Simply Business is the most practical and comprehensive introduction to entrepreneurship I have ever read. It addresses many questions that are on the minds of those starting out on the business path, answering them frankly and honestly and spicing the answers with accounts of the author's own experiences and examples of international managerial careers and insights into the stories of world-famous entrepreneurs.

Dr Leszek Czarnecki is the best Polish entrepreneur of the last twenty years, whose position is not due to a one-off feat but a result of a whole series of spectacular achievements. The author's versatility makes the book even more interesting and undoubtedly adds to its credibility. In my opinion, it is a must read for anybody who thinks of setting up in business.

However, anybody expecting an exposition of economic or management theory will be disappointed. The aim of the author is rather to inspire readers to ask questions, look for solutions and, consequently, take steps leading to the creation of their own businesses. The author does not evade the identification of the causes of failures, including his own, which he illustrates with examples. At the same time, he encourages readers to take on challenges and draw creative conclusions from setbacks.

I enjoyed reading about the beginnings of Leszek Czarnecki's business career. The anecdote about swimming trunks sewn for fellow swimmers, the photos in the classic ping suit and the unpretentious language made the book a gripping page-turner for me. As far as more serious aspects of the book are concerned, what caught my attention was the mini reference guide to financing options and the parallel drawn between a successful entrepreneur and a sports champion. It is one of the most persuasive and evocative, and also the most concise, treatments of the subject that I have ever come across.

As a firm, we are fully aware to what an enormous extent Poland owes its growth to the increase in entrepreneurship and how much more pronounced this link is going to become going forward. Over the years, Leszek Czarnecki has been getting ever more strongly involved in the mission of spreading the spirit of enterprise among young Poles. The values emanating from his book are another major contribution to this mission.

While Simply Business has been written with future entrepreneurs in mind as the intended readers, even experienced business people, such as myself, will find here a wealth of truly valuable knowledge. I strongly recommend this book.

 

Duleep Aluwihare

Managing Partner

Ernst & Young

The idea for this book grew out of my meetings with students in 2008–2010. The lectures and panel discussions featuring eminent representatives of the Polish business scene showed the scale of demand for what would seem to be the ABC of starting and running a business. The young people asked questions about literally everything: who can start a business, where to look for ideas, how to raise financing for a project. They also asked about legal aspects, tax issues and lots and lots of other matters. That was all the more astonishing for the fact that most of the meetings took place at universitylevel business and technology institutions and the audiences consisted primarily of students of economics, engineering or law. Evidently, continued emphasis is needed on practical knowledge in the area of business and management, which can and should be provided first of all by those actively involved in business. The practical experience of entrepreneurs, who deal with the workings of economics and the mechanisms of management on a daily basis, is an invaluable resource that can provide many insights and inspirations for new projects.

This book is meant, above all, for all those who would like to start their very first own business, who have a lot of doubts and worries and don't know where to begin. This will be the focus of part 1 of the book. The topics of the inpidual chapters have been suggested by the students themselves: for the most part the chapters simply answer the most frequent questions asked. In this book I focus exclusively on practical matters making an effort to avoid (where possible), or at least simplify, the theory. The primary target audience for part 2 are people who already have their own businesses and are faced with various day-to-day problems of business management: from routine personnel issues to business financing and ways to relieve stress. The book doesn't offer specific, ready-made solutions that will work for every business; it rather refers the reader to sources and places where to look for information on a given subject or for methods to resolve various issues. Choosing, say, a particular bank or leasing company is left to the reader. In chapter 11, I present the most common business errors, many of which I know about first hand. Chapter 13 gives an overview of most of the available business financing techniques, enabling the entrepreneur to form an opinion about which one will be the most appropriate for their business. At the end of part 2, I also discuss issues relating to business growth through mergers and acquisitions and draw attention to the principal risks involved. I do hope that the observations reflecting 25 years of building and managing companies will prove interesting and useful to the reader. In the final part, part 3, I discuss the question of how to manage success because according to an old adage it's easier to earn money than to keep it.

