Increasingly, Australians are chasing fame and fortune. They want to become millionaire entrepreneurs. What sets them apart? Well, there are 10 main factors. By AMANDA GOME.
By Amanda Gome
Adjunct professor at RMIT University
Increasingly, Australians are chasing fame and fortune. They want to become millionaire entrepreneurs who are constantly in the business press, change their industry and make the pages of the BRW Rich 200.
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For most the dream dies early. Of the 110,000 companies that start every year, few come close to $1 million revenue in the first year or to double and triple their revenue year after year. My research into high-growth companies, in conjunction with RMIT University, shows only about 5–10% of these meteorites can sustain fast growth for more than three years in a row.
Yet year after year, a class of millionaire entrepreneurs are born who go on to change their industries and build huge wealth, which is reinvested into property and shares.
What makes the millionaire entrepreneur so different from the average small business owner? After more than 20 years of research into fast-growth companies, I have seen 10 standout factors that differentiate this highly successful breed from the start. Some of these factors completely contradict the stereotype entrepreneur.
Fact 1: Millionaire entrepreneurs choose their industries and timing very carefully.
Ask an entrepreneur why they are successful and chances are they will reply: “Luck! I was in the right place at the right time”.
Forget luck. Millionaire entrepreneurs have highly sophisticated radars. They can see that something in society has changed, that customer demands have shifted or that the Government is going to create new regulation.
Most highly successful start-ups are based around products and services initiated in response to new trends and changing conditions.
The fastest-growing start ups in the past few years have been in the following areas: terrorism security, protection and provision of knowledge, services to assist the resources boom and the export industry, baby boomer services, healthy takeaway food, services to help people lead more balanced lifestyles, software that links people and projects, internet sites that create communities, and highly accountable advertising and PR agencies.
These areas all fit into the fast-growing industries of IT, property and business services and finance and insurance. And they all are new businesses responding to changing trends, threats and opportunities in society.
So what makes the millionaire entrepreneurs such close observers and arrive at the big idea? It ain’t luck. Entrepreneurs are voracious readers and scanners. They scan people, trends, society – and their potential customers.
The entrepreneurs have an ability to ask the right questions that prompt informative answers. Yes, they are probably born with a high emotional intelligence but they also use a problem-seeking, problem-solving process.
Rather than asking, ‘Do you need this product?’, millionaire entrepreneurs ask the customer what problem they have and how could it be solved. Once the business is established, they use other tools, surveys, feedback forms and complaints – anything to elicit information and ideas from customers in order to create new innovations.
One successful graphic design company, Vivid Design, sends out Scratch and Win tickets to encourage clients to fill in customer surveys. There is an 80% completion rate. The clients can’t help but scratch the ticket and then they feel obliged to fill in the survey, explains founder Damian Cooke. As one chief executive of a technology company says: “It is our role to advise our customers before they are aware of the need.”
Fact 2: Highly successful start-ups are founded by professionals in prestigious professions.
Rarely now do we see the school leaver start high-growth companies. Nearly all have tertiary degrees and then go on to work for large businesses throughout their twenties before launching their own company in their thirties or forties.
The businesses usually have one founder who has been highly successful in their specialised profession. They have been neurosurgeons, stockbrokers, advertising executives, accountants, engineers and executives in big companies.
Often they have become disenchanted within their current organisation: resentful at the focus on cost-cutting and frustrated that they can not pursue an obvious opportunity. They walk out and use their networks to access private equity and launch their venture. For some millionaire entrepreneurs it is their second of third venture and they finesse their entrepreneurial skills with each venture.
In fact, research by Kosmas Smyrnios at RMIT shows that almost half of highly successful fast growth entrepreneurs have masters degrees. And 5% have got PhDs.
Fact 3: Millionaire entrepreneurs possess very superior emotional intelligence.
Autocratic? Forget it, although entrepreneurs use the sheer force of their personality to create and communicate a powerful vision. Recent research shows the one major characteristic of fast-growth entrepreneurs is the ability to bring teams of people together and inspire them to work towards the one vision. This requires very superior emotional intelligence.
Often millionaire entrepreneurs are very good at reading employees, knowing which one needs shock criticism to motivate them, which one needs step-by-step assistance and quiet encouragement, and which one needs loud and frequent pats on the back.
Fast growth requires bringing together the right skills, assets, relationships and abilities. All of this requires sophisticated communication skills.
In fact, in these days of skill shortages, if you can’t recruit, inspire and retain a team of great people, you don’t have a business. Most of the entrepreneurs offer flexible work practices and increasingly let staff have a close involvement in the decision-making.
Most don’t pay above-award wages but they excel at building in incentives, rewarding with commissions and bonuses. They work hard to communicate the vision, provide a smart workplace and perks, from trips away to flash cars.
They offer family-friendly environments, telecommuting – even child and dog care. And they love to celebrate even small milestones. Instead of a pay rise, a promotion in a fast-growth company might mean a position on the social committee to organise an event.
Fact 4: The most successful entrepreneurs are not loners – they have long term business partners with complementary skills.
Think of the Rich 200. Many of the people on that list had business partners. Michael Buxton, real estate agent, met Max Beck on the tennis court in 1976 and they went on to create Becton, which built many of the landmark CBD buildings in Melbourne through the 1980s and 1990s.
Entrepreneurs Lloyd Williams and Ron Walker also struck up another very successful partnership, with Williams the strategic brains behind Hudson Conway and Walker, the networker, door opener and facilitator. Many millionaire entrepreneurs started in business with family members including brothers Rino and Bruno Grollo of property development and construction company Grocon. The key is to ensure the skill set of the partners is completely different. There is usually one strategic genius who is quite introverted – and who partners up with an extravert who excels at marketing, communications and networking.
