I’ve been analyzing entrepreneurs who run into problems during their business startup phase for a multitude of reasons. One of them is, obviously, so I don’t make similar mistakes. Another reason is to find patterns in what these business people were doing and doing wrong. What I would notice was not that they didn’t have the potential to be successful entrepreneurs, but that they weren’t ready for the tasks at hand.
Per the Bureau of Labor Statistics, 65% of all small businesses will make it to their 2nd year. About less than half will manage to stay alive past 4 years. Of that small percentage reaching their 4th year, 56% of these small businesses with staying power will continue to move full steam ahead, while the rest will be barely keeping things together.
My take is that those entrepreneurs who couldn’t make it past their 2nd year truly didn’t realize how rugged this battlefield called “Entrepreneurship” really is. They’ve digested strategy and tactics in the comfort of their own homes and/or classrooms. Some could even retell the stories of how great companies collapsed. Unfortunately, many will not apply this information to their own businesses and projects. And even if they do, it’s all theory. Tactics and strategies are great, don’t get me wrong, but when you are in the trenches with a rifle, anything can happen. Theory can’t prepare you for the unpredictable nature of this war zone.
The best way to reduce the odds of seeing your pride and joy become defunct is to be ready to step into the shoes of a businessman/woman. Ask yourself these questions.
1. Are You Mentally Prepared?
I would say that I’m pretty street smart, considering where I grew up. Entrepreneurs who are street smart at some point realize that much of the academic education they obtained, especially in college, is most useful for being employees to others, more so than being their own boss. It’s indoctrinated into all students starting with elementary school. You are groomed by parents and society to be an employee to folks like me and others who are likely to gravitate to this website, including yourself.
Going against the grain and making the transition to entrepreneurialism seems easy when you initially think about it. “I can tell people what to do for a living.” “I can handle inventory.” Sure, but being your own boss as well as the leader of a budding organization is a bit different and requires a mindset as well as some skill. As an employee, you played checkers. As an entrepreneur, you’re playing chess. Planning, thinking ahead and making sacrifices are things the typical business owner deals with.
What do you need to do to be mentally prepared?
Besides daily affirmations, you need to wake up every day feeling capable. Wake up feeling like the boss. Tap into that confidence that comes from the “why not me” school of thought. Because seriously, why can’t YOU start and run a successful business?
I would continue giving you flowery generalities, but instead of loading this article with fluff, I’ll tell you what I did. Many of these things are repeatable.
I made sure I spent time around fellow entrepreneurs. I would even sit around and talk shop with them. At the time, I couldn’t relate, but I knew I was being groomed to be a businessman. In a way, I was shadowing business people.
Another thing that I did was apply a business model to my life. Sounds crazy, I know, but it’s true. I would schedule everything from visits with friends to meal times to when I would and wouldn’t watch TV. I even worked on building stronger relationships with friends, family, and associates, as if practicing for networking events. It would get exhausting not being able to live spontaneously, but it got me used to time management. I got better at conversation, which helps when networking. Budgeting things down to the penny helped me be more accountable for my investments, m profits gained and losses accumulated. Being the leader or second in command at family functions allowed me to practice keeping people organized and motivated.
Be prepared to run a business by living your life like a business.
2. Are you planning for realistic growth?
The root cause for many businesses falling apart is because they focus on being the market leader of everything, subsequently spreading themselves thin.
“How”, you may ask.
Many driven and well-meaning entrepreneurs will jump into business expecting to be a one stop shop in their industry, from day one. You gotta slow down. In hindsight, even I didn’t want to listen to that advice when I was younger.
Deep down, you want to go big because, to you, being a “small” business owner is only temporary. For many, what that translates to is over extending themselves, and their company’s resources. I realize that now. The way I handle that problem is to have a business plan with amendments to it. Once certain conditions are met, I move on to a different version of the business plan I’m working on.
The way I do this is to start off with a full business plan. This plan would detail how I would want my business to look and operate in 8 to 10 years and what steps will get me there. Then I shave off objectives that I wouldn’t expect to have completed in 5 years and rewrite the business plan again. Then, for my two-year business plan version, I would have only the objectives that would realistically be met within 2 years.
