One on One: Carol Roth, The Entrepreneur Equation

Welcome to another in our One on One series of conversations with some of the most thought-provoking entrepreneurs, authors and experts in business today. Carol Roth, author of the new book The Entrepreneur Equation, spoke with Brent Leary in this interview. Carol has worked with companies ranging from solo startups to Fortune 500 businesses on all aspects of business and financial strategy. Collectively, she has helped her clients raise more than $1 billion in capital, complete hundreds of millions of dollars in mergers and acquisitions and more. This interview has been edited for publication; to hear audio of the full interview, page down to the loudspeaker icon at the end of the post.

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One on One: Carol Roth, The Entrepreneur EquationSmall Business Trends: Carol, can you talk a little bit about your background and what led up to writing The Entrepreneur Equation?

Carol Roth: It’s a story of necessity. Neither of my parents went to college, and I went to Wharton undergrad with the notion that I was going to have to pay for it myself. I worked my way through school, took on loans and graduated with $40,000 of debt. I wanted to pay it off as quickly as possible. I became an investment banker in San Francisco, which was a fantastic way to cut my teeth in business.

Small Business Trends: What are you hoping people come away with after reading this book?

Carol Roth: This book came out of frustration. I was really frustrated at statistics on entrepreneurship failures. Nine of out ten businesses are not succeeding within five years. But in the media, you get, “Entrepreneurship is the greatest thing since sliced bread. This is the Holy Grail, hop on the bandwagon.” I thought that was a dangerous message to put out there. If we are going to rely on small business and entrepreneurship to ignite growth in this country, we have to do something to increase the number of successes, reduce the failures and help people get to the next level.

We all have different definitions of success, so there can’t be one answer that fits all of us. I wanted a framework so that anybody, whether they were starting a business or in a business that was stuck, could figure out where to go, what the realities are and how to stack the odds in their favor.

Small Business Trends: One of the areas you tackle in the book is assumptions, myths and realities around entrepreneurship. Share a few with us.

Carol Roth: The number-one miscalculation is that everybody assumes it is still the 1930s, back when the [term] American Dream was coined. That was a completely different landscape. We didn’t have Microsoft. We didn’t have Nike. We didn’t have Wal-Mart. The number of opportunities out there were innumerable.

Everyone is still treating going into business in the same way, but the landscape is very different. It’s extremely competitive. Not to say that there aren’t opportunities out there–there absolutely are–but they are fewer and more difficult to execute than ever before.

I was on a call with Anita Campbell recently and Anita was talking about how much more you have to do as a business owner than ever before in terms of marketing, social media, networking, bookkeeping. You have to be committed to going that extra mile to master what you are doing.

Another fun myth is that you get to be your own boss. At the end of the day, you have dozens, hundreds or thousands of customers, each with their own agenda, who decide whether or not you get a paycheck. You may have investors and lenders. If you have a store, you may have a landlord. If you are a franchisee, you have a franchise parent company. All of these are people you need to answer to. That sounds like having lots of bosses.

Small Business Trends: Why is it important to understand your personality when you think about going into entrepreneurship?

Carol Roth: Because entrepreneurship isn’t for everyone. If you ever watch “American Idol” audition shows, you clearly understand that not everything is for everyone. The same applies to owning a business. If you are the kind of person who doesn’t like to take on any financial risk whatever, if you are uncomfortable with ups and downs, if you need to be told what to do–those traits are not consistent with being a business owner.

Being a business owner is really difficult. You have to wear multiple hats. You have to endure emotional challenges and financial risks. It may be that you are not cut out to be an entrepreneur at all, or perhaps just not right now. Personally, I was very uncomfortable with financial risk early on in my career, so I couldn’t have started a business at that point. I didn’t have the stomach for it.

The good news is, as you change, accomplish more and things shift in your life, you can reassess. If [entrepreneurship] is not perfect for you today, that doesn’t mean it’s not a perfect fit for you ever.

Small Business Trends: You talk about “assessing the opportunity” in the book, as well as the ideas ” it takes money to make money” and “too smart for your own good.”

Carol Roth: The smartest people are not necessarily the best [entrepreneurs]. Remember group projects in school? The smartest person would do all the work, everyone else would slack off, then everybody would get the “A.” That doesn’t work so well in business. You have to delegate. If you are so good at doing everything that you have a hard time delegating, you’re never going to grow past a certain point. That’s being too smart for your own good. Sometimes the people who aren’t as smart but are good at manipulating other people into doing things for them make the best entrepreneurs.

In terms of “it takes money to make money,” I do think that if you fail to prepare, you prepare to fail. Particularly in today’s economy, there’s too much focus on “start your business for $100 or $1,000″ or whatever. That’s a dangerous mentality, because it’s somewhat irrelevant how much it takes to start a business. What does it take to operate the business for at least a couple of years? It takes most businesses that long to get a foundation, and what will you live on in the meantime? If you don’t have your finances in order, you put yourself at a disadvantage.

Even if you go out to raise capital, you have to understand, one, that it’s very difficult and a lot of businesses are not fundable by VCs or even angel investors; two, it takes a really long time and three, if you do find an investor, they are not going to want to fund your lifestyle. You still need money to live on. It’s not like you can brainstorm this fantastic idea and expect somebody to fund it for you.

Small Business Trends: Can you touch on finalizing and evaluating your entrepreneur equation?

Carol Roth: This is the framework, which is broken into four parts: motivation, timing, opportunity and personality. You have to assess each of those components, look at the pros and cons, the risks and rewards and decide if the rewards are great enough to outweigh the risks by a significant factor. Too many people make bad trades. They trade a $49K job for the chance to make $50K a year [in a business]. That is not a good trade.

It’s not just financially motivated; it’s also quality of life. You look at this equation and see if it balances. If it doesn’t, you have two choices. You can say, “Are there things I can do proactively?” The exercises in the book walk you through ways to rebalance this equation so the reward side is greater than the risk. Or you can say, “Do I need to abandon this and not pursue entrepreneurship, wait for another opportunity or wait for a different time?”
That decision-making framework is not just for somebody who is starting a business; it also works if you are in an existing business that’s stuck or if you are thinking about launching another product or service.

Small Business Trends: Where can people go to learn more about the book?

Carol Roth: Go to CarolRoth.com and click on book.

2 Comments ▼

Brent Leary


Brent Leary Brent Leary is a Partner at CRM Essentials and organizer of the Social Business Atlanta conference. Brent serves on the advisory board of The University of Toronto CRM Center of Excellence, writes the Social CRM column for Inc.com's technology site, and blogs at Brent's Social CRM Blog.

2 Reactions

  1. Fantastic interview!

    (I’ll admit that I’m a bit prejudiced; Carol has become a good friend and supporter of mine)

    You really caught her essence. She’s smart as a whip, and we share something very special;

    We don’t feel that business ownership isn’t what it’s all cracked up to be, and that it’s really not for most people.

    Thanks again for another great interview in this “getting better all the time” series of yours.

    The Franchise King®

  2. Great interview. Carol is a friend of mine and her book is excellent. It should be required reading for those thinking of starting a business.

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