The book is not intended as a technical how-to manual for entrepreneurs where they will find solutions to all the problems that haunt them. It presents the key risks involved in doing business, both strictly business-related and personal. It's more of an account of my personal observations and experiences, which is primarily meant to stimulate discussion and encourage reflection rather than provide ready-made solutions to specific problems. I think the book also shows a slightly different aspect of being an entrepreneur: entrepreneurs are normal people, who have anxieties, make mistakes and endure intense chronic stress. Stress and crisis management is an important, inseparable part of the daily reality of being an entrepreneur. The final section of the book recounts the stories of 20 extraordinary careers of entrepreneurs and business managers in Poland. I've had a chance to meet all those people in person and to talk to them on many occasions. When describing and analysing the roots of their success, I often quote their own words concerning the histories of their businesses, the sources of their inspirations, and the factors that helped them succeed. I hope many readers will find the stories of those people's lives very inspiring.

 

Warsaw, 2010

This book owes its existence to the assistance and support of many people. I would like to extend to them my heartfelt thanks. This book would not have been written had it not been for Monika Janowska-Mleczko and Anna Czywczyńska of Point of View, who organized my meetings with students. The discussions with those young people were the primary inspiration for choosing the topics to be discussed in this book. The meetings featured prominent Polish entrepreneurs and managers, whose advice and stories helped me to better understand the difficulties involved in building a business.

I cannot omit to say thank you to the invaluable Iza Lubczyńska, without whose help in collecting materials and revising the manuscript I would probably not have been able to finish the book.

Finally, my special thanks go to my wife, who showed great understanding for my complete reclusiveness during the writing of this book.

PART ONE
GETTING STARTED

Chapter 1.
Features of a future entrepreneur

I think everybody has wondered about the reasons why some people succeed in their own businesses while others don't. There are those who build huge corporations and make millions, and those who go bankrupt. Often they run similar companies and operate in the same industries. So what are the features an inpidual must have to succeed in implementing a business idea, create added value, give people jobs and make good money in the process? Because of the great importance of the private sector to any economy, the personality of the successful entrepreneur has been the subject of extensive studies. Researchers have been trying to provide answers to the questions whether everyone can be a successful entrepreneur, what skills are helpful or what behaviours may stand in the way. While every business is different and requires a different management approach, it seems possible to identify some features that greatly increase the likelihood of success.

First of all it needs to be realized that every entrepreneur is a salesperson in a broad sense of the word. They sell services, goods, know-how, regardless of what industry they are in. It's something worth keeping in mind before one makes the decision to start their own business. If somebody is not OK with being a salesperson, they should not embark on this kind of career. Products or services are always sold to people, so contacts with people will be a regular part of the future work. You can't be a good salesperson and not like the company of others. You can't be an introvert, not interested in the world around you. If you are cross about somebody not wanting to buy your product, you should forget about being an entrepreneur. When planning to start a business, you should carefully look around and draw on the experience of your acquaintances, friends and family members. It's much easier to establish yourself in business tapping the resource of friends and relatives' experience than to start everything relying only on your own resourcefulness.

 However, business is not only selling; it is above all a creative undertaking. From this perspective, devising a product, developing it, building a distribution network, and promotion are not so very distant from such generally recognized fields of creative activity as writing novels or directing movies. Another analogy is worth noting in this connection. It's hard to envisage a writer starting to write a new book without having gained an indepth understanding of the subject matter. Similarly, a film director must first thoroughly study topics relating to their film. Developing a business is similar. As with a film production, you need to have a detailed script for every scene, a balanced budget and – of course – good actors to turn the vision into reality.

1.1. Knowing one's business

Everybody who is contemplating the launch of their own business has difficulty choosing the line of business they could pursue and ponders questions like: 'What could I do?', 'What could I invest in and how?', 'What industry?', 'What product?' etc. Students often ask me what industry and line of business I would choose today if I were making a fresh start. Where would I start? What business would I launch? Frankly, I must say these are not easy questions to answer. The main principle I've always followed when entering any business is that I must be convinced I understand the industry I want to do business in. What does it mean to understand an industry? Below I present a checklist you should go through before starting out, to make sure you understand your proposed business.

