as stiff as you remembered them, but this time they are even smoother operators. Would you be interested in coming to the head office for a meeting. Their clients want to meet you to discuss the details. They want to do an even more thorough due diligence, but the way they see it the board of directors is willing to play ball. You feel numb. You barely understand what is happening. Are they kidding? Is this some kind of negotiating trick? Surely they won´t pay that much for your company? The price tag is insane.

But you accept the meeting. After all one of your leading guidelines in doing business has always been to hear the other party out before you make a final decision. The meeting feels as surreal as the pile of money being discussed. Your preposterous offer has been accepted by the board of directors. They were even more keen on your business than you initially understood. Appearently your business is the perfect strategical fit. Fancy words are being thrown around. Strategical fit, lack of organic growth, enhancing the usp, structural refinement. You get most of what is being discussed but to tell the truth you aren´t really listening to it all. You are still in a state of shock. Or rather, you are paralyzed. As you and your advisor leave the building and enter into the taxi you ask yourself “What the hell just happened?”. You realize you must have asked the question out loud since your advisor chuckles and gives you an approving nod.

Two months later everything has been agreed upon. Due diligence is history. The details have been catered to and accepted by all parties. Final versions of the papers have been drafted and signed. The payday has finally come. And what a payday it is. You receive the majority of your ridiculous pile of cash in a lump sum one week after the final documents have been signed. The rest will be payed out to you over a number of years, and the size of the additional money will depend on how well the business performs over the coming years.

Over the coming months you slowly begin adapting to the new situation. The fact that you will keep working with the company you built for a few more years has certainly been helpful. You can´t imagine what the shock would have felt like, had you been ordered to abort ship. As it turns out, the new owners appreciate your market expertise and experience. The contract states that you must be available as a strategic adviser for the coming years. That suits you perfectly since it will give you the time to reflect on what the next logical step will be for yoy. What will you do next? Retire? Probably not. You´ve heard all the war stories from your entrepreneur friends. Sipping on cocktails on a paradise beach only looks nice in the movies. In reality you know it would drive you crazy. Just like it drove all those other entrepreneurs crazy. How do you go from working 70-hour weeks to laying around on a beach all day long? You don´t. You start looking for new business opportunities and immerse yourself in investment ideas. You can´t really stand the thought of being idle. And all that money needs to find a home. Somewhere safe where they will be working for you and your family, making a nice dividend.

You realize that there are going to be lots of changes to your life in the coming years. One of the most unexpected ones is your newfound “fame”. As the news hit the news you become somewhat of a local celebrity overnight. It seems many folks didn´t realize your enterprise had been so successful. Actually, it seems like a lot of folks didn´t realize you had an enterprise to begin with. Now they all want to shake your hand. To discuss business opportunities. To show you that they too have potential blockbuster ideas. Phone calls keep coming in. Reporters. Relatives. Your stockbroker. As a matter of fact quite a few stock brokers and other representatives from the financial industry are calling to congratulate you and invite you to a lunch or dinner. They have som excellent ideas they would like to discuss with you. It appears the market is full of opportunites at the moment. What market that is? Well, according to the phone call pretty much all of them. Finally, there are the beggars. People who for some reason think they too deserve some of that cash. There are the charity organizations (and you give some of them a contribution), the distant relatives or aquaintances looking for a loan, the inventors and startups looking for backing, and also a delusional person you´ve never heard of threatening to sue you if you don´t give him a piece of the pie. You change your number and after a while most of the dust settles. You feel free.

You now have time to pause and reflect. There are a number of things that have surprised you lately. But there is one thing that has perhaps stood out the most. One thing you can´t really get out of your mind. It´s how little your surroundings really get what has actually happened. They all congratulate you on your good fortune. But that´s just it. They use words like those. Good fortune. Getting Lucky. Hitting a homerun. Being in the right place at the right time. You hear all sorts of descriptions about what happened, ecxcept for the description that would have summed it all up best: hard work.

People seem to focus on the size of the final pay check and the sale of the company. Very few seem to understand what made that kind of sale possible. Apart from your wife, they don´t seem to understand how incredibly hard you´ve worked and how many years you´ve dedicated to your building your enterprise. They don´t understand the late hours, the neverending stream of setbacks, the struggles, heartaches and working frenzies. All they seem to understand is that fat check of yours and your good fortune. How lucky you were to have the right idea at the right time. How lucky you were to come up on the radar of a company that would end up paying a mighty premium for your enterprise. How lucky you were that the economy was starting to get healthier at the moment. How lucky you were to start a company in just the right sector at just the right time.

