I was a judge at the Queen’s Entrepreneurs’ Competition for four years, from 2015 to 2018. Unfortunately, due to timing, I won’t be able to judge this year’s competition.
The competition awards over $50,000 to the winning team, so you can imagine, given the substantial size of the prize, that the caliber of the pitches is outstanding. Not only that, but I’ve always been overly impressed with how bright and entrepreneurial the young students are.
During my four-year tenure as a judge, I met countless students and heard over 20 pitches. Throughout the day, during coffee breaks and dinner, I had the occasion to speak with many of the students about entrepreneurship and their interest in starting a business once they graduate.
I’m often amazed by two things:
– how creative some of the business ideas are, and
– how many of the students (and soon to be entrepreneurs) are going for a home run
Do You Need a Home Run to Succeed in Business?
Instagram was sold for $1 billion in 2012.
Grubhub was sold for over $2 billion in 2014.
Those are MASSIVE dollar amounts.
They also make for amazing headlines. Unfortunately, growing your startup to millions in revenue, and billions in valuation, is a lot harder than it seems.
I’ve spoken with dozens of entrepreneurs at the Queen’s Entrepreneurs’ Competition over the years—and probably hundreds of other entrepreneurs who have connected with me through this blog.
Of all these conversations, I would say maybe a handful are looking to start a more traditional service-based, non-home-run-type business.
What’s a Non-Home-Run Business?
Notice the three companies listed on the sign:
– Island Garage Door
– Allied Paver Systems
– Tom Christian Construction
These are examples of a traditional service-based business.
I ran a traditional business installing inground sprinkler systems during my four years in university. Although it wasn’t a sexy business by any means, I grew the business to 2 crews that handled $14,000 worth of recurring maintenance and upwards of 40 installations that netted $800 each. This small, summer business did extremely well.
Other examples of traditional businesses:
– Pool repair, installation, and maintenance
– Lawn cutting and snow clearing
– Elevator sales, service repair, and maintenance
– Escalator sales, repair, and maintenance
– Excavation
– Auto repair, body shop
There are hundreds of more examples of traditional service-based businesses that can provide the owner with significant profits. They have substantially less risk, with lower barriers to entry. Many of these businesses also have a service and a recurring revenue stream that accompanies the main business itself.
But while there’s nothing wrong with getting into the elevator repair business, for example, it just isn’t as glamorous as being the founder of a company selling the latest in AI, blockchain, or nanotechnology.
So What’s Wrong with AI, Blockchain, or Nanotechnology?
The short answer is nothing.
These businesses typically require a significant infusion of capital—most often raised through investors in a seed round—have a much larger element of uncertainty and risk, and are generally set up for a much quicker exit. The founder’s percentage ownership gets diluted through multiple financing rounds, and in the end, the founder could end up with a very small percentage of the business.
Let’s say the business sells for $1 billion, and the owner retains 5%. That’s still $50 million, which is a LOT of money, but you can understand why I call this a home run business. The entrepreneur is swinging for the fences, looking to get a home run, whereas the traditional elevator sale, repair, and service business is a slow and steady, cash flow, recurring service business. Over time, the elevator business (for example) can provide significant growth and profits for many years.
So Where Are the Elevator Pitches?
No pun intended. I’m asking why so few, if any, of the students from the entrepreneur competitions, or those that reach out to me looking for financing, or for that matter, readers of this blog, are trying to finance the traditional mom-and-pop elevator repair business (for example).
The elevator repair and service business (or lawn irrigation, HVAC, …) might not be sexy, but I’ll take that business plan over the blockchain business plan (almost) any day. The elevator business is more or less recession-proof, can provide significant recurring revenue, and carries much less risk than blockchain or AI. I’m not suggesting that there’s anything wrong with the home-run-type business, but most entrepreneurs are so caught in trying to find the next hot technology that they miss the potentially “other” golden nugget sitting under their noses.
The traditional service-based business can provide many, many years of healthy profits, is much easier to run, and can potentially make you extremely wealthy.
How Do You Create Wealth?
Here’s what I wrote the other week in a post:
Some suggest that 8% a year is a good return on investment, and if you’re managing to get 8% a year, consistently, year over year, then you’re doing well.
BUT 8% ain’t great.
If you’re saving 10% of your salary and growing your overall wealth by 8% a year, then over time, you’ll build your wealth.
How about a 15%, 20%, or even 30% year-over-year compounded return for many years?
The power of compounding your wealth by 20%, year over year, means that if you start with $50,000 in year 1, by year 10 you’ll have $309,587, and by year 20 you’ll have $1,916,880!
And how can you achieve a 20%, 30%, or even greater year-over-year compounded return?
By starting and growing a profitable business, and by reinvesting the business’s profits:
– back into the business for further growth, and
– in investment real estate
The New York Times, using data from 2007, estimated it took $8.4 million in net assets to be in the top 1%, compared to $121,000 average wealth for all Americans.
That article states, “The wealthiest 1 percent took in about 16 percent of overall income—8 percent of the money earned from salaries and wages, but 36 percent of the income earned from self-employment.”
This strongly implies that a large percentage of the 1% are self-employed, which is probably a good gauge of being “self-made.”
Growing Wealth Is About Patience
There’s the tortoise vs hare thing.
“Hare stretched and yawned and began to run again, but it was too late. The tortoise was over the line. After that, Hare always reminded himself, Don’t brag about your lightning pace, for Slow and Steady won the race!”
Are you thinking about opening a business in the next year?
Just remember, slow and steady sometimes wins the race! You don’t have to invent the cure for cancer or the next electric vehicle to make it big. Sometimes the best business idea is something much more attainable.
Before you go, I think you might be interested in reading this post titled: Do you Have the Most Important Trait Required to Become a Millionaire?
And here’s another: How to Start All Negotiations Like a Champ. You Must Know This One Thing
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