The 3 Questions Every Entrepreneur Needs to Answer
Making decisions is hard. There are a lot of reasons for that, but I’ve outlined a few here.
When making business decisions, all of us want to say “no" to the wrong things and say “yes" to the right things. But, it is often really hard to tell the difference between the right and wrong opportunities. Should we automatically accept opportunities that will make us money, help us grow, or bring in new clients?
In his classic book Good to Great, Jim Collins and a team of researchers identified 11 companies that made a dramatic transition from being just good to being truly great. The performance of these companies exceeded the performance of the market as a whole and of other companies in the same industry for a period of at least 15 years.
One of the traits of the "Good to Great" companies, as discovered by Collins and his team, was rigorous, disciplined, and focused decision making. They perfected the art of saying “yes” to the right things and “no” to the wrong things. They did this through a framework of three questions that are so simple, you don’t have to be a Fortune 500 company to answer them.
1. What are you passionate about?
This is the piece of this puzzle that is intuitive — most creative entrepreneurs do what they do because they are passionate about their work. But, understanding your passion needs to go deeper than the surface. The passion that drives your business needs to be specific and compelling.
For instance, one of my clients is an interior designer who is passionate about design that accounts for both aesthetics and functionality. Because she understands her passion, she knows exactly who her target client is — busy, working parents that want a nice-looking home but still need to account for the possibility that the dog is going to pee on the rug or that their kid is going to use the sofa as a canvas.
Understanding your passion will not only empower you to chase after the opportunities that you are most excited about, but it will also help you have the discipline to say no to opportunities that aren’t a good fit.
2. What can you be the best in the world at?
In this day in age, it seems ridiculous to say that you can be the best in the world at anything. For a Fortune 500 company, it might make sense to try and be the very best in the world at something. But, for a small business or a creative entrepreneur, can’t “really good” be good enough?
Seth Godin wrote an entire book to answer this question. He says:
“Anyone who is going to hire you, buy from you, recommend you, vote for you, or do what you want them to do is going to wonder if you’re the best choice. Best as in: best for them, right now, based on what they believe and what they know. And in the world as in: their world, the world they have access to.” (Seth Godin, The Dip)
“Best in the world” is relative, subjective, and flexible, and should account for your industry, context, geography, price point, aesthetic, and other relevant factors. For instance, I have a client who is endeavoring to be the best freelance motion designer in the United States in his signature aesthetic. Maybe you want to be the best at your craft in your particular city. You need to understand and define the “world” you are living in and how you can be the best in that world.
This isn’t what you want to be the best at or have been the best at in the past. You also don’t have to be the best right now. But you do need to define how you can be “the best in the world” and stop doing anything else.
3. What drives your economic engine?
To be able to make good, strategic decisions that help you build a great company means knowing exactly what drives your economics. It is critical for you to understand how you define financial success and to make sure all of your projects and opportunities contribute to that model.
Your understanding of financial success needs to be more specific than “profit.” You need to define the one metric that has the greatest impact on your finances and rigorously track your performance according to this metric. For service professionals, this might be an effective hourly rate, or in other words, how much do you earn on a project compared to the hours you spend on a project? Or, you might be most effective if you maximize your revenue per client. For those selling products, you might be most interested in looking at your gross margin, in other words, the ratio of the cost of your materials to the income you are earning.
This area probably represents the steepest learning curve for most creatives. If you are interested in diving deeper into the numbers, I recommend Financial Intelligence for Entrepreneurs by Karen Berman and Joe Knight
How This Works in Practice
Here is the framework that will help you know when to say “yes” and when to say “no”.
- Passion: What are you passionate about?
- Expertise: What can you be best in the world at?
- Economics: What drives your economic engine?
Great companies have a deep understanding of the answers to these three questions, and they only take on opportunities that meet all three criteria.
It Takes Time to Get This Right
Don’t panic if some of these questions have left you stumped. It will take some time, and probably some trial and error, to fully develop answers to these questions. For the "Good to Great" companies highlighted in Collins's book, it took an average of four years. For a small business or a creative entrepreneur, I would expect it to take between one and three years to fully develop these concepts.
Any business of any size has the opportunity to be just as rigorous, disciplined, and strategic when making decisions as the "Good to Great" companies. It won’t necessarily be easy, but having a solid framework may help bring clarity to decisions that may have previously felt confusing.
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