Mr. Langdon is the founder of YPNG. Beginning in 1983, he started four other successful businesses. One was a financial services firm and three were oil and gas related businesses including an exploration and development company and two oil and gas property acquisition companies. Mr. Langdon holds a BA, MA in Economics and is a decorated Viet Nam combat veteran. In the course of his career, he has also worked for a major New York investment bank, held various jobs in the treasury department of a large agribusiness company and was Vice President of Finance for an international chemical company.
Becoming an entrepreneur and starting a new business has many rewards. But it is challenging. Here are my thoughts on the top ten things it takes to succeed as an entrepreneur after building four successful businesses myself and observing other successful entrepreneurs over the years:
1. You must have your family’s support.
The personal time commitment required for starting a business is huge. Count on at least 60 hours or more per week for the first few years until the business is financially stable. At that point you should be able to be confident that you can begin delegating more responsibilities to other people. But during this hectic period when you are establishing your business, you will need your family’s support even though your new enterprise is going to take you away from them and require a large part of your time. This takes planning on you and your spouse’s part to create some reasonable balance in your life. You have to be able to manage your personal life while you manage your new business. It is important that you carve out enough time with the family to be able to show your spouse and especially your younger kids how important they are to you. I don’t know what the divorce rate is among entrepreneurs. But from my experience, starting a new business can put a strain your family life. But I can also tell you that at many points in developing several businesses, my wife was my greatest supporter. It would have been a lot more difficult to persist if it had not been for her constant support.
2. You must be able to accept and manage risk.
The statistics that I have read over the years show that only about one in five businesses are in existence after five years. That is an eighty percent mortality rate. Yet most new businesses require you to commit the majority of your personal wealth. That is a difficult thing for most people to do. It is especially true if your new business requires a large investment right from the start. In that case you most often are going to have to raise money from banks, venture capitalists or people simply interested in you or your idea often called angel investors. My experience has been that all of these capital sources usually require that you have at least half of your net worth invested in the business. The reason for this is they want to make sure that when the inevitable problems occur in any new business venture you have a lot to lose and will fight to protect your and their investment. Banks usually require personal guarantees at the early stages of a business. Depending on the amount of bank financing, this could mean that your entire net worth is at risk. Normally your spouse is also going to have to sign with you on the bank notes. You have to be able to live with the downside if you are going to be able to concentrate on building your business.
Another kind for risk to understand and manage is the narrower room for error in a small start up compared to a larger company. For example, one of the advantages a larger company has in putting a new idea into the marketplace is that a large company has the resources to test market their products and make changes as they get feedback from their customers. A startup business normally does not have a lot of financial resources with which to make mistakes and do a lot of test marketing. It is more critical in a start up that the product or service is not going to require a lot of modification at the time of roll out. It is difficult for a small company to have the resources to go back if there is little momentum in the initial rollout because or the necessity of extensive redesign. This means that you have to do a lot of financial and marketing projections on paper before you launch to reduce this risk to the extent you can. Here is an illustration of this principle.
I met a man in the music business in New York in the 1970s who told me how he got started. He was a business equipment service tech in Cleveland but wanted to be in the music business. He lived modestly and saved as much money as he could. Every year for three years he took his savings and produced a twelve-song greatest hits album drawn from a group of artists. For the first three years his albums did not sell enough to recover his investment. But the one he put out in the fourth year did very well and made him over a million dollars. Back then he said it cost him about $30,000 to assemble and test market one album. But once he had the hit and accumulated plenty of capital, he could go out and test several albums in a single year as well as do more market research and surveys that increased his success rate. He was then able to come up with more than one winner each year. This growing success allowed him to accumulate even more capital that he used to buy the rights to many songs and artist, which allowed him expand his business even further. So when you are starting out, try to allow for some experimentation to hone and fine turn your product or service so that you do not risk all your capital on the first full rollout.
3. You must be persistent and embrace problem solving.
When I was starting my first company in the early 1980s, I talked to an old venture capitalist in Chicago who told me an interesting story about persistence. Right in the middle of WWII, a man came into his office looking for financing. He had developed a process called electrophotography where copies of a photograph could be transferred to a glass plate. He wanted to raise money to further develop the process to print the transferred image on paper. The venture capitalist turned him down along with twenty others whom the inventor had approached between 1938 and 1944. Even a scientist who had partnered with him got discouraged and left giving up his interests in the newly developed process. The man who came into the venture capitalist’s office was Chester Carlson. The company that he later founded became Xerox.