The list may look daunting, but in fact it isn't. For instance, if you're considering launching a gift wrapping service in a mall, you should know what size boxes you will need and what the daily requirement for paper and ribbons will be to avoid running out of them during the day. You should also know that shopping mall traffic is subject to various cycles: there are more customers in the afternoons, on Saturdays and Sundays. Shopping traffic also peaks before Christmas and Children's Day, so higher throughput must be ensured during these periods by employing additional staff. There isn't an awful lot of this knowledge and it can easily be gathered in a day. It would take slightly longer to gain an understanding of the organic food industry or the car tyre fitting market, but it's still a matter of weeks rather than months of painstaking research. This is best evidenced by the winners of the 2009 and 2010 Young Entrepreneur¹ contests I organized together with various media organizations and leading business journalists.

1.2. Creativity

Business idea: health food

The first young entrepreneurship leader got his idea from observing the health food craze. Mateusz Pycia is a 25-year-old from Mysłowice who has just graduated from the University of Economics in Katowice. He started thinking about his own business as a teenager, when he was still in secondary school. He noticed that Poles, following in the footsteps of Western Europeans, were paying ever greater attention to healthy eating. Interest in health foods had been growing year after year, so Mateusz decided to found his business on this fast-growth market. Not having funds to build a costly sales network, he decided to base his distribution on online sales. His savings, money borrowed from friends and a PLN 20,000 EU grant he managed to secure added up to a total of PLN 50,000. As a third-year student, in April 2007, he launched zNatury.pl, which sells high-quality organic products. One of the competitive advantages of the business stems from the source of the food products, which come from trustworthy, reliable suppliers. Initially, products were sold through two parallel channels, an online store and a little brick-and-mortar shop. The Internet proved to be the more effective channel, so eventually the young entrepreneur focused exclusively on that platform giving up the shop.

The second winner of the 'Study, Work, Manage' competition noticed that car owners are deeply upset by the waste of time they must endure when changing summer to winter tyres or the other way round. You've got to call, make an appointment, drive to the garage, leave the car there for about an hour (or a few hours) and then pick the car up. Half a day is practically lost. So how about the tyre fitter coming to the customer's location and providing the service there? Paweł Charycki, a 24-year-old from Silesia, started his business, which he called Wulkan, in 2009. Dedication and a wide range of services have earned him a following of regular customers. Wulkan started off by offering simple tyre repair and tyre fitting services for cars and vans. Very soon the range of services was expanded to include minor mechanical repairs and adjustments. Paweł Charycki and his Wulkan built their competitive advantage on being able to provide practically all their services at a time and place chosen by the customer. Two specially adapted and equipped vans have been the key to the success of the firm. The service is available 24 by 7. Many customers use the option of leaving the car overnight and picking it up the next morning. The services are fast and professional, as a result of which the number of customers is growing rapidly. The repair van will come right on time, and the repair will be done very efficiently. 'At present, the firm operates primarily in the city of Katowice and the province of Silesia, but will also take orders from elsewhere in Poland or even abroad 24 hours a day, 7 days a week, 365 days a year. Tyre repair, tyre fitting and mechanical services are our core services but the range of services is constantly expanded, enhanced and adjusted to better match customer needs,' says Paweł Charycki.

Much wider knowledge is required if one is thinking about starting, for instance, an advertising agency. One needs to have advanced computer graphic design skills, know the basics of how the advertising market works and have a good deal of marketing expertise. It's also necessary to have contacts in the press and among heads of marketing departments of potential clients.

To sum up, entrepreneurial creativity is a constant creative restlessness driving the entrepreneur to change and improve the world. Such skills can be learnt to a certain extent but are mainly inborn. It's like with any other creative skill: there are certain canons you can master, but without a true gift you will never become a real artist.

1.3. Synthetic and analytical thinking

The entrepreneur must be a very careful observer of the world around them. Without noticing all market anomalies and volatilities it's hard to hit on a business idea. You must be careful to spot market gaps and human needs and constantly ask yourself the questions: 'Can I fulfil the need and sell what is needed?' and 'Will it be profitable?' At the same time, in addition to such synthetic thinking skills and ability to make the connection between various facts, you also need to have analytical skills necessary to define potential problems and ways to resolve them. Analytical skills will also be useful for estimating potential costs and revenues.

