Has High Tech Hijacked Entrepreneurship? How to Really Measure Small Business Success
The definition of what it means to be a successful entrepreneur has been challenged by popular media and Silicon Valley. Even though the high-tech success stories we read about in the media are really a very small percentage of businesses that are born every year, the stories of multi-million or even multi-billion dollar valuations distort what it means to be a successful entrepreneur.
We can’t blame the founders of fast-growing tech firms who are able to find equity funding, leverage that funding, and scale their businesses to a size attractive for acquisition, an IPO, and an exit. It’s just not a reasonable approach for the majority of hopeful entrepreneurs sticking their collective necks out to live their version of the American Dream.
I’m convinced success shouldn’t be defined by the size of a founder's exit or how much equity capital he or she is able to raise. Of course, it makes sense for a founder to plan for the future, and every business needs capital. Access to capital is a challenge for many business owners, but there’s a lot more to running a successful company.
A Successful Exit Shouldn't Define Success
Over 30 years ago, when I started my career, I don’t think I knew anyone starting a business who was planning on an exit five or six years down the road. They were building businesses that would ultimately become their life’s work—an exit wasn’t on their minds. They spent their energy trying to fill a market need while building a profitable business, rather than chasing the next round of venture funding.
That’s not to say venture funding is bad, but a good company valuation isn’t the only definition of small business success. When business owners define success that way, they sometimes make short-term decisions to boost earnings or scale their businesses, creating the potential for long-term negative results.
There are roughly 30 million small businesses in the U.S., and most of them don’t look like the sexy tech companies we read about. Yet there are millions of wildly successful (and profitable) companies that don’t have annual revenues of multi-millions every year. They employ people, create jobs, and help local economies thrive.
What Does It Mean to Be a Successful Entrepreneur?
Here’s a good place to start:
- Happy Customers: It doesn’t really matter what type of business you’re in--you need customers. The most successful companies have learned that pleasing customers is the pathway to success. What’s more, your customers don’t really care how many decades you’ve been around, or what the critics say about you, or even what you say about you. They do care about the challenge you solve or the need you fill, the value of your product or service, and how well you take care of them over time. There is no small business success without customers and most businesses need to not only keep their current customers as long as they can, they need a regular influx of new customers.
- Increasing Revenues: If you are able to meet the needs of your customers with a product they value, they’ll pay you for it. The money they pay you, or your “revenues” are a good way to measure entrepreneurial success. If your business revenues are increasing year over year, it says something positive about your business. If your business is backsliding, or making less revenue every year, it may be telling you there are problems that need to be solved. An influx of additional capital may or may not be the solution to lagging revenues—but definitely shouldn’t be considered a panacea.
- Profitability: Is your business profitable? Is it more profitable today than it was a year ago? Are your annual revenues generating profits? Granted, there are circumstances where a business owner might forego taking home profits to reinvest them, or in some cases, might even choose to scale or grow the business without profits today in anticipation of more profits down the road. However, for most small businesses, profits are a great indicator of business success.
The biggest challenge of measuring business success by how well a business owner is able to attract investment capital or is able to raise equity capital is that the vast majority of small businesses we rely on--to fix our cars, do our dry cleaning, or the other myriad services we regularly use--are not the type of businesses that attract investors seeking exponential growth. Yet many of those business owners are at the helm of incredibly successful businesses, while at the same time, there are business owners who are successful at raising investment capital, but unsuccessful at building viable businesses.
How do you measure business success?