I have found over my lifetime that unrewarded genius is proverbial. The thing that I have found that makes the difference is that along with intelligent effort, it takes persistence to be successful. Chester Carlson’s partner got discouraged and left unrewarded because he did not have the mental toughness to persist. He became discouraged when the financiers necessary to commercialese the invention were not embracing their idea. New ideas are seldom embraced by everyone. Think about the criticism Elon Musk got when her introduced the idea of building and electric car to the public. Like Elon Musk, you have to be able to separate constructive criticism from criticism that is the result of a true lack of understanding of what you are trying to accomplish. When you are in the battle to build your company, your critics will call you stubborn. When you succeed you will be called a genius.
But along with being persistent, you must also enjoy the challenge of being a problem solver. I remember once when I was having a difficult time with a new business I was building and was getting discouraged, I went and talked to a mentor of mine about the problem. The first thing he told me was that I needed to change my attitude. He said to me “if you don’t have problems to solve you don’t have a business. If starting and running a business were easy and not filled with problems that are challenging, everyone would be an entrepreneur and have their own companies”. You must learn to embrace problems and learn to enjoy the process of solving them.
4. You must be realistic about terms for equity financing.
Even if people do get offers to finance their businesses, I have seen several people with good ideas and business plans who were never able to expand their business and become really successful. They did not build the company they could have even though they had a unique product or service because they were unreasonable about how large a percentage of equity they felt they should retain. As a result, they never completed the necessary financing even though it was available on what most people would have considered reasonable terms.
As a general rule, the more capital that is required to test the business plan in the market place means you are going to have to give up a greater percentage of equity. Also the founders of many businesses requiring millions in start up capital are also going to need to take out a reasonable salary during the startup stage. In that kid of a situation, you are normally not going to retain more than 20% to 30%. For example, Dave Thomas, the founder of Wendy’s ended up with around 20% of the company after the money had been raised to expand the company both nationally and internationally. But that 20% represented a piece of a much large pie than if the company had not been able to obtain the capital to expand, a business principal Dave Thomas understood that helped make him a very successful businessman.
Keep in mind that when talking about equity percentages, there is also an issue of control that can add a lot of risk for an investor. A professional investor is going to want to be able to have a large enough position to take control and protect their investment if the company falters for whatever reason. I have seen some investors agree to deal terms that would start them out in a minority position. But the terms would allow them to obtain a larger equity position and enough control so they would have the ability to take steps to protect their investment if after some period of time goals agreed upon at the time their capital infusion are not met. Remember, unless you are someone like Elon Musk, who had previously shown he knew how to conceptualize and run a successful business like PayPal, when you launch your first venture you are an unproven commodity. Until you prove yourself, you are going to have to pay more for your money than a previously successful entrepreneur on his second or third business venture.
5. You must be able to motivate your team.
The leadership and management styles of successful entrepreneurs vary and do not have to fit any particular model. But whatever your management style, you must be able to get people inspired so they will follow you. Just being the founder and president does not in itself make you a leader. When I was younger, I was too impatient. An older, more experienced manager said my management style was that of Attila the Hun. As I matured, I became more collaborative and listened more. But even in the early stages of my business career I was able to attract people who also worked hard and wanted to get things done. I was able to do this because I learned early on that you had to delegate to these people as they were also aggressive and craved responsibility. Some years later I actually came across a book titled “The management style of Attila the Hun”. The premise was that he was a great planner and motivator, the traits of any successful leader. I would also recommend that you try to have some advisors around who have built successful businesses on their own. These people can help you maintain the balance you need between self-confidence and listening to advice from your staff who are in the line of fire every day. The final decision is yours. People understand that fact. But they will respond better and be more creative when their ideas are given a fair and respectful hearing. Nothing is more motivating to your team than getting them involved and knowing that they are contributing innovative ideas and not just following orders.
6. You have to be careful when hiring relatives.
Building a business gives a person an immense sense of pride. Bring a son or daughter into the business can also be rewarding. But keep this in mind. To keep your employees motivated, they have to feel a sense that they can advance through your organization based on their efforts. Bring in a relative can give your employees a sense that person has an inside track on advancement. If handled wrong, bringing in a relative is demotivating to ambitious individuals and makes it harder to retain good people. I left a great company in my early thirties when it became obvious to me the owner’s son was being groomed for the position I aspired to. I was willing to compete. But not with a relative who clearly did not have to. This is even more difficult if the relative is not smart and as qualified as the people around them. Bringing in relatives, particularly sons and daughters has been done successfully. For example, Ted Turner took over and built an enormously successful business using the platform of his father’s business. George Kaiser took over his family’s oil and gas business enormously expanding it as well as successfully branching out into regional banking. The same can be said for the Koch brothers, who are controversial because of their conservative political involvement. But they deserve respect as businessmen as they have have made Koch industries one of the largest privately held companies. The Andersons is also a large, privately held agribusiness that has been successfully run over many years first by a succession of the founder’s sons and now by his grandchildren. So successfully bringing relatives, particularly sons and daughters, into a business can be done. It just requires objectivity as to the real ability of the relative and sensitivity as to how the situation is handled with your company’s employees.