In practice, the familiar general intelligence, sometimes called mathematical/spatial intelligence, as measured by IQ, is not the most important or valuable in business. As a rule, inpiduals with very high IQs, above 160 or 170, do very badly in life. This is due to the fact that they usually have serious problems in personal relations, and their emotional intelligence is mostly relatively low. In business, people who may not have the highest IQs according to Mensa tests but have a very high level of emotional intelligence fare much better. This is not to say that entrepreneurs are mostly unintelligent people, but the ability to forge relationships with others, empathy, ability to recognize others' emotions and needs are more important in business that an IQ of, say, 150.

Why? It's very simple: you do business with people, for people, and thanks to people. It's all there is to it, so if you have a problem dealing with people, talking to people, identifying what's important to them, it will be hard to come up with a product that is successful in the marketplace. Also, it won't be easy to enlist a line-up of good people, staff who will want to work with you or for you. People very commonly picture entrepreneurs as fellows who just drive around in luxury cars, but in actual fact entrepreneurs are extremely hard-working people who constantly try to be as close as possible to the needs of the market and other people.

1.4. Leadership and choice of people

Staff recruitment skills and then people management abilities are among the most important defining features of an entrepreneur. Business is a team game and, just like in football even the best player will not win a match singlehandedly, no business will ever be successful without a good team. An entrepreneur should be able to infect those around them with ideas and stimulate people to bring those ideas to life. An entrepreneur should on the one hand be a natural authority figure but on the other be a coach rather than a hard boss.

An example of a leader able to single-handedly reverse the fortunes of even a big corporation, is provided by General Electric's legendary CEO, Jack Welch. Born in 1935, having graduated from the University of Massachusetts and earned a Ph.D. in chemistry from the University of Illinois, he took up a job as a chemical engineer with GE in 1960. He quickly climbed up the corporate ladder and finally became the company's eighth chairman and CEO, the youngest ever. During Jack Welch's 20 years at the helm, General Electric was transformed from a $13 billion company to a global con glomerate worth hundreds of billions. Although tens of thousands of new jobs had been created, Welch ran the whole business like a small company, with little bureaucracy and openness to change. He is famous for his saying that you should run a company as if it was to face bankruptcy in a year. In just a year! We're having a crisis. We've just received the information that we're going to go bust in a year. The investors are going to lose their money and the staff are going to lose their jobs – just 12 months from now. All hands on deck! Let's think and act immediately so that our company will show better earnings, have a better market position and can look into the future with more confidence than our competitors, so that our company will survive and grow. If there's something to change, let's change it now. That was Jack Welch's motto. If any manager wasn't ready for this kind of thinking and for the necessary changes, they were immediately replaced by somebody more suitable. That earned Welch the nickname 'Neutron Jack'. People either loved him or hated him, but undeniably he brought new quality to the corporate world, and GE was repeatedly named the most admired company in the world.

I must admit that the General Electric story and Jack Welch as a person have also been a source of great inspiration for me and have never stopped filling me with great awe and admiration. In the late 1990s and at the beginning of the next decade I had several meetings with GE to talk about Europejski Fundusz Leasingowy becoming part of that American group. In the event, the company was acquired by Crédit Agricole. Yet my sentimental attachment to the Stanford giant has remained.

Jack Welch

Photo 1. Jack Welch (source: General Electric)

 