Fact 5: Millionaire entrepreneurs do not spend that long planning their business.
Hopeful start-ups are told compulsively to plan, plan, plan. But if they did, they would soon find themselves out of business: the competitive landscape is changing too fast. If you have a good idea, you cannot afford to spend two years researching it.
Of course, the exceptions are the expensive start-ups in industries such as technology and biotechnology. But most fast-growing businesses, especially in the services industry, take less than six months in the planning. Some just took a few weeks – or even a few days – to hatch. But be warned: those entrepreneurs have often had decades in the industry with many networks and access to new technology and distribution networks.
Fact 6: Millionaire entrepreneurs watch every cent.
No surprise there. Most start the business from home and only move out when they are forced out by too many staff taking over their lounge room and they are fearful of the local council knocking on their door. Tales abound about the sacrifices they make, from sleeping in cupboards to not being able to eat. The first year is by far the worst.
Needless to say, they are often profitable from day one. Soon after they are paying themselves a fairly generous salary.
Fact 7: Millionaire entrepreneurs are no fans of budgets.
How can they be when they are so responsive to changing customer needs and the competitive landscape?
Yet they do plan – but if they did not stick to budgets they would be out of business. So how do millionaire entrepreneurs budget? Our research shows they set strategic goals, often just on several sheets of paper. But no five-year business plan for them; they review their strategy or goals on average every six months.
Take Terri Scheer, who runs a fast-growth insurance brokerage, Terri Scheer Insurance. Once a month she sits down with her management team for a detailed analysis of the market and her company performance. At these meetings she looks for changes in regulations, customers and the market. Once she predicted the market would turn down – and quickly developed an insurance product for landlords just as the demand for such products increased. When asked for a budget: she replies: “Let’s just do as much business as we can.”
Targets are changed swiftly because the millionaire entrepreneurs know that goals can actually hold back fast-growth companies. As one entrepreneur, Paul Gollan from Australian Mortgage Brokers, says: In the first three months you might be flying and exceeding the plan and then if you have a 12-month target you might go into a consolidation phase.” Why? “You could or should be thinking about growing again,” he says.
Budgets are also changed, depending on opportunities. What happens when the perfect person becomes available? One millionaire entrepreneur says he would blow the budget every time to hire that person. Another says he opened a Melbourne office, which blew his budget, just to keep a prize employee who has to shift when his wife is moved interstate.
What happens when they blow the budget? Millionaire entrepreneurs don’t mutter about how they should have stuck to their budget or planned better, or they should just keep going and things will turn out. Instead they ask strategic questions: How do we maintain our long-term strategic advantage? Are we the best in the market? Do customers really, really love our products? Are we keeping to our core competencies? Where to now? How do we take this business to the next level?
Fact 8: Millionaire entrepreneurs are not extremely competitive.
Well, yes and no. Yes they are often aggressive and brash. Many say they took clients from former employers, they poach aggressively from competitors. One company put recruitment ads in the elevator of a competitor. They sue for infringements. Their managers discuss competitors’ strategies and sales people share information about competitors.
They don’t have an “undo the competitor” posture. And none of them say they respond to actions initiated by competitors. Instead, they stay ahead of competitors. They keep a close eye on them, knowing their pricing, their market share and so on, but they view themselves as the leaders.
They don’t take much notice of the local competition. They compete with the world’s best companies. They travel a lot, search the internet, go to trade fairs and bring back ideas.
I love this quote: “If I play their game, I go broke. If I play my game, I set the rules,” says David Watson, founder of Tangible Solutions.
Fact 9: Millionaire entrepreneurs are not great salesmen, but they do need to excel at marketing.
Surprised? But this makes perfect sense. The entrepreneurs are brilliant at building relationships; in fact, they understand relationships so well, they often won’t take advantage of them. Many comment this stops them being really good salespeople because they are too highly attuned to when it’s time to stop pushing. Sometimes they stop short of flogging their products and services and do not close the deal.
Where they excel though is opening doors and building the relationships, so an excellent sales team can sweep in after them and do the deal.
Established millionaire entrepreneurs use the same skills to build alliances and networks and develop very close customer relationships and distribution channels. They can’t afford mainstream advertising so they develop alternative advertising programs, more and more using the internet.
Fact 10: Millionaire entrepreneurs are not risk-takers.
When reading case studies of high-growth entrepreneurs, the risks they take often seem enormous. They throw their children out of a bedroom to establish an office. They run 20 credit cards at once to finance the business. They take their parents’ superannuation money to fund the business.
They admit to taking more risks than most people they know, but ask them if they are risk takers and they deny it. It always puzzled me until we did further research.
Fast-growth entrepreneurs see themselves as calculated risk-takers.
The difference? I think it is because these entrepreneurs are very resilient and bounce back quickly from adversity. If something goes wrong, they have the capacity to see it as a lesson or the path to a new strategy that is better: not a risk that failed. They say: “What a great lesson. We learnt so much from that and what’s risky about learning?”
See? They are not risk takers.
Checklist: Are you a millionaire entrepreneur?
- You probably started the business from home.
- You planned the business for less than six months before opening.
- You were profitable soon after launching.
- You have an export focus.
- You use technology to give a very strong edge.
- You spend more than 10% of revenue on R&D.
- You price yourself in the middle of the market.
- You plan to keep growing.