(I originally published this article in the Galion Inquirer on Dec. 3, 2011)
In business, just as in life, there are no guarantees. There are many risks associated with starting a small business, but you can improve your chances of success with good planning, preparation, and insight. These three items are crucial to your success. Before you jump head-first into your own business, consider the following questions to see if self-employment is a good fit for you.
Are you a self-starter? It will be entirely up to you to find clients, develop projects and services, organize your time, and follow through on details. It’s also up to you to set up your administrative process. What kind of stationery will you use? How will you track inventory or sales? How will you manage five projects with different deadlines?
Do you get along well with many different personalities and people? Business owners need to develop working relationships with a variety of people including customers, vendors, staff, bankers, and professionals such as lawyers, accountants, or consultants. Can you deal with a demanding client, an unreliable vendor, or a cranky receptionist if your business requires it?
How good are you at making decisions? Small business owners are required to make decisions constantly, often quickly, independently, and under pressure.
Do you have the physical and emotional stamina to run a business? Business ownership can be exciting, but it’s also a lot of work. Can you face six or seven 12-hour workdays every week? One of the most frequently mentioned reasons people consider self-employment is having a flexible schedule. That can happen after you’ve got the business established, but in the beginning, your start-up can take all of your available time, and it still won’t seem like it’s enough.
How well do you plan and organize? Research indicates that poor planning is responsible for most business failures. Good organization of financials, inventory, schedules, and production can help you avoid many problems down the road. Can you get an accountant or a legal advisor to help guide you right from the start?
Is your drive strong enough? Running a business can wear you down emotionally, too. Some business owners burn out quickly from having to carry all the responsibility for the success of their business on their own shoulders. Strong motivation will help you survive slowdowns and periods of burnout. Support from your spouse, family, or friends can help keep you motivated.
How will the business affect your family? The first few years of business startup can be incredibly hard on family life, especially if it’s a home-based business. It’s important for family members to know what to expect and for you to be able to trust that they will support you during this time. There also may be financial difficulties until the business becomes profitable, which could take months or years. You may have to adjust to a lower standard of living or put family assets at risk in the short-term.
Why do Small Businesses Fail?
Success in business is never guaranteed, no matter how excited you are about it. It’s easy to convince yourself that your idea is going to turn you into the next Microsoft or Google. That’s great, and it’s important, but even more important is your planning, foresight and organization.
Starting a small business is always risky, and the chance of success is slim. According to the U.S. Small Business Administration, roughly 50% of small businesses fail within the first five years. As unpleasant as this fact is, you need to keep it in mind when planning your business. Keep your costs and investments as low as possible. Don’t risk money you can’t afford to lose. We’ve all heard the stories of overnight millionaires making their fortunes in real estate or the internet. What you don’t hear is the stories about all the failed dreams and lost money. Remember the Vegas Rule: Never put any money on the table that you can’t afford to lose.
In his book Small Business Management (West Publishing Company February 1983), Michael Ames gives the following reasons for small business failure:
- Lack of experience
- Insufficient capital (money)
- Poor location
- Poor inventory management
- Over-investment in fixed assets
- Poor credit arrangements
- Personal use of business funds
- Unexpected growth
You also have to be aware of established or even new competition. And what about low sales? If you can’t convince your customers to buy your products…well, that’s a problem.
This information isn’t meant to scare you, but to prepare you for the rocky path ahead. Underestimating the difficulty of starting a business is one of the biggest obstacles entrepreneurs face. However, you can increase your chance for success if you are patient, willing to work hard, and take all the necessary steps.
On the Upside
It’s true that there are many reasons not to start your own business. But for the right person, the advantages of business ownership far outweigh the risks.
- You will be your own boss. You will decide how to run the business, what customers to serve, etc.
- Hard work and long hours directly benefit you, rather than increasing profits for someone else.
- Earning and growth potential are far greater.
- A new venture is as exciting as it is risky.
- Running a business provides endless challenges and opportunities for growth.
Starting a new business is risky, especially in today’s economy. However, with proper planning it can be a wildly enjoyable and profitable ride. Do your homework. Take advantage of all the resources out there, like the Small Business Administration (www.sba.gov) and SCORE (www.score.org). Be creative in your thinking. Follow the rules and do what you have to do, but don’t be afraid to tweak accepted wisdom and do things your way. There’s two easy ways to find an idea for starting with your first venture. One way is to build a business around something you are passionate about, like photography, for instance. The second way is to find an existing need, then find a way to fill it.
Think out-of-the-box. Be creative in your thinking. Be passionate. Be different. Find a way to stand out from the crowd.