John Francis 'Jack' Welch Jr.² was born on 19 November 1935 in Salem, Massachusetts, to a moderately well-off family of a railroad conductor. Young Jack was a keen sportsman: he played ice hockey, basketball and baseball and was captain of a golf team. Though short, he was known to be a successoriented player, whose ability to win was unlimited. He graduated from the University of Massachusetts in 1957 with a bachelor of science degree in chemical engineering as the first member of the family to have gone to college. He continued his education at the University of Illinois, where he earned a master's degree and then, in 1960, a Ph.D. in chemical engineering. He started his career in 1960 at General Electric as a junior engineer. Welch was part of a team that developed a new kind of plastic, PPO, and soon afterwards was offered a management position and then promoted to the rank of department head. In 1972, barely 12 years after joining GE, he became vicepresident and in 1981 reached the very top taking up the position of CEO, the youngest in the history of GE. Under his management, the value of the company grew from $13 billion to $400 billion. In 2000, Jack Welch was named Manager of the Century by Fortune magazine and Man of the Year by Time magazine. He currently runs a consultancy, Jack Welch LLC, which advises some of the world's biggest companies. In 2009, he and his wife Suzy founded and endowed the Jack Welch Management Institute at the Chancellor University of Ohio, which offers an MBA programme partly taught by Welch.

Chapter 2.
Starting your own business

2.1. Three ingredients

Setting up a business that can then succeed in the market is not a matter of serendipity. Many things must coincide for a project to be successful. However, even if all the necessary success factors seem to have been secured, success is by no means certain. It must always be realized that we're dealing with probability here; you can increase it to a certain extent, but you will never achieve probability equal to one.

This is illustrated in the figure overleaf.

The idea for a business may be very simple. In the 1980s, I was hitchhiking around Turkey with my friend Jacek Walczak, an architect and a painter. We didn't have a lot of money and the country we wanted to see was huge. We decided to make some money on my friend's painting skills. Having set up his easel in front of famous tourist attractions, he painted portraits of passersby and postcard views, which I sold. The idea turned out to be a bull's eye hit. The portraits sold like hot cakes. They took 15–20 minutes each to paint and went for 20–25 dollars apiece. In two days we earned enough money for further travel. The idea was based on the observation that tourists will always prefer a hand-made souvenir to a photo and the fact that nobody else offered them such souvenirs, there was no competition. Another idea for how to earn some money was to sew swimming trunks in the early 1980s. It was a time when Poland was under martial law and troubled by severe shortages of even the most basic goods. I was in intensive swimming training at the time and, like others at the swimming club, had a problem with what to use for a swimsuit. I can't remember where from but I had access to some nylon fabric so I cut out two triangles and stitched them together. It looked less than perfect but at least you could swim in the outfit. I was surprised to find that everybody down at the swimming pool was asking me where they could buy such swimming trunks. The following day I started 'serial production'. The series was short, six or seven pairs, as the amount of the raw material was limited and so was the 'market', but I remember that the margin was im pressive.

 

Figure 1. Synergy between the three factors

 

Such ideas can be thought up endlessly, whether during a boom or during a slump in the economy. The swimming trunks idea was a response to acute shortages during the communist era, but gaps in the supply of products or services can be noticed at any time. Filling such a gap is a way to start a business at a low cost. Still, I think a good idea for a business is the toughest part and that's where you should start. However, a good concept is not everything and for sure not enough to succeed. History knows many examples of what seemed to be brilliant projects that failed because the innovative ideas they were based on were not supported by good mana gement.

In 2002, Dean Kamen, an inventor and entrepreneur very well known in the United States, put on the market an innovative personal electric vehicle called the Segway,³ which was heralded as an invention that would revolutionize urban transport worldwide. Its revolutionary design based on a system of gyroscopes enables the device to remain stable even though it only has one axle. The vehicle doesn't have an ordinary appearance, a steering wheel or brakes, and is controlled by leaning. Because it was believed that the invention was a major breakthrough, the details of Segway design and manufacture were probably the most tightly guarded technological secret of the early twenty-first century. Initially the vehicle was only made available to selected public figures. Everybody described the device as a genuine revolution in transport. A famous investor, John Doerr, who co-funded the project, predicted that Segway would be the fastest company to reach one billion dollars in sales.⁴ The launch of the product cost over $100 million. It was initially projected that annual sales would be about 40,000 units. Until March 2009 (i.e. over a period of eight years) the company, according to its own announcement, sold a total of 50,000 units, or an average of about 7,000 a year. The Segway manufacturer does not publish its results, which analysts take as a clear indication that the company is still in the red. So what went wrong? There was a brilliant invention and there was financing for production; what was missing was good management. The market was misjudged: it was expected that the vehicle would be in widespread use from the start, while in reality it was treated as an expensive toy in the early years.

