Why Smart Entrepreneurs Play It Safe

A sensible approach to growing your business may seem less exciting, but it just might pay off more in the long run.
September 08, 2016

Would-be entrepreneurs are often told to embrace risk.

I have a one-word response to that: Don't.

In my more than 30 years of building businesses from the ground up, I've found that courting risk can cost both time and money. You're apt to make mistakes that you'll need to go back and fix, if that's even possible.

We've seen the same story arc unfold, time and again. And while the characters may change, the plotlines are all too common—entrepreneurs confuse the idea of risk/reward as a license to overspend, expand too quickly, hire the wrong people or take money from investors instead of earning it through sales.

A sensible, measured approach, which might sound less exciting, can often have a far greater payoff.

Here are six key principles to help you steer your company to success:

1. Make your own money, as quickly as possible.

Don't get into the habit of depending on venture capital or other outside funding. While it may sound like a growth booster, it may encourage premature spending, reduce your business ownership and possibly lead to failure. I know this from experience. Millions of dollars in VC funding spurred rapid growth for my second company, CardScan, but we ultimately ran out of capital because we weren't generating enough revenue or turning a profit.

Fortunately, the company was acquired, securing a successful exit for both myself and investors. However, despite the positive outcome, I learned a vital lesson about entrepreneurship. Ever since, profitability has been my No. 1 business goal.

Prioritizing profitability forces you to focus your value proposition to provide only what your customers are willing to pay for, and to spend only what you can afford. The upshot is two-fold: Money in the bank frees you to make occasional mistakes, such as the senior-level hiring blunders I made early on. And profitability targets motivate employees, especially if they share in company earnings.

2. Evaluate risks and benefits to guide every decision.

While facing large-scale decisions, determine how much you can afford to risk and assess your safety margin. Carefully weigh the upside and downside of each potential action.

For example, my current company, ZoomInfo, wanted to improve conversion rates for a new freemium product. That required fine-tuning the new-user registration and onboarding process to enhance the customer experience, showing upfront value and, ultimately, prompting users to either contribute data in exchange for continual use or upgrade to a premium subscription. Projecting high benefits and low risks, we made a few software tweaks and increased user contributions by 50 percent.

3. Think strategically, but act tactically.

Develop a long-range vision, but make it actionable today. Create a plan with measurable steps and checkpoints and start executing it now.

For instance, ZoomInfo developers were waiting to roll out a necessary back-office administrative tool until the user interface was just right. Aesthetics aside, we knew the tool worked, so we decided to go ahead and launch it, enabling us to receive useful feedback on other aspects of the tool that we likely wouldn't have received otherwise in time to enhance the final product. This story demonstrates that, often, the real risk is in not acting.

4. Watch your spending on people.

Salaries are a major fixed cost, so only hire for jobs you really need—and can afford—to fill. Look for ways to automate processes, try to increase revenue per employee and seek creative solutions.

For example, in the early days of a former company, I needed to hire a developer, but couldn't meet the ideal candidate's salary requirement. As a compromise, I offered to start him at a lower salary and make up the difference later if the business succeeded. He joined the company, and I was able to pay him retroactively.

5. Focus on the details.

You know where they say the devil is. Get personally involved when projects seem to be taking too long or costing too much.

For instance, our ZoomInfo system had slowed down due to heavy new-data inputs in a short time. Rather than patching the complex system, we built an enhancement from scratch, soft-launched it and listened for customer comments. As a result, we soon regained system speed and made improvements to address customer feedback.

6. Always work toward improvement.

Constantly challenge yourself and your people to find better ways to deliver more customer value and operate more efficiently. Listen to employee and customer ideas.

All of our salespeople used to both acquire new customers and manage relations with existing customers. But our new chief revenue officer recognized that these functions required different skill sets. Thus, we reassigned each sales professional to only one task—and rapidly doubled revenue from existing accounts, while satisfying employees' financial needs.

The principles I've outlined can help dramatically boost your company's top and bottom lines, with far better results than ill-considered risk-taking would produce. I know that because they've fueled the success of ZoomInfo—may these commonsense guidelines work as well for you.

Photo: iStock