BEFORE YOU QUIT YOUR JOB TO START A BUSINESS…
ASK YOURSELF THESE FIVE QUESTIONS.
Of the 543,000 new US businesses that open every month, about half are still in business after five years, according to the Bureau of Labor Statistics (Entrepreneurship and the US Economy.) To be fair, not all of these businesses failed. Many were consultants who closed their solo practice to rejoin corporate employment or retirees who closed a non-sellable business. Most sources point to inadequate funding and poor cash flow as the main causes of business failures which is akin to saying the patient died when his heart stopped. Others link the flops to the owners’ flaws, misguided decisions, and egos in the way of getting help. Yet, among half of the businesses that still exist after five years, many owners beat these dismal statistics and enjoy an extraordinary livelihood despite their initial limited business background and capital. On the other hand, I have encountered owners who had to close shop yet were business educated and well-funded, indicating that the owners’ shortcomings are also not a reliable cause of business failure. This begs the question: beyond their owners’ having adequate business skills and enough capital, what else might improve the success of small businesses?
Disconsolate owners commonly lament that they had no idea how “hard running a business” would be and that the daily requirements of their chosen enterprise make their lives miserable. Yet, these same “hard to run businesses” prove to be successful for others who enjoy their entrepreneurial lifestyle. While coaching dozens of business owners, I noticed a recurring theme. Those who pick a business that is matched to their strengths, and their vision of a satisfactory life with that business, are more resilient, more creative, more successful, and happier. So, how does one start the right business? By first asking the right questions.
It begins with you.
This discussion sheds light on what existential questions all aspiring small business owners should consider to best position themselves for success when making the major decision of starting a business, should it be an independent startup, a turn-key concept, or buying of one that is for sale.
I cringe when an aspiring entrepreneur only describes the economic and social merits of a business they want to start from an idea or buy. This is what I wonder: How does he know this is the right business for him? Does she understand all her other options, some of which might be a better and easier way to get the life she wants?
The majority of aspiring small business owners focus on vetting their chosen business: its profits, its market, its business plan. And who can blame them? Even business schools only teach due diligence methods, projections of return on investment (ROI), and how to pitch an idea to venture capitalists. While this makes complete sense for a venture capital-funded startup, it misses many points for small to midsize owner-funded businesses. Small businesses are a huge part of the American dream and social mobility. Small businesses account for 2 out of every 3 jobs in the US! Certainly, the economic viability of a business is a crucial priority. But beyond that, business ownership is, above all, a vehicle to create a good life for its owners and family with the freedom to prioritize who and what is most important to them. If you are considering starting a small business of any kind, you might notice that while your index finger points at one business idea or another, three fingers are pointing right back at you. Thus, let’s begin with you.
- First, gain clarity on your vision of your ideal existence and understand your life’s objectives.
- Then understand all of your strengths and competitive advantage.
- Only then, research viable businesses that are in alignment with both above.
1 — What makes you want a business?
Do you gravitate towards owning a business because you seek to learn new skills? A business can do that. Do you enjoy the game of competition and collaboration? A business can do that. Do you like having the freedom to make your own decisions? A business can do that. Do you like developing others to their potential? A business can do that. Are you fed up with glass ceilings, grueling hours, travel away from your family, and “reasons” for a pay that is incommensurate to your amazing performance and sacrifice? Your business will pay you what you deserve. Nonetheless, like with any career, think of the owner’s job description for the businesses you are considering. Is this something that fits you like a glove, or do you anticipate a steep learning curve?
Evaluate the needs for the particular business(es) you are considering. A client who had worked in high technology his entire career decided to open a retail business without digging deep into the role he was about to assume. He found it painfully difficult to hire, manage and retain sales staff and managers in the retail industry. Consider the pros and cons of entrepreneurship. And yes, any quality or skill can be developed, eventually. A great advantage of business ownership is personal and professional growth. As your business grows, so will you as long as you are willing to step outside your comfort zone. But if you pick a business where you need to acquire completely new professional knowledge, will you be able to learn these new skills fast enough for the business to survive? If not, you have several options:
- You can reserve a greater working capital sum so that you can operate the business while you acquire the knowledge needed to ramp up the business. Depending on the business, this might be very expensive.