 

Photo 2. The Segway (source: PAP)

 

Care was not taken to build an effective dealer and service network, expecting that the online channel would be sufficient. In some countries the Segway was classified as a motor vehicle requiring a driving licence, which effectively limited the number of buyers. In cities that didn't have a well developed network of cycle lanes, the practical utility of the vehicle drops nearly to zero. The relatively heavy weight (about 40 kg) and relatively short range (up to 20 km, depending on terrain) were also seen as disadvantages compared with bicycles or mopeds, especially as the price of the Segway ($3,000–7,000) makes it comparable with small cars rather than with bikes. All of these factors kept sales down, and without mass production the price couldn't be lowered. It was only a few years later that the strategy was changed and the Segway started to be marketed as a convenient vehicle for police and other patrols in the urban environment and an environmentally friendly and comfortable means of transport for airport and shopping mall staff. Intensive lobbying efforts have been undertaken to see that the rules of the road are amended in many jurisdictions of the USA, Europe and Asia, to facilitate the use of the Segway.

Another example of extraordinary creativity backed by good financing which still didn't score a market success is provided by Iridium.⁵ In 1992 Motorola started developing a global satellite telephone system. The idea was to enable people to make phone calls from anywhere in the world, which required putting 66 communications satellites into orbit at a height of about 780 km and several spares as a backup in case any of the primary ones failed. According to the business plan, the company was expected to break even after gaining one million subscribers. Finally, the system went live in 1998, and the first call was made by US vice-president Al Gore. A year later the venture, in whose technological development (satellites and other technology assets) some $6 billion had been invested, was forced to file for bankruptcy and was finally taken over for just $25 million. At the end of 2008, Iridium had 320,000 active subscribers, $77 million in revenues and EBITDA of $25 million.⁶

 

Photo 3. Iridium handset (source: PAP)

 

The system is currently used mainly by the American administration, rescue services worldwide and all kinds of globetrotters as emergency equipment. What was the reason why the project that cost a few billion dollars to develop, which looked very promising and which was sponsored by Motorola, one of the world's telecommunications giants, was such a failure? There was an innovative idea – providing communications with unlimited global coverage – and there was big money; what was missing was good managers. Errors were made in predicting growth in the mobile market and demand for global coverage: the number of subscribers has not reached one million to this day. The project was designed in such a way that all the satellites had to be in orbit before the system could be launched. That made it impossible to first launch the system on a limited scale, on just one continent, while giving time to the GSM competitors, who used it to busily build their networks and acquire subscribers. Very little attention was given to the technological development of the handsets, which were bulky and heavy, comparing unfavourably with the competitors' smart and sleek GSM units. Roaming agreements were not signed, as a result of which a oneminute call cost $4, many times the competition's rates, while in the case of mass customers most calls would be made in inhabited areas.

The next key pillar on which a business should be founded is the people. In the previous chapter I talked about the leadership characteristics of the entrepreneur and the need for people management skills.

In particular, in a small, one-person firm, the owner is the one who should be the right person (at least initially). When it becomes necessary to hire more staff, selecting the right people can be the difference between success or failure of the project. There's no single successful recruitment method. It's the topic of thousands of books and manuals, and special recruitment consultants offer their advice for a lot of money. But what should a novice entrepreneur do if he or she doesn't have the funds, the knowledge or possibilities to use such services (which often are, by the way, completely useless)? First of all, you can never be certain that the person you're hiring will be the right person. Even executive search agencies talk of a big success if more than 80–90 per cent of the employees recruited fulfil the expectations and stay with the employer longer than just a few months. So, it's a good idea to employ people for an initial trial period, if possible, and then make a final decision. My view is that the trial period should be relatively short, a month or two. Remember that all staff should be aware that their performance is assessed by the boss, so both satisfaction and dissatisfaction should be clearly articulated. Some entrepreneurs have the habit of treating their employees like family members and spending with them every spare moment of their time without much separation between their business and private lives. While this creates a very pleasant atmosphere and strengthens the staff 's attachment to the firm, I think in the long run a bit more distance helps to better manage the business.

