Rule No. 1

You must understand — and be comfortable with — the way the business works.

First and foremost, you have to understand and be comfortable with how the business acquires (or, in the case of start ups, intends to acquire) new customers. I need to know what media it will be using, what kind of advertising campaign, what sorts of offers and copy approaches it will be using, and what all this will cost on a per-customer basis. And all of that needs to make sense.

Next, you need to know — and be comfortable with — how it plans to optimize those  customers, what sort of additional products and services it will offer them (at what price points), and the timing.

You need an estimated value of each customer, depending on media and advertising strategies, in the first and subsequent years. You also have to understand the product, why there is a demand for it, and how the company can sell that product better than its competition.

Rule No. 2

You have to understand the industry and believe it is trending up.

This is as important as the first rule — maybe more. Understanding an industry is a challenge. Every industry has its own dynamics. Retail, manufacturing, and wholesale businesses all operate differently from one another. And within each industry, each sector has its own rules.

Clothing stores and bars, for example, are both retail businesses, but they require very different approaches. Inventory (what you have in stock) is a complex and critically important decision for clothing stores. But, it’s a rather minor and obvious factor in running a successful bar.

Here’s the thing about industry knowledge: You can’t find the most important factors in spreadsheets or in books on business. (Not even in For Dummies guides.) You have to have experience — actual experience — in the industry.

Rule No. 3

You have to understand the financials, and they have to be solid.

Once you comfortable with the business plan and the industry trend, you need to understand the profit and loss (P&L) statement, the balance sheet, and the marketing data/projections.

You may have no formal education in finance, not be particularly adept at analyzing numbers. But, if they are related to your businesses you must learn to understand them, be comfortable looking at them and know what to look for.

Another thing you must understand is cash and cash-flow. You need to feel sure the  business has sufficient cash to sustain itself while growing and also on an ongoing basis. The first few years of any start up are always a challenge in terms of cash flow. And what is needed often exceeds what you believe you will need when you begin.

Rule No. 4

You have to believe in the people helping you run the business and have some input into their key decisions.

The business plan can be strong. The industry can be trending up. And the numbers can be solid. But, if you do not have faith in your principal players you will struggle. This is a very important rule.

In managing your team you need to grow experience, emotional intelligence, healthy ambition, and, most of all, good character in your business. Character counts most because you need to trust these key people to develop the kind of business you can be proud of.