- You can also speed up the process and avoid mistakes by hiring a business coach who will guide you while you acquire new knowledge. Borrowing someone else’s knowledge while you ramp up and learn often is the most economical alternative.
The new skills you need to learn to run that business on your own have a price tag, not just in training but in the time it takes to become proficient. In other words, if learning new skills stretches the timeline to business profits, the more costly it will be to keep the lights on in your business and in your life.
2 — Who are you?
Self-awareness can be difficult for most of us. We are usually more self-aware of our limitations than of our brilliance. Buried in your résumé is a gold mine of enlightening clues: the roles you had, what you learned, what you liked, and what you disliked about each experience. Think of what tasks you do well while others struggle. Here are a few examples:
- What indicators do you have in your effectiveness in teamwork, or do you work better solo?
- How likely are you to influence others with or without an official badge of authority?
- Beyond your work experience, what is your typical behavior when it comes to change, to analytics, to relationships, to leadership? A psychometric test such as DISC is a helpful tool to assess your current strengths.
- How you communicate and process information might point you to a sales-oriented business.
- How you handle changes might direct you towards a project-oriented business.
- A common example of a poor fit is of an entrepreneur who is an introvert yet starts a home-based consulting practice that requires her to find customers through business development activities. Lured by low startup costs and overheads, many consultants inadvertently choose or buy, a venture requiring that they overcome their weaknesses instead of one that leverages their strengths. Eventually, they will realize “they had no idea how hard running this business would be.”
- Identify your genius zone, which is somewhere at the intersection of where you excel and what you genuinely enjoy. Everything else should be avoided, delegated, or outsourced.
These are difficult questions to answer alone. The right coach will show you what you might not be aware of and what is holding you back.
3 — What is the right path to business ownership for you?
Consider the pros and cons of the three paths to business ownership: creating an independent startup from an idea, acquiring a for-sale business, or developing a turnkey concept such as a franchise or a business opportunity. Pick the easiest one for you. Each path has a long list of unique features, benefits, and downsides. Aspiring entrepreneurs who objectively and thoroughly examine the pros and cons of each business path, before jumping in, gain tremendous education and can avoid costly strategic errors in identifying the best business for them. At OPEN FOR BUSINESS, our framework to minimize risks and get to profit faster is a business plan titled “ Right Business Right Life. The business plan’s roadmap has 4 stages: research, vetting, planning, and the launch. Each stage has milestones to guide you in avoiding expensive mistakes and launching your business on a rock-solid foundation, should it be an independent startup from an idea, a for-sale business that you wish to buy, or a franchise that you decide to develop.
- Starting a Business from an Idea:
With an independent startup, you have the complete creative freedom to develop your idea for a product and business concept. Each decision is yours to make, but the venture might entail greater risks since it is unproven. And it could take years of expenses and opportunity costs before you figure out the right products, the right market, and the right systems. At OPEN FOR BUSINESS, we put the odds and the speed of success on your side with our business plan: Right Business Right Life. In addition to ensuring that you start the right business for you, it guides you on how to prove your idea for your independent small business startup idea so that when you are ready to launch it, you hit the road running.
- Buying an Established Business:
If immediate cash flow is your top priority, you might consider acquiring an existing business that is already profitable. Here, as an entrepreneur /investor, you have an opportunity to examine its historical performance and make your own projections. However, you will have less creative freedom in the short term and sometimes less potential to build additional equity from your initial investment. If the business is fully optimized, the seller is cashing on the equity you are willing to pay in exchange for cash flow. In addition, finding the right business to buy can feel like drawing of straws. Although there are many businesses for sale, finding one that is successful in the sector of industry and geographic area of your choice can take months or even years. If you are nearing retirement or you prefer a plug-and-play concept, you might consider the acquisition of an already profitable independent business or the resale of an already developed franchise location. At a theoretical lower end of the risk-taking spectrum, a franchise resale can provide you both existing cash-flow, proven concept, and location with the support, albeit also the control, of a franchisor. Again, the OPEN FOR BUSINESS Right Business Right Life Business Plan shows you how to vet a for-sale business that you might consider investing in.
