James Sinclair’s Business Philosophy Part 1: The Three Types of Entrepreneurs
If you’re building a business but you’re surviving and not thriving, you’ll absolutely love this blog.
Over the last 20 years, I’ve built multiple multi-million-pound businesses. I own and operate 17 businesses which employ 1,200 people and generate £40 million in revenue each year.
If you wonder: “What are the right business models for serious profitability and which ones should we absolutely avoid?
“What should we be investing our time, effort and energy into, to get maximum results?”
…This is the blog for you.
Building a business that really makes serious money is something very few people achieve. It’s so hard.
I think that’s why so many entrepreneurs ask me, “how do I actually get into the top five or ten percent of successful business people?
“What are they doing that I’m not?”
That’s what I want to break down.
The three types of entrepreneurs:
Solo-preneurs
Entrepreneurs
Investor-preneurs
It all starts with the Entrepreneur’s Pyramid:
Solo-preneurs
Around 80% of business owners are Solo-Preneurs – doing the same things every day and making up to £75k revenue each year. What they really do is build themselves a profitable job. They are the sheep.
Entrepreneurs
Entrepreneurs make up about 15% of the business-owning population. They have started employing a few people and are usually control freaks over their businesses. They don’t actually understand systems and processes or have much commercial awareness – but their work ethic is so strong that they just about get by. They are the oxes. They’re very good at turning money but not making it. Sometimes, they fear failure, but they have these moments of glory that keep them in the game.
Investor-preneurs
The top 5% are Investor-Preneurs. They are the eagles, soaring high over their businesses, looking for talent to run them. This is the big difference – they believe in the methodology I call E + M = S (entrepreneurship + management = success).
When an entrepreneur really gets it right, they can literally go to the Moon. They can get 300, 400, or 500% returns on their time and capital invested, but very few of them get it right.
When you look at an investor, they might only get 5 or 10% returns. But they put they put their pound or dollar into something and say, “look – in five years’ time, my dollar or pound is going to be worth X, Y, Z, and I’ll get out of the game and look for another investment.”
That’s what private equity and venture capitalists do so well. They put their money in, they know their exit date and they know what their likely return is going to be. It’s all meticulously planned.
You don’t get that with entrepreneurs. They see an opportunity and they want to seize it.
I want entrepreneurs to fuse the two together to become Investor-Preneurs. That’s what the top 5% do.
Look for the best possible management to operate your business so you can grow it.
If you can get to a position where you spend all or most of your time growing the business and you’ve put an effective management team in place to run it, you’ll be in the top 5%.
In reality, most people don’t do that.
In the UK, 70% of businesses don’t pay VAT. That means 30% businesses are turning over £94,000, so you’ve got loads of micro-businesses.
It gets worse than that because there are only 7,500 companies in the UK that employ more than 250 people.
My businesses, including Marsh Farm Animal Adventure Park, employ hundreds of people. (Credit: Michael Chudley)
I’d be one of those people, but I’ve got a couple of companies that employ more than 250 people.
By rights, there’s probably only 5,000 people controlling most of the UK workforce – mind-blowing stuff.
Most people do everything they can to put off employment and investment. They’re looking for it to be as low barrier to entry as possible.
But here’s the thing about that: everyone else is competing with you.
The higher barrier to entry you think, the less competition you have and – therefore – the bigger results you should have.
The Business Life Journey
These are the steps you take in creating and growing your business.
1. Start-up (70% of businesses)
You’re swapping time for money, making between £0-£50,000 revenue. You’ve effectively got a profitable job.
2. Struggle
You take it one step further, start paying VAT and take on a small premises. But then the overheads start trickling in.
Think of yourself as a mobile hairdresser. You get a little car and you drive around, cutting people’s hair. You’re swapping your time for money, but you’ve really got zero overheads. You’ve got a profitable job, paying yourself some income, and maybe you get some tips.
