Like most veterans of the entrepreneurial wars, I have made mistakes. That propensity is magnified by the higher-risk profile I have chosen—startups and turnarounds, both treacherous undertakings.
To create a disciplined investment philosophy, I evolved “The Ten Essential Principles of Entrepreneurship You Didn’t Learn in School”—at least I didn’t learn them in school. Over the course of 10 columns, I will feature each of these essential principles. This is the fourth installment.
Rely on your gut
(Entrepreneurism is an art—not a science.)
In business school, students are taught decision-making based upon data. We probably all learned to prepare, analyze and evaluate financial projections and make business decisions, but never did I learn there is a strong element of subjectivity in a sound decision-making process. The answer lies within the entrepreneur, who, after digesting the material and evaluating advice, should rely on his gut.
In 1986, a partner and I agreed to purchase the cable television system serving Carmel. The purchase was subject to the approval of the City Council of Carmel and the Hamilton County commissioners. Both parties to the transaction agreed to use best efforts to obtain the necessary approvals.
After thorough due diligence, the city of Carmel voted unanimously to approve our status as purchaser. The seller was an inept operator and the city was impatient to get rid of him. Few issues upset Carmel residents more than shoddy cable service. While our predecessor was in charge, the number of complaints to Mayor Jane Reiman about cable were 10 times higher than any other issue. During the same period, Carmel raised its water rates 20 percent and received no complaints.
While we endeavored to obtain the commissioners’ approval, the seller received a higher offer. The only way the seller could wiggle out of our deal was if the county commissioners disapproved our company as a qualified operator. Without any investigation and presumably on the advice of the seller, that is exactly what they did. The contract granted us an option to extend the date for approvals and to reapply to the commissioners, but the purchase price would be increased $500,000. The seller was motivated to convince the commissioners to disapprove us so he could sell the cable television system at a higher price either to us or another bidder.
My advisers were aghast at the seller’s behavior. All counseled that we let the contract expire. Because the seller was campaigning against us, the likelihood of failing was great — and why, they said, should we reward this dishonorable behavior?
I felt that fellow Hoosiers would do the right thing and that, upon a fair presentation of our case, regardless of pressures from the seller, we would obtain the commissioners’ approval. The numbers showed that if we were to prevail, we would have a profitable turnaround opportunity despite the penalty for extending the contract. In my gut I thought we could pull it off—and we did.
In order to rely on your gut, you need to be confident in yourself. Self-confidence is a primary characteristic of a successful entrepreneur—overconfidence is not. You also need to have the basic tools to be successful—that is, experience, education and intelligence. Seek advice from the various experts you have at your disposal: lawyers, accountants and the mentors I wrote about in a prior column, but make the final decision. Ask yourself, “How does this decision feel?” A corollary: Relying on your gut without a dose of conservatism will get you in trouble. Rely on your gut, not your ego.
The experience with the Carmel cable television transaction imparted this fourth important principle that I have applied consciously many times. It has served me in good stead.
Rely on your gut. Did you learn that in school?•
Maurer is a shareholder in IBJ Corp., which owns the Indianapolis Business Journal. His column appears every other week. To comment on this column, send e-mail to email@example.com.