Editor’s note: In an address as part of N.C. State’s Executive Leadership Series, Brian Hamilton, the founder and chair of software firm Sageworks shares what he has learned – from successes to mistakes. WRAL TechWire asked Hamilton to share his thoughts with our readers, especially entrepreneurs.

RALEIGH – Recently I was honored to speak as part of N.C. State’s executive leadership conference, the long-running Poole College Executive Leadership Series. I had the opportunity to share with Poole College Dean Annette Ranft and the audience some of the challenges of starting Sageworks and of finding my way as an entrepreneur. During our discussion, we touched on some of the mistakes I’ve made and some that I hope other entrepreneurs can avoid by hearing about mine.

I think it’s important for anyone starting a business to give themselves some latitude to make mistakes and fail. Before I started Sageworks, I didn’t really know what I wanted to do. I had run a couple of small businesses, invested in real estate and run a consulting company. I wasn’t getting a lot of success, and like many entrepreneurs, I felt a tug that maybe I should just be “normal” and go work for someone else. Given where Sageworks is today, I’m glad I stuck with it and I encourage all entrepreneurs and students alike to have dreams and not to give up on them.

The first lesson I’d share is to make sure the market for your business is going to be ready for you. If you truly have a new idea for a business, you may learn that there isn’t yet a market for your product or service. In fact, this was one of our biggest challenges as we developed Sageworks’ first product, ProfitCents. We thought business owners were looking for a way to turn their financial data into meaningful information and we wanted to make financial numbers easy to understand. But when we got out into the market, there was nothing like ProfitCents, and the market we wanted to reach wasn’t “there” yet. I remember being very demoralized at that time because we’d worked for two years writing code and yet we didn’t know what the market was. Eventually, of course, we were able to license the product to banks and others who advised business owners, but it was a big blow initially.

Related to this is a mistake that many entrepreneurs make, and that is thinking that getting one customer is “proof of concept,” or evidence that you have a workable business. Sageworks got several big customers — Citibank and Intuit – before finding eventually that the “right” market for ProfitCents was accountants. Because we thought we had “proof of concept,” we probably hired a management team a little bit early, and so we had to learn from that. Proof of concept isn’t one customer. Proof of concept is I’ve got one customer, I can get more and my customers are using the product.

I’ve also learned from my own mistakes that to be an effective leader, you have to know your employees and care about them. This is difficult as an organization gets bigger, because I find there’s more distance within the human side of the business – in knowing the players. How do you lead someone when you don’t know anything about them or what’s important to them? Knowing them takes time, and it requires talking to people, learning about them and trying to integrate that into the way you work with them. In order to do that, though, you’ve also got to care about them. As a leader, you’re not going to talk to anybody about what’s important to them if you don’t care about them. You’ll also find that if you’ve shown employees that you care about them and are trying to do right by them, people will give you a lot of latitude when you mess up (and you will mess up).

One mistake I fortunately haven’t made is jumping into getting venture capital. When we got Citibank as a customer, we started getting offers for capital, and we would’ve been out of business a long time ago if we had taken that money. The idea at the time was, “You’ve got Citibank, now you’re going to go get 1,000 banks.” But that turned out to be not true at all. If we had taken $5 million to $10 million, we would’ve hired a bunch of people and would not have been able to go to market successfully and scale. Be careful when you get offered capital, and be careful when you scale. The scale needs to equal your progress as an organization.

About the author

Brian Hamilton is the founder of Sageworks and Inmates to Entrepreneurs. He is the original architect of Sageworks’ artificial intelligence technology that is used by thousands of financial institutions and accounting firms for analyzing private companies. He is nationally recognized as a thought leader in finance and is a regular guest on CNBC and MSNBC and a contributor to Inc. and Entrepreneur magazines.

Mary Ellen Biery, Research Specialist at Sageworks, also contributed to this article.