How Entrepreneurs Actually Build Billion Dollar Companies

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Before focusing on what you need, start by taking stock of what you already have. By Hilary Martin (Certified Financial Planner, Family Wealth Consulting Group)

How to build a company:

  1. Have a brilliant idea!
  2. Write a winning business plan.
  3. Convince investors to invest.
  4. Get customers.
  5. Have a profitable exit.

Yes? But notice that providing value and earning actual revenue doesn’t come until the fourth step!

Professor Saras Sarasvathy of the Darden School of Business studied 27 expert entrepreneurs (founders of companies from $200M to $6.5B in revenue) and discovered that what they actually do is quite different. She named the process "Effectuation" because expert entrepreneurs effect the future.

So, what’s the process?

Means (Bird-in-hand)

Before focusing on what you need, start by taking stock of what you already have. What skills do you possess? Resources? Connections? Relationships? Influence? What opportunity is already staring you in the face?

In 1990, Yan Cheung looked around her and saw that Americans discard mass amounts of paper, and China was in desperate need of paper-based boxes to ship goods around the world. She and her husband started collecting paper from U.S. dumps in a Dodge minivan, and sent them to China. Cheung now runs Nine Dragons Paper and Forbes has named her China’s richest woman.

Goals (Affordable Loss)

When Richard Branson (not uber famous at the time) wanted to start Virgin Atlantic Airlines, he needed a 747 or two — but couldn’t afford to purchase them. So, who has a 747 just sitting around? Boeing, of course. Branson called Boeing and asked them to rent him the planes that were sitting in the hangar: Boeing’s slack resources.

Always focus on what you can afford to lose, avoid all-or-nothing activities. Always be aware of and able to survive the downside risk. Make it a win-win and ask others to contribute their slack resources to your effort.

Surprises (Make Lemonade)

A note on surprises and seeming problems — learn to recognize and leverage them. When Mark and Stacy Andrus’ pita-wrap sandwich pushcart’s lines started getting too long, they began toasting and seasoning yesterday’s pitas (bird-in-hand) to serve to customers in line to encourage them to stick around. Here comes the surprise: customers liked the pita chips better than the wraps, and Stacy’s Pita Chips was born.

Interactions & Commitments (Patchwork Quilt)

Using the slack resources of the people and organizations you’ve assembled, stitch together a patchwork quilt of support for your endeavor.

Maija Itkonen, a designer, wanted to find a way to help end users adopt wireless cell phone charging technology, which has been around for years. Her partnership with two of Finland’s largest furniture makers made Powerkiss tables possible — and now the table you set your dead phone down on at the at the gate with two hours to go until your flight might just charge it back up for you!

Don’t be married to your original idea, be married to building a profitable company. Expert entrepreneurs are masters of getting buy-in, they work to build partnerships with self-selecting stakeholders.

Create Your Future (Pilot-in-the-Plane)

Ultimately, an effectual entrepreneur doesn’t try to predict the future, rather, she creates it — time and time again.

 

Now that you have a list of resources and commitments at your disposal, how can you expand the possibilities? What new directions can you take? What new and increased access do you have to profitability as you return to the first step in the process?

Editor's note: Got a question for our guest blogger? Leave a message in the comments below. About the guest blogger: Hilary Martin is a personal finance expert, author, and fee-only financial planner in Silicon Valley, CA. Hilary blogs about healthy money practices, investing insights, and the psychology of money. Hilary is a member of the National Association of Women Business Owners and has served on the Board of the Academy of Finance. She blogs at Healthy Wealthy Families. Follow her on Twitter at @wealthyfamilies.