Business Basics Every Entrepreneur Should Understand

Mike McMullen is the CEO of Prominence Homes and the author of Build. Rent. Sell. Repeat!

“Being your own boss” is something that many desire and few achieve. You’ve likely heard the horror stories and sobering statistics: 90% of startups fail, more than 20% in their first year of operation.

Even when successful, founding a business is often grueling work with no end in sight. If you are an entrepreneur, it can feel like you’ve got to keep your nose permanently affixed to the grindstone. Why wouldn’t it feel that way? You’ve got to sign your own paychecks after all, and profits require results.

But the answer is rarely constant work. I’ve written about work-related stress in another article, but the cliff notes version is this: entrepreneurs suffer from stress and worry at higher rates than the general population, which is bad, but also bad for business.

The trick is to work smarter, not harder. Intelligence is a river fed by many tributaries. It can be found on street corners, in the clickbait cavities of the internet, sitting in a church pew or listening to a concert; wherever there are people, there will be good ideas.

That being said, on the entrepreneur’s journey toward wisdom, there are few better origin points than classic business books. The following tips and the little tomes that led me to those insights have radically changed my thinking over the years, and I constantly go back to them to remember these basics.

1. Only invest in what you know and need.

This lesson was solidified for me after I read The Richest Man in Babylon by George Clason. This might be an odd title for a book about growing wealth in 21st-century America. Clason’s nomenclature may seem archaic, but his advice is timeless. Told as a series of parables, the text is approachable, the wisdom, sound. Clason lays out the “Five Laws of Gold,” which include such gems as putting away a portion of profits and investing in what one knows rather than what one thinks one knows.

Although this advice might not be best for aggressive investors, it also won’t lead them astray. Rather, it is foundational. Obeying it won’t help you catch your white whale, but it will prevent your bank account from crashing in a storm.

To me, the key takeaway for leaders is this: Invest in what you know, avoid buying things you don’t need and put away earnings each month. Only you know what you need.

I learned the value of this advice when my real estate companies were just starting up. I hired more and more people to sell our growing product line. But eventually, I realized that I was shifting from leadership to management; both roles are valuable, but leadership—not management—is my forte. Instead of inflating our front-line staff, I realized we needed less personnel who should be given far more support. That’s what we did. And it’s been working for us ever since.

2. View money as a means of making more money.

Chances are you’ve heard of Robert Kiyosaki. The jury is still out on whether he has truly earned his status as a financial guru, but one thing is certain: book sales have helped him turn words into bonds. In his Rich Dad, Poor Dad series, Kiyosaki constantly contrasts how the rich and poor view money, how one of these philosophies is superior and what investors can learn about the difference.

Whether you love or loathe Kiyosaki, in my opinion, you should read him. Don’t treat his words as gospel but glean what gold you can find in them. Specifically, focus on anything he has to say about leverage and cash flow. Taking his advice will mean trading your poverty mindset with one that will (with skill and luck) multiply your wealth.

Remember to view money as a means of making more money and learn to distinguish between assets and liabilities. However, this isn’t always as simple as it sounds. Some age-old advice is: “your own home is not an asset, it’s a liability.” And while this may be true, I’ve grown to realize that many objects that bring comfort can be assets in the right context.

For instance, your company cars may seem like a source of decadent expense (AKA, a liability), but the professionalism a fleet of white automobiles supplies can greatly increase the “curb appeal” of your brand and let clients know that your organization means business. In a phrase: avoid falling into a poverty mindset where every resource must bring in additional resources before it can be acquired. For obvious reasons, this is a self-defeating business philosophy.

3. Don’t get cocky.

I’ve written about Nassim Taleb’s idea of “the black swan” elsewhere on this platform, but only in the context of the pandemic and its effects on distribution and productivity. The Black Swan made a huge splash when it was published shortly after the housing market crash of 2007. Simply put, the book advocates a counter-cultural perspective on risk.

The title refers to the enigma of the black swan, an animal that no one in the western world believed to exist until one was found for the first time in Australia. Suddenly, the impossible became possible. For Taleb, a “black swan event” is something like a housing market crash. It is considered utterly impossible until it happens.

Of the three books that I mention in this article, The Black Swan is the quirky-genius cousin. Read in a vacuum, it would lead an entrepreneur to make foolish decisions. However, when paired with a sound financial foundation, it has a lot to teach us about risk, “experts” and allowing for the unknown (if not quantifying it).

So, don’t get cocky. The second you think you understand a market will be the second it surprises you. Don’t discount suggestions just because they seem impossible. Remember, the more you learn, the more you have to learn, and for that, there is always a plethora of relevant literature.

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