6 Rules for Entrepreneurship

Yes even if you are a cannabis business!

Observations from MJBizCon Las Vegas 2019

As we wrap up 2019, we are delighted to have officially launched Cannabis Capital at the MJBizCon conference in Las Vegas. There was a record attendance this year and it proved to be an enlightening experience. There were two main themes that we came away thinking about. Firstly, that the capital markets are in turmoil, which is predicted to continue for some time. Secondly, that the exhibit hall was packed with companies that are exceedingly similar. We have known for some while that pubic market valuations were being driven by the irrational exuberance of investors and a reset will over time be a good thing for the sector. In the interim though, capital will continue to be scarce in particular for private companies [the thoughts here may need to be tied together more as irrational exuberance would imply too much capital chasing too few deals not a scarcity]. With emergence of companies that are largely without differentiation it is more important than ever for entrepreneurs to stand out and execute if they need to attract investment. 

A key contributor to homogenization of entrepreneurial cannabis companies continues to be a very visible tension between legacy industry operators and the business and finance executives new to cannabis. Any new markets will always attract people seeking an easy or quick path to success. The greater the “opportunity” the greater the rush to be an entrepreneur. The mindsets that only legacy cannabis operators are qualified to open and run a business, or that only people with extensive and unrelated business experience can run a successful company will continue to block much needed collaboration. Again not sure that I’m following the thought. What does lack of collaboration have to do with homogenization? Is this paragraph really necessary given what follows?

As with any emerging market, adaptation and managing through change will succeed. When aspiring entrepreneurs are inflexible on their thinking or go unchallenged you get what was seen in Vegas this year. Most of the companies exhibiting were so alike it was at times impossible to see any differences between them. Entrepreneurs coming from years of cannabis experience, or even the black market, have mostly gravitated to production and processing and risk becoming myopic in their business model. Business people new to cannabis appear to have a tendency to focus on services businesses. The problem with this is that more and more companies are offering commoditized offerings (extraction, LED lighting or payroll services for example) and no one company can emerge as the gold standard in a market that is still small and constrained by regulations. Is your point that there is a general lack of innovation and really just conversion of black market production and distribution to legal markets accompanied by novelty items or related production product and services and not enough really in other sectors such as a, b and c or are you making some other point?

Essentially what this boils down to is that just because someone knows how to run a business in the traditional sense does not mean they should rush into cannabis entrepreneurship.  And just because someone loves cannabis – the flower, particularly, that doesn’t mean that the rules of business don’t apply.

So, if the “rules” of business apply, what are those rules? You can find plenty of lists for entrepreneurship covering all kinds of great guidelines for startups and established businesses alike. This list is tailored to address the core challenges that all entrepreneurs face, but most apply to building a cannabis company today.

Rule #1:  Execution over Ideation

It all comes down to how well you execute. Ideas are helpful and necessary, but spending time coming up with new ideas about what might be possible is never going to contribute to your success compared to what is actually possible. It is all about what you actually do, not what you say you might do.

         Rule #2: Experience Matters

The odds are against you succeeding as an entrepreneur, and this has nothing to do with being a cannabis entrepreneur. Failure rates are high in all industries and statically entrepreneurs with 10+ years of business experience before starting their own company have an exponentially greater success rate.[1] This makes logical sense in that after experiencing a variety of challenges and situations in the past, experienced operators will have the muscle memory to quickly problem solve. The greatest combination in cannabis is the combined legacy expertise paired with extensive business experience.

         Rule #3: Everything Takes Longer, Costs More & Never Happens as Planned

This speaks directly to why experience in business is so important.  To quote Adam Savage from the Tim Ferriss podcast: “Nothing will ever go smoothly, no plan ever survives first contact with implementation. The only thing that can be expected, is that the unexpected will happen. In cannabis in particular there is a constantly changing business environment with literally thousands of new and changing pieces of legislation to manage. When hurdles leap out at you will you be prepared?

         Rule #4: It’s All About People

The biggest mistake you can make is to not get rid of toxic or non-performing people. Entrepreneurs always eat last so spending time and effort trying to serve the needs of poor performers over the needs of your organization is time wasted and a common contributor to failure. Hire slow, and fire fast.

         Rule #5: It’s About Making Money

The best source of capital for your business is revenue. Capital is expensive when you sell equity or pay an interest rate on a loan. Allocating your time and efforts to raising capital is practical only when you have prioritized generating sales, and have exhausted your efforts in driving top line growth with the resources you have in place today.

Rule #6:  There is Always Competition

No business is truly unique and every business has competition. It is never the best products that win, but the best sold products that win. The challenge is finding the right differentiation in your market such that your customers give you the monopoly on the spending over your competition. Are you really addressing a point of pain (long term solutions versus just a temporary fix), what other options to your customers have, and how will you ensure that your customers will stick with you for the long term?

In summary, there are enough headwinds for entrepreneurs to navigate in the cannabis economy in the year(s) ahead. Finding the best and brightest to work with, whether they have cannabis experience or not, will only help mature your business and the boarder marketplace. When you build any business, there rules apply and this is no more true than in cannabis today. 

[1] Carl J. Schramm, Burn the Business Plan, (Simon & Schuster 2018)