Luck. That is what they see.

The fact that your company has been around for the better part of their lives, seems to be a minor detail lost on them. You´ve seen good and bad economies. You´ve seen the fortune for your sector go up and down. You´ve seen the fortune of your enterprise go up and down. In fact, during a lifetime of being an entrepreneur you´ve seen it all. But you just kept going. Putting one foot in front of the other. Never starying from your vision. Well, never for long periods of time anyway.

By now you´ve probably understood the moral of our story. It´s hard work, not luck that pays. The public puts so much focus and attention on the actual paycheck, they are too blind to see the many years of hard work leading to that “stroke of luck”. They public sees luck and a fat paycheck where the entrepreneur sees hard work and sweat. The public focus theior attention on a very short time span, the time it takes to write the check. The entrepreneur focuses on the grueling years resulting in that check. They both see the same thing, but from completely differnet perspectives. The public are novices. they know not of what it means to be an entrepreneur. They think they do. But most often they don´t. The entrepreneur has lived it, tasted it and experienced it firsthand. He got himself frontrow seats to the academy of life, business and what it takes to succeed. Was it all worth it? Frankly a lot of entrepreneurs we have asked this question say they are not sure. Many praise the lifestyle it enables them and their families. Then again many mention the long hours of seemingly endless work, being away from family and loved ones. Still we are yet to meet anyone who wouldn´t do it all over again if they had the chance. There is just something in man that yearns for the opportunity to devote your whole being to something, to mold reality around your vision, to realize your wildest dreams and reach your true potential.

Do you think the story we told you was too good to be true or unrealistic. It is not. This is a true story. It happened. All of it. And to us it is the perfect example of life in the entrepreneurial trenches. Next time you hear about some entrepreneur hearing the cash register ring in a big way think about this story. Don´t focus on the ease of cashing that paycheck. Focus on the years of hard labour that lead up to that check. While we understand that it´s the fat paychecks that will always make the headlines, we ask you to read about the hard work involved in between the lines.

It is the years of improving, adding and perfecting your business that manifests itself into a sizeable paycheck. Not the 10 minutes it takes to sign and cash that paycheck. It is persevearance and hard work that pays. Not luck. Not being at the right place at the right time. Each man creates his own luck. Being at the right place at the right requires work. Luck and circumstance might be the final ingredients that allow you to seize that opportunity. But it is hard work and persevearance that let you in the door in the first place. Luck can find no better companion in the world than hard work. Wherever there is one, the other is bound to follow. Do you actually believe Thomas Edison got lucky inventing the light bulb? He himself claims that he failed thousands of times before he got lucky. He brought hard work to the table and some luck finally materialized. Luck follows hard work anywhere. Always has. Always will.

Luck is the logical end result of taking part in the game and being persistant. You think a hole-in-one is luck. Part of it is. But have you ever wondered why in general there are more hole-in-ones among the better players? The answer? The better players are always out there on the pitch constantly trying to get better. They are taking part in the game. Also, they have been doing it for a long while, and they have been persistent in their effort to become better players. If you want to hit a hole-in-one you had better tee up and start swinging. And you had better be prepared to go at it for a long time. You think a home-run is a fluke? It might be. And certainly there are times where it is. But more ofthen than not a home run is the natural result of the same formula we have already discussed. There are only two prerequisites for a home run really. First you need to be a part of the game. That one is kind of obvious. Second, you need to keep at it for a long time. You have to step up to that plate over and over again for a very long time. When you have paid your tuition fee, with sweat and grueling work, the results will start to materialize. Sooner or later you are going to start hitting it ot of the ball park. Neither the professional golfer nor the professional baseball player can decide beforehand when they are going to get a hole-in-one or strike a home run. But they are confident in their abilities. They know that they have done all the necessary hard work that will allow them to excel if they only continue being part of the game. Once again; luck is the logical end result of taking part in the game and being persistant. To state it as a simple formula it would look something like this:

Luck = taking part + being persistant

or if you will

Luck = taking action + working hard

To some extent it´s a numbers game. By taking part in any game or by taking action you are exposing yourself to the gentle touch of the godess of fortune.  By making a great deal of attempts at it you are Midas touch. Think about that. Just by taking part, you at least stand the chance of gaining something. That is why it is important for an entrepreneur to keep moving. We have found this ability to be present in most successful entrepreneurs we have come across. They are always moving. Sometimes in the right direction and sometime in the wrong one. But they are always in motion. Always looking to improve, to gain some advantage, to tweak their outlook ever so slightly in their favour. Skilled entrepreneurs seem to understand instinctively that action equals exposure to opportunity, and the more action you take, the more chances will present themselves to you. Like we sais, it´s a numbers game. Apart from being a numbers game, the quality of each attempt is also of importance. An individual that has never tried golfing before will not get a hole-in-one on his first attempt. That will take time, and a lot of attempts. But no matter how many attempts a novice golfer makes, he or she is unlikely to strike a hole-in-one unless there is a certain quality to each attempt. Some basic skills need to be in place, or the number of attempts simply won´t matter. These skills are aquired by hard work, by sticking with it, by being persistant and not taking no for an answer. Once the skills are in place, and the quality of each attempt is at a high enough level, the mathematics of it start to kick in. Lots of attempts and a high enough quality on each attempt may result in the occassional hole-in-one. People will congratulate you but of course refer to it as luck. But you now know that luck is simply a matter of sticking with the varibles making up the formula. And the formula states that:

Luck = number of attempts + quality per attempt

What follows from this is that you can become lucky if you only put your mind to it. You have been told your whole life that luck is something over which you have little or no control. Well, we beg to disagree. It seems luck is something over which you can have plenty of control. While you can´t control the actual “lucky incident” and you can´t make it happen at a specific point of time, you can certainly control the two variables that lead to luck. You can make sure to take part in the game. And you can be persistent in trying to better your game. The second part is really an iterative process. You need to work hard for sure, but you also need to do it for  along period of time, and you need to constantly try to improve your skills each time. So how doe this apply to the world of business? How does this help you to build a profitable business and ultimately become rich. Well. it´s just as simple as it sounds. Take part. Be persistent. You take part by starting a business. You are persistent by putting in the long hours and by continuously improving on each and every aspect of your business. If you do those two things, you have certainly paved the way for luck to pay you a visit. When it does, you too will hear the phrases; “he just got lucky” or “he was at the right place at the right time”. But you now know that luck is in fact made up of two variables and by controlling these variables you can also control the likelihood of getting lucky. Losers think of luck as a convenient excuse for their lack of success. Winners think of luck  as a byproduct of preparation, hard work and going the extra mile. Let´s apply what we have learned to our formula and see what it would look like if we instead of luck apply it to wealth:

Wealth = start a business + improve on it continuosly and persistantly

Obviously, you can build wealth by other principles than by starting a business, but we are dealing with how to build a profitable business here, so bear with us. Next time you hear “he was at the right place at the right time” you should be thinking “he was taking part in the game”. Next time your hear “he just got lucky” you should be thinking “he worked hard and persistently for many years”. Foolish people hope that luck will come find them. Smart people create their own luck and seize the opportunity once it arrives. Losers believe that their luck is a part of their fate and that it cannot be altered. Winners understand that luck is about statistical probabilities and that you can twist the odds heavily in your favour by making sure to take part in the game and being persistant. Individuals with bad luck explain their situation by pointing to outer factors which the cannot control. Individuals with good luck look to the factors that can be manipulated and change them to seriously enhance their chances. Individuals with bad luck wait for fate to take it´s course. Individuals with good luck take action to alter fate to their best interest. Individuals with bad luck believe in luck. Individuals with good luck believe in stepping up to the plate and enhancing their probabilities by taking action, working hard, and staying persistent. Who takes part? Men of action do. Who wins? Men of persistance do. Because ultimately luck is nothing more than performing as many quality attempts as possible, and expecting to hit that occassional home run once in a while.

Do not attempt to be a man of luck. Attempt to be a man of action, hard work and persevearance. The luck will follow. And when it does, disregard the headlines and the remarks that claim you got lucky. You know what it took, because you paid the price. And paying the price is what ultimately makes success taste so incredibly sweet.

In the end fortune favours the brave and the harder you work the luckier you will get. And that´s really all there is to it.