Chapter 4 Two core elements of entrepreneurship

Richard Downs is the founder of Iglu.com, an online ski resort company.He knew early on that starting a new company was not going to be easy.Like most start-ups, his company required a set of skills, and he doubted that he had what it took to take Iglu to the next level. Just as almost every sport requires athletes to be physically fit, every startup needs the basics in place: a great product or service, an efficient supply chain, motivated people, and so on.Without these foundations, no business can survive for long.In the world of sports, fitness is a basic requirement.Of course, it takes more than fitness to reach the podium at Wimbledon or win an Olympic medal.

So, what separates great athletes from the ranks of good athletes?Their skills match the key success factors of their chosen sport: speed, power or tactical thinking.As true for athletes as it is for high-flying entrepreneurs.In the footwear market, for example, Nike thrived in the 90s when traditional footwear manufacturers struggled.What causes firms in the same industry to perform differently? Some differences are due to factors that are difficult to imitate, such as patent protection or unique capabilities.But there is something else that makes the difference: the ability of management teams to execute on key success factors that tend to account for much of the variation in performance among companies in the same industry.

Successful businesses recognize these elements and organize their teams accordingly.Others either failed to pick the right elements, blindly assumed their experience was adequate, or failed to build teams sufficient to succeed on these elements. How do I find out the Critical Success Factors (CSFs) in my industry?Can people find answers in professional journals, the Internet, or strategy textbooks?Do these answers apply to all industries?Unfortunately, the answer to all of these questions is "no". Knowledge about critical success factors usually comes with experience, and people often learn through experience: what to do well in any situation.Whether or not you already have this experience, or you must learn from others, there are two key questions to identify the critical success factors in your industry.

First, in your industry, are there any decisions or actions that, if implemented incorrectly, could hurt firm performance?Second, what decisions or actions, if implemented correctly, would have a disproportionately positive impact on the company's performance? For example, in the retail industry, industry veterans once said that the first key success factor is location, the second is location, and the third is location.This statement may be exaggerated, but it has truth.A retailer with a prime location can screw up a lot and still do well.And others who do business in poorer locations may struggle to survive no matter how many things they do right.

Howard Schultz, CEO of Starbucks, once said: "The process of selecting our venue is extremely time-consuming, but we cannot afford to pay for a single mistake. One mistake in real estate means,  … At least $500,000 in damages.” The Starbucks team’s thoughts were not in vain, he explained, “Of the first 1,000 stores we opened, only 2 closed due to misjudgment of the venue.” To identify critical success factors, aspiring entrepreneurs should contact 15 to 20 thoughtful and successful entrepreneurs and executives in their industry and ask them the above two questions.Entrepreneurs get different answers, of course, but many converge on similar themes.These convergence points are what you should be looking for.

The second crucial factor is skillful team building.Today, building a corporate team can take a range of approaches.You can hire high-level talent, but cash-strapped startups generally can't afford high salaries.You can also hire younger, more dynamic people and trust them to overcome inevitable obstacles with energy and dedication.But if you need to raise money, your financiers may not be happy to support a team of over-enthusiastic, green-blooded babies. Besides, what else can you do?After identifying the key points that you must do well, ask yourself if you can do all of these tasks yourself.Entrepreneurs single-handedly may be able to address one or two elements, such as finding buyers or potential backers.But few people can carry out all the tasks that are critical to success alone.

In the winter of 1998-1999, Iglu started quietly and performed encouragingly.Mr. Downs found that for an online ski resort company, three elements were critical: establishing credibility with key suppliers, such as Alpine lodge owners; the ability of Iglu's IT systems to integrate with the website and sales force; Superior customer service that sets Iglu above industry standards. After raising two rounds of funding and assembling a strong entrepreneurial team, Mr. Downs believes he has what it takes to lead the company as a whole.But what about managing supplier relationships?Iglu is new to the travel industry, and Mr. Downs has traveled as a consumer and skier rather than an expert.The same applies to information technology.The same goes for customer service, he has no relevant management experience.

Mr Downs raised £3 million in venture capital in the summer of 1999 and then worked with industry experts to build a team with the skills to deal with these critical success factors.On the issue of credibility, he turned to Charles Newbold, a former executive director of Thomson Holidays, a British tour operator and retail travel agency.Next on the board were IT specialist Aitor Ebarra and experienced sales executive Stuart Hamlet. The results are encouraging.Iglu is now the UK's largest independent ski holiday retailer.And, it has used its successful business model to expand into other specialized travel areas, such as villa holidays in the Mediterranean region, and long-distance travel in the Far East, Australia, the United States and Africa.

While the basic principles of starting a business are uncomplicated, in practice the road to success is fraught with thorns.Smart entrepreneurs take the time to identify the critical success factors of a new venture.Its efforts could be the difference between success and failure.