Tuesday, August 28, 2012

Club Entrepreneur Part 3 - Acceptable Stagnation

This is the third installment of the Club Entrepreneur series. Parts 1 and 2 covered the first two stages of the entrepreneurial journey. In part 3 we discuss an important fork in the road for the entrepreneur. This is the point where one decides to remain a specialist or freelancer or to continue the journey to the coveted Players Lounge. This must be a deliberate decision in order to take the correct actions and form a sound strategy. Unfortunately, many are unaware a distinction exists. The purpose of this post is to help you make the right choice at the right time.

For those who make it out of The Gauntlet, the next important decision is whether to remain a small operation where the founders remain as an integral part of the business or to expand into something greater. A common mistake is to have dreams of a big business while behaving more like a mom and pop shop.

Why the term "acceptable stagnation?" Because their are those who deliberately limit the growth of their businesses and remain as free lancers and specialists. This is what some refer to as lifestyle entrepreneurship. This entrepreneur does not want a big business and is not looking to cash out. They create a "job" for themselves, but one which they love.

They have a stable of regular paying customers who gladly pay a hefty price for their services. These loyal customers pay often, pay on time and bring in repeat business along with referrals. If this type of entrepreneur becomes overwhelmed or the client base grows too large, they pull back instead of bringing on resources to handle expansion. If they receive too large an influx of customers, they either turn them away or direct them to other professionals within their network. This entrepreneur goes out of the way to prevent growth so business does not interfere with their lifestyle. I know people like this who flat out say, "I am not taking on new customers at this time. If a slot opens up I will let you know." To someone like me, turning away potential customers and limiting growth sounds crazy, but this is a perfectly acceptable choice and works for many.

Risky Business

There are significant risks to this approach. First, any sudden change in industry can cause major disruptions. This happened to a friend of mine years ago when a government regulation turned his industry upside down and he later went out of business. He was a one man operation with a single specialty and unable to pivot.

The second risk is a sudden downturn in the economy, which is tough for businesses of all types but even more so for the lifestyle entrepreneur.  After relying on a certain type af customer who decides to stop buying, the entrepreneur faces a significant drop in earnings. Larger companies can trim the fat by cutting staff, reducing pay or nixing unprofitable products. The lifestyle entrepreneur does not have this option.

If the situation further deteriorates and becomes unmanageable, one solution is to collaborate with  larger organizations. Another is to introduce new offerings targeting a different customer base. This however contradicts the lifestyle the entrepreneur set out to create for themselves in the first place.

Despite the risks, entrepreneurs who choose this approach and develop a well thought out strategy, can achieve enormous success. The problem is for those who have no idea what any of this means and take on too much work in an attempt to grow a large business, but fail to create the infrastructure to support growth. They have visions of an enterprise but some of the habits of a lifestyle entrepreneur.

Making the Transition

To move out of stagnation and into the next stage, the entrepreneur must have a plan to replace themselves and do less of the day to day work. Overtime their business outgrows them as their role becomes less significant. When this happens, they are well on their way to the next stage of entrepreneurship.

In the fourth and final installment of this series, we enter The Players Lounge. We will cover the definition of a Player, how to recognize them and how to interact with them. Meeting them is inevitable if you play the game correctly. Click here for part 4.

Godspeed and I look forward to seeing you in The Players Lounge.

See Also..

Club Entrepreneur Part 1
Club Entrepreneur Part 2
Club Entrepreneur Part 4
Open Letter to a Beginning Entrepreneur

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