- Developing a Turnkey Concept:
If you are new to business ownership, or you feel uncertain about your current abilities to operate a business, you might consider taking a shortcut by beginning your business ownership career with a new franchise concept where, in exchange for the franchise fee and royalties, you get to leverage the systems, training, and support provided by the franchisor. Keep in mind that a franchisor will not give you a history of financials like the seller of an existing business would. However, there are ways to validate the viability of franchise concepts taught in the Right Business Right Life Business Plan. To some, franchise ownership can offer the comfort of a proven concept, the opportunity to develop business skills, and often in an industry that is new to them. New graduates who do not have a technical or business degree to land a decently paid corporate job, and those who have access to a relatively small capital might appreciate how a franchisor’s self-interest in their success will provide foundational training for a nascent career in business. Graduate school applicants might even compare the ROI in a franchised business versus the tuition for an MBA or other graduate degrees. Many successful independent business owners had first been franchisees who sold their successful franchise unit(s) to launch their first innovative startups.
Again, none of these business ownership paths is intrinsically better or more guaranteed to succeed than others. Each has unique pros and cons and requires a specific way to vet its economic viability. What makes each ideal depends on how aligned they are with you, your strengths, your objectives, and your life vision.
4 — Do you want to own a business or be owned by one?
Contrary to popular opinion, solely aligning your hobbies or your passion for cars, clothes, beauty, food, or cool apps with your choice for a business is usually unwise. Perhaps you are excellent at fixing cars, selling clothes, providing beauty services, giving yoga classes, making food, or developing apps. However, running a business successfully consists of spending your time strategizing, systemizing, networking, and growing it. Being the key or sole producer of revenues in your business is precarious. If you bootstrap your business and you need to run it AND provide its services or products for a while, growth will be slower but still possible depending on your stamina. Consider the opportunity costs of time spent doing everything, especially if there are overheads such as rent and other fixed costs. Ultimately your vision should be to wean your enterprise from you as a producer. Otherwise, you just bought yourself an expensive job. Eventually, you, and your loved ones, will resent the exhaustion of doing it all. If you want a business for freedom and a lifestyle that you enjoy, be sure to pick a business where you can grow it without relying on your sole input to generate revenues. A small business where you are the sole producer of revenues is not scalable.
Another key element to consider before choosing a business is the equity you want to build and your exit strategy, a rare thought in the mind of many first-time owners. If you are the main revenue producer, it’s unlikely that the business will build any equity. Revenues that depend on your individual contribution will disappear once you exit the business and sell it. Are you seeking to cash in your hard work of building a business in some years and sell it for multiples of its discretionary earnings? If so, ensure you are the leader in your enterprise and make the conscious decision of growing an optimized business machine.
5 — What life do you really want?
There are no reasons to approach business ownership like a corporate job that dictates much of its employees’ lives. Yet, most first-time owners are so programmed to making their life fit their job that they continue to live that way even when in business for themselves. Two key reasons to own a small business are the freedom and flexibility it can offer if you choose the right concept for you. I have met entrepreneurs who did not first consider their business’ activity cycles and seasonality and became increasingly dispirited when discovering what they had signed up for. Consciously pick a business that will cater to your ideal life. Not one where you will need to arrange your life to accommodate its needs.
Many aspiring Main Street entrepreneurs are so dazzled by the prospect of striking it on their own that they focus all of their research and planning on making the business work instead of first identifying a business that will work best for them. These entrepreneurs eventually fail to create a successful life because they focus on finding the “hot” idea, concept, or trend, or are sold one. Soon they discover that their business dream is a nightmare. Yet, when choosing the right venture for you, small business ownership can be an exhilarating career that gives you the freedom to craft a life of your own design and plenty of room for personal and financial growth. For greater success and happiness in life via business ownership, take the time to exercise due diligence with the research, vetting, and business planning, before you jump in and invest. Seek to be self-aware of your strengths and your blind spots and have clarity on the life you want. Then align yourself with a business that can do all that.
If we haven’t met yet I’m Patricia Bottero St-Jean, I am a Start-a-Business Coach at OPEN FOR BUSINESS, which is a business research lab. I am a huge fan of freedom, of hiking in the mountains, and of small businesses. If you are considering starting a business or buying one, don’t do this alone. I will help you create your business plan to faster profits. I’ll be your guide and accountability partner in your research, in vetting, in planning, and in launching the right business for you so that you can start it on a rock-solid foundation, and so that you can build a great life for you and your loved ones.
Book a free strategy call with me, and let’s discuss your small business project.