Q and A: Carol Roth on The Entrepreneur Equation

The bestselling author explains her perspective on entrepreneurship.

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Gary Whitehill
Carol Roth encompasses one word perfectly: reality. Providing advice to business owners around the world, Carol prides herself on mixing a bit of sugar with a lot of spice.

That mantra has led her down a successful journey as a business strategist, content producer, deal maker, and most currently, author of the The New York Times bestselling book, The Entrepreneur Equation. To commemorate the book's upcoming launch in paperback, we sat down with her for an exclusive interview on her unique entrepreneurial perspective.

Gary Whitehill: What made you write The Entrepreneur Equation?

Carol Roth: I wrote the book for the same reason that we do anything in life—I was pissed off. I was pissed off with the state of entrepreneurship, and as an active advocate for the industry, I wanted to provide a practical framework for business owners to follow.

I found that the way we approach entrepreneurship in this country doesn't make a whole lot of sense—especially with nine out of 10 businesses failing. Think about it: in what other industry would this failure rate be acceptable? None. A 90 percent rate of failure wouldn't be acceptable to a lawyer, doctor, psychologist, or even a bus driver—yet somehow, we still have people investing their life's savings in building a company. Furthermore, you have marketers peddling multi-millionaire gimmicks. It's a joke. Instead, entrepreneurship is supposed to be about the right people pursuing the right opportunities at the right time, with the right preparation.

GW: But doesn't entrepreneurship mean something different to each of us?

CR: Absolutely. We all have different definitions of what success looks like. So to my point, there isn't just one way to build a company. All you can provide is a framework toward a defined goal.

GW: Why do you compare entrepreneurship to American Idol?

CR: We all watch American Idol, or at least know of its premise: A lot of people get up in front of judges and sing. Some can blow the doors off the building and some should never try again. But what do they have in common? They're each convinced they're the best.

If you like singing, it doesn't mean you can't do it in the shower; but fundamentally, not everyone is suited to sing professionally. The same thing goes for entrepreneurship; just because you think you can, should, and want to be an entrepreneur does not mean you can actually make a viable profession out of it.

GW: Interesting point. You also discuss how business owners must decide whether they're Santa or the Elf. What does that mean?

Santa is the person who has the vision, does the meet-and-greet, learns what everyone wants and also has to be crafty. He is the business owner—someone who gets it done because stakeholders around the world are counting on him. Meanwhile, the elf is an executioner. Sure, elves wear different hats, but in the end, they sit around and wait for instructions. Without them, the company wouldn't be successful.

Both positions in a company are very important, but also very different. One position prefers comfort of the known—that's an elf. But if you're willing to jump in the pond simply because you're feeling froggy but don't know the eventual outcome, founding a company might be the right path.

GW: There is a term you mention in your book called "el cheapo." Where did that come from?

CR: It is a risk versus reward term. Once again, people don't understand the very important difference between two parts of owning a business—spending versus investing.

Society in general has real fear when it comes to money. Many businesses fail because the owner wasn't willing to invest and wasn't educated on the difference between spending money frivolously and investing money into the business for growth, and the risks and rewards of that cash infusion. Business owners who have extra cash on the sidelines should constantly be asking themselves, "How much am I willing to invest in X if the return is Y?" In addition, an even better question to ask is, "If I invest X, what is it doing to turn into Y months down the road?"

GW: But why are we so obsessed with money?

CR: It's the benchmark. People like to be able to rank things and make order out of chaos. It's unfortunately a way for people to rank things, a measuring stick to compare themselves against those they know. People always need to create controlled measurements, and in a flat world, money is a tangible yardstick.

GW: What is your opinion on people who call themselves entrepreneurs?

CR: A lot of people who own a business aren't entrepreneurial at all. In the start of my book, I discuss how the average business makes less than $100,000 a year, isn't innovative and has no plans for growth. That type of business model and outlook doesn't fuel our economy; it simply shifts jobs back and forth.

GW: Why is the average business so small?

CR: Most people end up owning a business by accident. Therefore, they don't usually have a thought process and a strategic plan in place. In the back of my book, I have a "business glossary" where I discuss business lust versus "business beer goggling." Most of what you see today is people who are afraid to have real conversations about their business—their reasons behind owning it and their level of preparation. Overall, business owners make the mistake of "just doing" and "getting into action" without properly planning ahead of time.

GW: You talk a lot about the mental challenges of entrepreneurship in your book. How important is it for a first-time entrepreneur to understand what they’re facing from inside their mind?

CR: Eighty to 90 percent of success in a company has nothing to do with business at all—it's all personal. We all have problems in our past, and people have sold themselves a bill of goods in all kinds of ways. Most often, I hear from clients who [throughout] their entire lives, their mom and dad didn't think they were good enough. For women, it's their peer group and the stigma that it's not nice to charge. What I tell clients to do is deal with those past challenges—embrace them, understand they're part of the past, and move on with a fresh slate. If a business owner can learn to do that, and they have the right skill set in tow, nothing can hold them back.

On the other hand, I also think it's funny how so many people who can't find a job think they're going to be successful entrepreneurs. If you can't woo people into hiring you, then how are you going to woo customers to buy your product or service? Get realistic.

GW: Why do some first-time entrepreneurs think it's their "right" to build a company?

CR: We are in an age of abundance. As a direct result, people feel entitled, yet aren't wiling to do the work necessary to be successful. They aren't willing to be driven, relentless and scrappy. Yet this is exactly what the American dream is all about. Plain and simple—if you’re not willing to dig deeper than others to achieve success, don't be an entrepreneur.

GW: What advice do you have for first-time entrepreneurs?

CR: There are a few points that are imperative when starting your business:

1. Know where you are going. What is the end goal? It's impossible to get a plan in place and drive toward it without having a finite destination. Plan out what you're trying to achieve and the plan of action toward that goal.

2. Give yourself the runway to succeed. Most of the time, people don't give their business a true shot to work out. They don't realize that it takes [up to] two years for a business to achieve a solid foundation. For example, Oprah has every means possible to succeed at her disposal (resources, capabilities, fan base) yet she is still figuring out the structure of the OWN brand.

3. Understand the risks and rewards of your business. Be intentional when building a company. Understand that you should be building a business whose rewards justify the risk. If you're working more hours for less pay and more stress, make sure there is a payoff in the end with regard to how much your business (could) potentially be worth or the size of cash flow it projects to generate consistently.

Gary Whitehill is the founder of Entrepreneur Week and The Relentless Foundation. He is a relentless entrepreneur and driven philanthropist with a footprint on four continents; broad experience spanning entrepreneurship, M&A, business turnarounds, and Fortune 100 board directorships.

The Young Entrepreneur Council (YEC) is an invite-only nonprofit organization comprised of the world’s most promising young entrepreneurs. The YEC leads #FixYoungAmerica, a solutions-based movement that aims to end youth unemployment and put young Americans back to work.