7. You should learn to work with difficult people.
I was most successful when I was able to work with people who often were thought of as temperamental and opinionated. Neither are traits most people would look for in a business partner or an employee no mater how talented they may otherwise be. But you have to look deeper as to what might cause them to behave the way they do. For example, when I started an oil and gas exploration and development company, I need an engineer to handle the technical aspects of drilling and production management. I found my engineer in someone who had been squeezed out of his previous company after a merger. He was upset with being cast aside by former business partners he considered good friends. This engineer was brilliant when it came to the technical aspects of petroleum engineering. But he could be abrasive and was not always well liked among his peers, a trait that left him without a job. I found that his personality problem was in some part because of his intelligence that made it easy for him to solve problems. This personal characteristic made it difficult for him to understand why other people could not quickly come to the same conclusions he did. By letting him concentrate on engineering and operational matters within the company while I went out and dealt with the bankers, mineral leaseholders and joint venture partners, he was content. He appreciated me allowing him to do what he was best at and we both benefited.
But when you try and work with people perceived by others as difficult, you need to be able to first determine if the persons is reasonable or unreasonable. This is an important distinction. A reasonable person can have personality traits that make them difficult for many people when they interact with them. But if they are reasonable, they will respond to intelligent policies you want to implement especially backed up with facts. An unreasonable person is just argumentative and will not respond to an intelligent argument. These kinds of people seem to make their own lives miserable as well as those around them. My father, my greatest mentor, told me early on that you can never reason with an unreasonable person. When you are sure that is the kind of person you are dealing with, simply don’t get involved with them. No matter how smart they may be, it is simply not possible to make them a contributing member of your team.
8. You must learn to do business planning and analysis.
Making decisions by building and continually updating a business plan before you act sounds like it goes against the strong, uncompromising spirit of the generic entrepreneur that is portrayed in the press. But it is hard to get investors and bankers to provide financial support for any business without a well-reasoned business plan. A good entrepreneur is able to develop a sound business plan supported by data analysis. This does not have to be as sophisticated as with a larger company where there are staff who have no other responsibilities but to analyze business data and develop business plans. But you need a reasonable amount of supporting data to confirm to others what you may feel is intuitive and be able to present it well.
9. You must be both an Inventor/innovator and Businessperson
All successful entrepreneurs are smart enough to come up with a new product or service. But not all inventors/innovators can also take that concept and build a successful business. I have met several brilliant inventors over my career who illustrate this idea. One was an engineer who came up with several innovations for cameras and projectors used in the entertainment industry throughout the world. When I talked to his customers, they all said that his products were the best in their industry. But the company he founded to produce and service the projectors and cameras never made much money and was on the verge of bankruptcy. The reason why was because this brilliant engineer not only like to invent things, but also continually improve them. That doesn’t sound like a bad thing. But the problem for his business was that he was constantly coming up with ways to improve his products so that almost all of the larger, more expensive pieces of equipment came off of the assembly line a little different than the one previously produced. This made it both difficult and expensive to maintain a parts inventory, up to date service manuals and provide service technician’s training. All of these expenses cut into profit margins. Everyone in the company was frustrated along with his investors. They all expected much greater financial returns than they were actually getting based on the clear market superiority of the company’s products. Finally, the investors insisted that the founder bring in an experienced manager to run the business while he was forced to concentrate in inventions and product improvement. The business did much better financially going forward.
10. You must learn when it is time sell some of the company
It is important that at some point you create some financial diversification and security for yourself and your family. Ted Turner is once again a good example. He had almost all of his business assets in Time Warner stock after he merged CNN with them. When Time Warner got in trouble after the AOL merger, the stock value dropped sharply and his net worth suffered. He said in several later interviews that he wish he had diversified his asset more. The professional venture capital investors I have observed on average look to exit most of their position in seven years. These companies know the value of liquidity and are good at timing public offerings to try and maximize shareholder value. When they begin to sell, sell a portion of your position as well. You’ll sleep better knowing that you have build a diversified asset position that will provide security for you and your family if the business would ever run into problems in the future.
My experience has been that other than finding the love of your life and marrying them, the next biggest thrill is starting and running a successful business that makes you and your family financially secure. It is challenging and often a difficult journey. There are considerable personal financial risks and family stress that can occur along the way. But if you embrace the challenge, overcoming the inevitable obstacles is one of life’s most satisfying experiences.
Here is my favorite quote that I kept on my desk for many years. It is from Theodore Roosevelt. He was an adventurer with an unusual spirit and love of life. But I have always found a part of his sprit in every successful entrepreneur I have ever known.
“Far better is it to dare mighty things, to win glorious triumphs, even though checkered by failure than to rank with those poor spirits who neither enjoy nor suffer much, because they live in a gray twilight that knows not victory nor defeat”.