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What is a portfolio entrepreneur and why should I care?
By Stuart Morley
COVID-19 challenged business owners and forced them to become more resilient and move away from the traditional focus on efficiency. But some business owners didn’t really have to pivot that hard. And those are the portfolio entrepreneurs because resilience is part of their DNA.
Traditional business owners tend to launch ventures as a way to create a job for themselves. They aim to generate enough revenue to meet their own needs and be profitable enough to sleep peacefully at night. Often, these businesses don’t grow big enough to warrant incorporation and the owners close shop when they retire rather than selling the business. However, more progressive business owners, who see themselves more as entrepreneurs, build businesses for other reasons.
Are all entrepreneurs the same?
Entrepreneurs can be divided into two groups: novice entrepreneurs that are getting started, and experienced entrepreneurs that are taking their business to the next level. Among experienced entrepreneurs are serial entrepreneurs and portfolio entrepreneurs. Serial entrepreneurs start a business to grow it to a sellable size, and then they rinse and repeat.
The latter are a rare breed of entrepreneurs, who, at any given time, own two or more companies, which they may have started, inherited, or bought.
Serial entrepreneurs believe in putting all their eggs in one basket and guarding it till harvest. When it comes to wealth management, they are not used to investing with others. Portfolio entrepreneurs see business as a marathon, not a sprint. For them, it’s about giving wings to ideas and then becoming co- pilots to expert pilots.
What makes portfolio entrepreneurs a rare breed?
Traditional business thinking is to try and predict the future and that’s what a lot of companies hone in on. But portfolio entrepreneurs look to create the future or control the future — not predict it. That’s another reason why they’re better equipped to deal with pandemics.
How do you become a portfolio entrepreneur?
You need to have a good nose. Seriously, you do, so you can sniff out problems, find gaps in the market, identify inefficiencies and offer solutions, like Richard Branson did when he started Virgin Atlantic. A Virgin Islands flight cancellation led him to the solution and the business idea. He chartered a plane and filled it with other bumped passengers by offering a cheap one-way trip to their destination. He then used his existing partnerships with cash-rich allies to establish the airline without spending or depleting his own reserves. Note that there was no market research or planning involved and Branson isn’t successful because he’s a numbers man. But he saw an opportunity and set things in motion, leaving the rest to a group of experts. This is the strength of portfolio entrepreneurs.
Plus, they understand that people are now living longer but businesses and business ideas have shorter lifespans, so these entrepreneurs have the knack to jump on the opportunity before competitors do.
What about portfolio entrepreneurs in small communities?
Research shows that portfolio entrepreneurs living in small towns, where they know everybody in a position of influence, will sometimes start or buy a business to increase their own reach in the community, rather than purely for profit. A portfolio entrepreneur in a large city will often add a venture as a way to increase personal freedom, such as starting a specialty travel business to satisfy a passion for travel while still making money.
Hidden in plain sight
Portfolio entrepreneurs aren’t always famous people: sometimes, they’re the farmer next door, like my father-in-law was. He sensed an opportunity to expand an existing farm by buying a second one for his son. Years later, they partnered to buy a third farm and then more land, before diversifying their portfolio with ownership in an abattoir, a trucking business, and a car repair shop. All of the latter were extensions and solutions to problems faced by their existing businesses. And it all happened without a business plan but with trusted partners.
One of the focal points of portfolio entrepreneurs is moderating expenses and calculating “avoidable loss.” That’s what my father-in-law did. He looked at what was the worst that could happen and made sure he could survive the loss. And once a business generated a surplus, he used the extra cash to fund the next business.
Portfolio entrepreneurs will often have fellow investors and mentors check out the potential of turning opportunities into viable businesses. That is how they minimize the downside in terms of costs, time, and effort. When a business is not doing well, they can exit quickly without worrying about a huge dent to their personal income, as the failing business is likely not their only source of earning. This feature is at the crux of their resiliency during trying times, such as a pandemic.
What is the portfolio entrepreneur’s secret sauce?
Portfolio entrepreneurs tend to focus on participants: customers, investors, managers, etc., and the narrative versus the financial statements. They don’t get caught up in trying to predict how big or how profitable the business will become. They focus on developing a great narrative to entice customers, employees, and fellow investors rather than focusing on fine tuning their financial statements.
Portfolio entrepreneurs tend to be more progressive and see the value in providing profit sharing, bonus schemes, and equity to managers and employees, giving them skin in the game. They know ventures should entice diverse investors and partners to reduce risk and each company dealing with a different bank will spread risk.
In a nutshell, there is no “preferred” entrepreneur; it's just a continuum of different ways of doing business. But portfolio entrepreneurs may be better at saying, “I am ready for any adverse event.” And they’re more patient when going through the corridor of opportunities because they open all the doors and enter each room in search of their next venture.
History has shown that we live in a world of endless surprises and the best defence against unseen surprises is a robust portfolio. So how resilient is your portfolio?