Why do I think that the right people are far more important than money? Because with a good idea and a good team of people to implement it it's easier to find financing than it is to find good managers if you have money. This is best evidenced by the story of the establishment of Alior Bank in Poland. Two former bankers, Wojciech Sobieraj and Cezary Smorszczewski, had an idea for a bank. In 2007, the competition in the market was already very strong and the majority of the large international financial groups had been present in Poland for years, so most of the investors they talked to looking for financing shook their heads in disbelief. Finally, however, the formidable personalities of the promoters and a good business plan convinced the Carlo Tassara group to invest about €400 million in establishing a new bank, Alior Bank, which was launched in late 2008. Without prejudging the final outcome, it is certainly impressive that the team were able to launch the bank, at the height of the crisis at that. I believe the personality of the main promoter of the bank, Wojciech Sobieraj, was of prime importance here. Initially there was just an idea and two managers determined to build their own bank. They didn't have any funds. How the idea was then becoming reality is shown in figure 2.

 

Figure 2. Alior Bank assets

Source: Alior Bank balance sheets, 2008–2009. 'Preliminary results after the first half of the year', Rzeczpospolita, 2 September 2009.

 

The last hurdle to clear when starting your own business is to secure financing. And we are not talking hundreds of millions of euros (as was the case with Alior Bank) but usually a few hundred thousand zlotys, sometimes even less than a hundred thousand. Above all, I'd like to warn beginner entrepreneurs against bank loans (leaving aside their availability). There are a few reasons why I have my reservations. It's no secret that a lot of projects end in failure, resulting in a problem with debt repayment. Also, young entrepreneurs at the beginning of their business careers usually have little experience managing the liquidity of a company and abundant cash (borrowed from a bank) can prompt rash spending, resulting in costs far exceeding the requirements of the project. Wine connoisseurs know the saying that often a small difference in price can buy a much better quality. The converse is true in business. Usually a significant cut in project costs leads to results that are almost as good in terms of quality and significantly better in terms of profitability. Therefore, when starting your first business, I would recommend choosing a project you're able to fund yourself (or with assistance from your parents, friends etc.).

It's worth keeping in mind that at the beginning labour is a very major cost item. When you (and possibly your relatives and friends) invest your own work, initially without any compensation, you are in fact investing a large amount capital, in the form of labour, although it is not so evident. Additionally, the concept of building a business using your own funds forces you to look for projects that are the most viable financially, ones that start generating profits practically from the start. Such an approach obviously greatly increases the likelihood of success.

Financing is, however, necessary. Owners of small businesses finance their ventures themselves, even without realizing it, for instance through their own intensive work without remuneration. Yet, in some cases, even with brilliant ideas and decent management skills, a project simply can't be carried out without big money. One of the most spectacular projects of this kind was the launch of the first credit card and the first automatic teller machines. Although there were a number of independent attempts to introduce financial instruments with the features of a credit card, the credit card as we know it is generally believed to have been invented by John Biggins. A banker with Flatbush National Bank of Brooklyn, Biggins launched the first card, called Charge-It, in 1946. The card allowed the bank's customers to buy goods from local shops without having to pay cash.

 

Photo 4. The first credit card (source: PAP)

 

Photo 5. The first ATM (source: PAP)

 

Four years later a similar solution conceived by Frank McNamara and called Diners Club was launched by American Express. The programme made it possible to dine at twenty local restaurants without having to pay cash on the spot. Neither John Biggins nor Frank McNamara made huge fortunes on their brilliant inventions because enormous amounts of funds and ability to persuade large banks to market the cards were needed to popularize the product. The credit card came into widespread use in 1966, when Bank of America launched its Visa Card programme (initially called BankAmericard),⁷ and a group of its competitors launched the InterBank Card Association programme, now known as MasterCard.⁸

The story of another banking milestone invention, the automated cash dispenser, is similar. Although there were several projects to develop and deploy such devices running in parallel – in the mid-1960s a cash machine was independently invented and brought into operation at a London branch of Barclays Bank – the invention is credited to Turkish-born and US-raised Luther Simjian⁹, who patented a precursor of today's ATM in 1939. The device was tested by City Bank, but the project was abandoned after six months owing to limited customer interest. ATMs didn't come into widespread use until thirty years later, when credit cards had become popular and banks had become more receptive to the idea of the new service.

2.2. The athlete's perspective

Have you done any sport at a competitive level? If the answer is yes, then in my opinion your chances of success in business are three times higher from the start. If, in addition, you are creative, open to others and a leader type of person, your chances are really good.

Naturally, this is not to say that inpiduals who didn't do sports as young people stand no chance of success, but they must definitely take into consideration all of the above characteristics when starting their businesses. I must also admit that when I hire various managers I often ask them if they actively do any sports. I talk about it in more detail in the chapters that follow.

2.3. With partners or solo?

The next question that the entrepreneur must often deal with right at the start is the issue of various partners and partnerships. A young entrepreneur is full of uncertainties and anxieties. Will I manage? Will I make it? There's so much I don't know or don't understand; maybe it would be safer to look for a partner. My experience is that, contrary to the widespread belief that it's best to go it alone because most partnerships sooner or later turn sour, teaming up with a partner needn't be a bad thing.

I think the success of my first business, the rope access and underwater services company TAN, was in large measure due to the fact that I was fortunate enough to come across a fantastic man, Wiesław Kacaper, who became my partner. Wiesław, or Wiesiek to his friends, is a mechanical engineer, a brilliant Mr Fixit. In 1985 we launched our business as a partnership on a fifty-fifty basis. In accordance with an unwritten pision of duties, I was responsible for job estimates, cost management, organization of the company, legal matters, accounting and business development. For the first two years I also did underwater work myself. Wiesiek was responsible for the technical aspects of all jobs and for the maintenance of all equipment. He also helped with underwater work and, most importantly, secured most of the orders. Given the age difference between us (I was 23, Wiesiek was 16 years my senior), nobody treated me very seriously at that time despite the fact that I'd specially grown a moustache. We had our ups and downs but we really enjoyed working together. All underwater works are very challenging from the engineering point of view, whereas we formed a team who believed we could rise to any challenge: the sky was the limit. Our joint venture lasted six years and proved a great success, which I can say with full confidence I'd never have been able to achieve without my partner.

The business I co-owned with Wiesław Kacaper was in fact my second attempt to set myself up in business. A few months earlier I'd founded a joint stock company under the same name. There were 16 shareholders. The large number was a result of my notion of the required functions in the company. Not fully grasping the difference between a shareholder and an employee, I proposed membership in the company to a journalist (with a specialist engineering magazine!) because the press is always useful, a physician because the industry was risky, an accountant because accounting is important, as well as the people who did the rope-access and underwater work. The result was a bizarre structure, more of a cooperative than a company, completely unmanageable, with conflicting interests. That's why it was with no regrets that we wound up the company only a few months later using its assets to form three separate companies (the one owned by Wiesiek Kacaper and me being one of them). I still can't believe we went ahead with an idea as moronic as a 16-member joint stock company. I sincerely advise all future entrepreneurs against this kind of set-up.

Unfortunately these theoretical conclusions are confirmed by practice, especially at the early stages, when the entrepreneurs can't separate compensation for work done (after all, everything you do you do for your company) from returns derived in their capacity as owners; it appears that all partners should contribute the same amount of work to the company, but that is an obvious misconception. It's worth noting that the risk of a conflict doesn't depend on whether the stakes are equal or not.

To sum up, if you choose to team up with others, do it with a very limited number of partners, preferably just one (if at all). However, I advise against teaming up with somebody just because you like them or because they are your family members or because they have some skills (even very advanced) if such skills can be easily bought in the market. There's not much point in setting up a partnership with an accountant, a lawyer or a driver; it makes a lot more sense to hire them. This solution has the advantage that if an employee is not good enough, you can simply fire them and look for a better one. You can't fire a shareholder, and split-ups are usually difficult and very painful.