I was at Startup Festival today and while listening to the talks, I spontaneously started writing down what I consider to be 10 fundamental laws of entrepreneurship. Now, I’m no Mark Zuckerberg or super billionaire entrepreneur who built and exited from a lot of VC backed companies, but I do have a bit of experience in running my own successful business and selling it. So…take what you will out of this post.
1. The law of demand
The basic model of business is that there is a demand, and your product/service solves that demand. In most industries, it is a problem, and your product solves that problem. Find a problem and solve it.
2. The law of value
Your product or service has to provide some kind of value to the customer. Business is all about an exchange of value. At the end of the day, the purpose of enterprise is to build value for customers and shareholders. Your product/service should answer the question, “Why should I pay for this?” The law of value also relates to pricing. How you price your product/service will determine to a prospect whether it delivers value.
3. The law of scarcity
Scarce resources are more profitable, especially when there’s demand and it provides value to the buyer. In your business, you should always be able to state your “unique selling proposition” (USP), also known as your “differentiators”. What makes you different? Also, think about what the barriers to entry are. Can a competitor easily spring up and damage your business? Aim to be unique and create value.
4. The law of validation
Business ideas are a dime a dozen. You should aim to validate your ideas as much as possible. Many startups and new product/feature ideas are based on opinions. Opinions are like armpits. Everyone has two of them and they both stink. Rather, you should get quantifiable validation that your idea is actually worth pursuing. The more validation you get, the better your position will be in developing a product that is in demand, that is valuable to users, that is scarce, and that will generate cashflow.
5. The law of cash flow
One fundamental tenet of business is that it makes money somehow. Remember – your customers are the ones who give you money. A lot of people get burned by thinking that they can build businesses based on getting eyeballs. In only very rare cases that has proven true and people cashed out based on hype. To be a viable, long term business, people need to give you money. You need cash flow. Cash flow is king. When your business runs out of cash, it dies.
6. The law of margin
Your business needs to be profitable for it to be worth it. The law of margin is that you need some kind of profit margin on what you sell. In some industries, margin is very low because costs are high and there are many competitors. This comes back to the law of scarcity, demand and value. If few people do what your solution does, your solution provides value, there is actually a demand for it and customers are prepared to pay a premium for it, then you’re in a good position to command a nice margin. Aim to get a healthy margin on your product/service. Spend less than you make. Simple.
7. The law of scalability
Once you find an idea that works, is it possible to scale it so that more people can buy the product/service? Develop a business model that enables you to scale.
8. The law of talent
Ultimately, a company is made up of people. The people that you have will determine whether or not you can execute successfully. Partner and hire wisely. Get GOOD people!!!
9. The law of trust
Related to the law of talent, you need to be able to trust the people you work with. Between partners, investors, staff and customers, there needs to be a level of trust in everyone. Most of the problems associated with people in business is rooted in a basic loss of trust. When you fire someone for not performing, it’s because you can no longer trust that the person can perform to expectations. In business, you’re not going to see eye to eye with everyone. But trust holds a company together.
10. The law of measurability
How do you quantify success? If you don’t know how you quantify it, how will you know when and if you are successful? The law of measurability is that you need to have quantifiable metrics on as much of the business as possible. This will tell you if what you are doing is working. Even in things like validating an idea, it’s much better to have actual data that you can point to, than to make sweeping remarks that “many people like your product” — prove it with data.