The next step is to get a premises and employ other hairdressers.
If you’re in the UK, you’ve got these costs to consider:
You’ve got your premises, but you’re in the struggle phase.
However, once you get to £300,000, things should start getting easier as you reach economies of scale because of the turnover growth.
3. SME/beautiful boutique businesses
These are any enterprise that gets from £300,000 to £2 million revenue. If you’re doing things well and got a massive hairdressing salon, you could probably pull £200,000 to £400,000 out of your business to have a nice life.
Now, if you’re seriously entrepreneurial, that ain’t going to be enough! You’re thinking, “wow, I’ve got this £2 million business, but I want to take it to the next level”.
What happens is you pop along to the bank and tell the manager you’d like to open a second hairdressers/hotel/restaurant/MOT centre.
The bank should say: “Yes, we’ll lend you some money as its profitable, but probably not enough to be completely cashflow positive.”
They always lend you just enough – but not enough.
4. Over-trader
You use your cashflow to close the gap and you start over-trading. But if you open a third location and the quality starts dipping in the other two because you’re learning how to run a bigger business, it all gets really complicated.
What usually happens when people hit the £2 million mark and are in the over-trading territory, because they’re trying to fund it out of cashflow and maybe a little bit of debt, is they very often revert to when things were safe.
They say: “Let’s go back to just one restaurant, get service up, have some days off and have a nice life.”
As a serious entrepreneur, this is what I did:
I was a kids’ entertainer and magician.
I struggled. It was really hard to take on overheads.
I opened an indoor play centre, then another one, and another one. NatWest, Lloyds and all the high street banks helped me a little bit but not enough – so I over-traded.
I was running a £5-million business and gigging as a magician at the same time, just to bring in more cashflow for my over-trading days.
It’s what entrepreneurs do.
5. Scale (top 5% of businesses)
Once you reach the £10 million turnover mark, you start getting economies of scale on profitability and overheads.
Say you’ve got one restaurant where you’re the manager, and you open two more. Now you’re trying to divide your time between three restaurants and the quality starts slipping. But if you can get to ten or twelve restaurants, you can bring in a Middle Management Team (MMT) to drive the quality and put systems and processes in place for you.
The Banks
Banks hate funding cashflow.
They want to fund something with a proven track record, not something that could fail.
That’s why so few make it, which is where private equity, venture capitalists and angel investors come in. They tend to fund the over-trading businesses and the start-up/struggle business.
The banks love to fund SME/boutique businesses that are tried, tested and proven. They’ve got 10 years of accounts, always made profits, they just want to organically grow 5 or 10% per year.
You go to a bank and say: “Look, we’ve gone from £2 million to £8 million in the last three years. We’ve used our own cashflow and want to get to £30 million in the next 24 months.”
The bank manager’s thinking, “Oh my god, this is too entrepreneurial for us. Where are the systems, the people, the processes?”
But hey, investors love that stuff.
WATCH my video on how to make your business model irresistible to investors:
If you look at the scale businesses which get to £25 million turnover, everything’s in place, they’ve got a management team, good accounts for multiple years – the banks love funding those.
If you’re an entrepreneur, you really want to be an SME or a business of scale. The rest is just really tough. It’s just something you’ve got to get through.
But once you do, you’ve really got to ask yourself, “do I go big or do I want to be boutique?”
Over-trading and struggling means you need big balls and big determination to get through to the next level. I massively admire people who are able to achieve that and stay in the game.
I don’t know how I did it.
Now, I’ve got a family and feel my time is more balanced. I was really young when I went through this. They were some of the toughest sleepless nights, borrowing money from bloody everywhere.
It was tough, personally guaranteeing millions of pounds. I still do that today, but on the back of a proven track record.
It is not for everyone.
Other blogs in the James Sinclair’s Business Philosophy series
WATCH my full video on the key entrepreneurial lessons I’ve learned during my 23 years of business experience: