Three things that hit the spot: An analysis of the David Kincaid interview

I don’t know about you, but the interview with David Kincaid, CEO of LEVEL5 Strategic Brand Advisors, simply blew me away. Almost every sentence makes you stop and think. This is a great interview rich with insights about entrepreneurship and business planning. If you didn’t get a chance to read the interview, click here. Although I can go on and on about David’s various insights, here are the top three that resonated the most with me:

1. “Anybody can have an idea, but what you need to have as an entrepreneur is belief.”

I remember watching an interview of Steve Jobs, CEO of Apple, on YouTube a couple of years ago. The interviewer asked him what he thinks it takes for someone to succeed in business. Jobs’ response went something like this: “The first thing you need is passion. When bad times fall upon you (and trust me – there will be bad times), any sane person will feel like quitting. However, if you’re passionate about your business, then that will give you the strength to be persistent.”

I felt David Kincaid’s quote about ‘belief’ speaks, although indirectly, to the same point. Ideas are a dime a dozen and it’s easy to come up with them, but what’s the basis for your belief in that idea? Do you really believe your business idea has merit, based on what you know about the marketplace? Similar to Jobs’ views on passion, I think an entrepreneur’s belief (that her idea is viable as a business) will save the day if things things get rough.

My basis for starting Springboarders is that I believe owners and directors of entrepreneurial companies are too busy managing day-to-day activities to thoroughly plan their businesses. Furthermore, my belief is that these owners and directors don’t just need business plans, but they need an easy way to implement their plans. I know that business plans are usually shelved once they are written because they aren’t living, breathing documents. However, I believe that when business plans are developed as action-oriented tools, they can help entrepreneurs understand their market better and lead to more effective execution. This is my belief, and is what keeps me going.

2. “In year one, if you can’t break-even, then you don’t have a proper business model.”

In capital-intensive industries – biotechnolgoy, for instance – it’s virtually impossible to break-even in the first year. However, in professional services, it is possible if you have the right business model. Start-up costs are relatively low for professional services firms, so as long as you enter the market with a solid value proposition, the right price point, low fixed costs and an aggressive sales plan, you can break-even in the first year.

There are tons of resources available on the internet to help you calculate your break-even point, but below is a gist of how it’s done. Your break-even analysis will help you determine the quantity of output that results in zero income before interest and taxes. If you are able to break-even in the first year, then you know your professional services firm is on the right track.

To determine your firm’s break-even point, you need to analyze your cost structure and projected sales. It’s important to classify your costs as either fixed or variable. While fixed costs are expenses that do not change in proportion to the volume of business, variable costs are expenses that do. Here’s an example of what fixed and variable costs look like in a professional services firm (Note: The lists are not exhaustive):

Once you have calculated your total fixed and variable costs, determine your projected level of sales. Your break-even level of sales is then calculated using this formula:

Break-even level of sales = Total fixed costs / [1 - (Total variable costs/projected sales)]

Let’s say you project to achieve sales worth $150,000 in the first year, with total fixed costs at $40,000 and variable costs at $70,000. Your break-even level of sales is as follows:

Break-even sales = 40,000 / [1 - (70,000 / 150,000)] = $75,472

To be realistic, have three sets of sales projections (best-case, worst-case and most-likely) and determine your break-even level of sales for each set.

3. “You may be the founder, but you don’t have all the answers…Once you know what the success factors are and what you need to run the company, find people who are better at doing it than you are.”

Steve Jobs, in the interview I mentioned above, said the other thing you need to succeed in business is “knowing how to hire the right people”. David echoes the same point. Although there are no right answers in business, it seems like there are universal truths about business that experienced leaders seem to know innately.

Obviously, as a business owner, you can’t do everything yourself – you need to build a team. I worked at LEVEL5 for a year or so and have seen the team in action. The LEVEL5 management team comprises former C-level executives that have led companies like Labatt Breweries, Adidas Canada and Second Cup. Each member of the team has a unique ability, whether sales, operations or other functions. As a high-growth company LEVEL5 sure faces several challenges, but those challenges are met with aplomb due to the team’s expertise and experience. As a former insider I can confidently say that around 90% of the time, the operation rolls along smoothly – that’s a pretty high percentage considering the challenges a high-growth company can encounter. My point is this: if you find your business isn’t running as smoothly as it could be running, then maybe it’s time you start thinking about building a better team.