“S&P 500: The Standard & Poor’s 500 (S&P 500) Index is a grouping of the 500 largest US publicly traded companies. The index includes many high-tech and financial businesses.”
“IPO: Initial Public Offering (IPO), is the procedure a privately held company uses to ‘Go Public’ or start selling stock on the stock market or other exchange to outside investors. This highly regulated process is used to raise capital by selling shares of the company to the public. It is governed by the Securities and Exchange Commission (SEC).”
In the past, startups had the luxury to grow for decades in isolated markets, and the global economy was more of an idea than an actuality. The model had been built by names like Rockefeller and Buffett, and it required a mentor steeped in expertise to teach the secrets of building a successful company. But today the speed of business is accelerating at a rapid pace. For example, in 1935 the average lifespan of a company on the S&P 500 was ninety years. In 2020, the average lifespan of a company on the S&P 500 is only eighteen years. And it’s predicted that, by 2027, that number will drop to only twelve years and 75 percent of companies on the list in 2012 will be gone by 2027!
This trend raises the question: why is the lifespan of companies on the S&P 500 decreasing? Why are they disappearing so quickly? It’s because the speed of business is increasing. Companies are able to reach profitability faster, capture market share sooner, and hit their stride earlier. Because of all this, they are becoming acquisition targets more speedily. All of these factors also mean the largest companies can be overtaken by new startups in ways that were never thought possible in the past. Startups are going public in fewer years and technology is advancing at an astonishing pace. Systems have been created that accelerate sales, marketing, customer relationship management, and finances, spinning the business life cycle faster and faster. You no longer have to be an apprentice to the titans of industry to become the next big thing. You just need to tap into the principles of entrepreneurship that have already been discovered and avoid the most common pitfalls.
To begin with the end in mind means deciding what kind of business you want to run. This comes down to a choice between the three mountain ranges found on Entrepreneur’s Island:
•The Lifestyle Range. Adorned by the smallest and most navigable mountains, this range is marked by small, typically one-shop businesses focused on earning enough cash to support a desired company culture and/or lifestyle. But there are plenty of pitfalls for the unwary: it looks deceptively easy (but it’s not). One of the greatest risks is a loss of passion.
-Real-world example: The Wasatch Range; Mt. Timpanogos.
•The Buy or Be Bought Range. Marked by significantly higher mountains with more technical paths to the summit, this range consists of entrepreneurs building businesses in preparation of an acquisition or a merger with another company. For many, the mountains found on the Buy or Be Bought Range represent the most compelling reward for the time and effort required to get to the top. Mountains found on this range can be exciting to tackle, as things take off quickly and it’s likely others around you will take note. Recognition and awards may come quickly, but climbing a mountain on this range requires a greater degree of preparation, team support, and leadership prowess.
-Real-world example: The Eastern Rift Mountains; Mt. Kilimanjaro
•The IPO / Private Offering Range. Home of the very highest and most technically demanding Public Offering mountains. This range is impossible to navigate without highly trained experts, careful planning and preparation, and a willingness to follow a very exacting route that allows little or no error. This is not a range for novices to attempt. It is fraught with pitfalls at practically every step. Making the final ascent to the summit, however, can be truly life changing.
-Real-world example: The Himalayas; Mt. Everest.
The need to start with the end in mind and determine where you want to take your business is essential to success—you simply cannot wait. So let’s take a closer look at the three types of businesses in more detail:
The Lifestyle Business
A lifestyle business is what you typically think of as the flower shop on the corner, the piano teacher, the blogger with wanderlust, or the local fruit stand—a typical “mom and pop” establishment or a freewheeling hipster traveling throughout the world. It’s about work/life balance without a pressing need to grow dramatically, grab market dominance, or have an incredible Initial Public Offering (IPO). Lifestyle businesses are not trying to get bought; they’re just doing what they do day in and day out and produce revenue. That doesn’t mean they have to be small, either. I know several multimillion-dollar lifestyle companies that go out of their way to build a culture that’s bigger than just what happens at the office.
It’s important to note that, while lifestyle businesses can succeed, of the three options, they are the hardest to sustain long-term. In today’s business climate, if a company’s not adequately growing, it’s slowly dying. For example, consider a lifestyle start-up that in year one, given their small niche, managed to earn $200,000 in revenue. Then, in year two, they realized $215,000, on track for $235,000 in year three (and so on). Although the numbers look positive, that won’t tell the entire story. The market growth might be 20 percent in their industry, so growing at less than 10 percent per year actually means they are losing market share. One of the risks in a lifestyle business is that, given today’s speed of business, a competitor could be eating up the market share. Or, market forces could have changed so rapidly, the product or service may be on its way to irrelevance—despite steady increases in top-line revenue.
In my experience, lifestyle businesses are the most difficult of the three. This isn’t to say a lifestyle business isn’t a viable option. In fact, if your focus is having more time or flexibility, and you love the satisfaction of the creative process, this can be a great goal. History suggests this is not the ideal route for producing extreme wealth, but some companies do achieve great results. One such company I’m familiar with is called TestOut. This is a company that does certification training for popular IT and computer technologies and has been able to attain and maintain a profitable business that provides a great lifestyle for the owner and employees. In fact, they are profitable enough that they have provided a yearly cruise for every employee and their significant other as a year-end bonus. You can imagine the expense of doing this. The founder, Noel Vallejo, has learned to navigate the mountain and avoid the pitfalls as outlined in this book.
In my home state is a majestic mountain called Mount Timpanogos, my real-world equivalent to a Lifestyle Mountain on Entrepreneur’s Island. The mountain is named after a beautiful American Indian princess, and if you look closely, the ridge of the mountain outlines the resting maiden’s form. This peak rises from the valley floor to a height of 11,752 feet. To get to the top of the mountain, you hike along a well-worn trail traveled by many others, which is beautifully adorned with wildflowers. It’s common to see herds of mountain goats, bighorn sheep, and maybe even an elk or moose. The hike begins just above the famous Sundance ski resort and is seven and a half miles one-way (fifteen round trip) with an elevation gain of 4,580 feet. Many will embark in