For an example, I’ll use my clothing project. In the first 2 years, my objectives would be to establish the brand, focus on designing a single article of clothing (shirts), amass good, sellable designs that can be used now and into the future, and apply a heavy web based marketing campaign before infiltrating 3 to 5 of the most influential clothing markets in the US. My last objective would then be to sell my products until sales reached a consistent level of growth, allowing me to begin expansion (Biz Plan 2).
Primary plans should focus on constructing the business, ensuring it remains scalable, and be the best at 1 or 2 things, initially.
Starting a cleaning company? Start with cleaning storefront windows and floors for the first 2 years. Want to start a restaurant? This may sound counter-productive, but only stay open 1/3 of the day and serve dinner. Did you want to get into the bakery business? Be the best damn pie and pastry maker on your side of the country, before eventually expanding to fondant wedding cakes.
The idea is to avoid over extending yourself and depleting your funds, especially in your first 2 years.
3. Are you ready for the unexpected?
Without repeating myself too much, the way to avoid losing your business and your shirt is to plan and plan and plan. And plan. Have a backup plan even. A plan B. Have a plan B for your plan B. I know I’m going over the top right now, but as I mentioned earlier, you’re playing chess. If you were expecting your only rook and bishop to corner for a checkmate, only to lose your bishop trying to protect your king, you should have already moved other pieces expecting to get a checkmate without one or both of your key pieces. Yes, have a business plan, but also have an alternative agenda should things go wrong.
You just started your bakery, and you discover that a larger percentage of your market dislikes your flagship apple pie filling recipe. A recipe that you invested a lot of time in developing from scratch with the help of your aunt and grandmother. What will the outcome be for you? Will you continue selling the pie for the smaller percentage of your customers? Will you drop the pie to avoid building a weak brand around a horrible tasting pie, and proceed without a flagship item? Or will you have 2 other apple pie recipes that you can try, giving your customers the chance to decide which to use?
Because anything can happen, you have to be ready for, well, anything.
4. Who’s in your corner?
Using boxing as an analogy, your network is your corner guy.
The corner man helps the boxer mentally prepare and even physically prepare for the fight ahead. Depending on your network, the people within your network can do the same thing. They can provide insight into a challenge you have yet to experience and provide access to resources when you need it just as the corner man provides electrolytes to hydrate the fighter and Vaseline to reduce injury.
The boxer’s trainer would be the equivalent of your mentor or advisor(s). Your mentor keeps your head in the game, so to speak. He develops you to be an entrepreneur and provides advice to help you manage challenges.
Your network and your mentor together would also be the equivalent of your cut man. When you are getting your ass kicked, these guys (if they are capable and loyal) will help you with damage control. They may or may not be able to help you with funding, but they can possibly connect you with a source of funding, saving your business from being TKO’d.
Not one successful business person has made his millions being a hermit. Whether you actively attend networking events, or you meet fellow entrepreneurs in Starbucks, you are networking when you exchange business contact info. It happens everywhere. Make sure you are getting involved in it.
5. Do you have enough funds?
This question is very self-explanatory. But it also falls in line with the above question regarding planning.
Do you have enough money to cover your business endeavors, and a personal “survival fund” in the event that you are 100% self-employed? What about reserves to keep your company from bankruptcy?
Make sure you have 2-3 years worth of critical monthly expenses (food, shelter, phone) saved up first if you plan to quit your 9 to 5. Then, if you can, cut your expenses and pay off outstanding debt. That should give you some breathing room in the event that something unexpected happens.
A common folly that destroys startups is an entrepreneur’s expectations of keeping their business running with generated income within the first year. How do you know for certain that your company will cross the break-even milestone so soon? It can take anywhere from a year or more before your company becomes profitable. And even when you reach that milestone, it may be a better idea to reinvest to spur growth. Making a salary from your business is the goal of going into business in the first place, but don’t starve your company of necessary funds to pay personal bills you should already have reserves for.