Hey there, Freedom Seeker! Welcome to the exhilarating big sky of small business entrepreneurship! I wrote a book for you. This book reveals the Unbiased Small Business Research Formula developed from decades in the trenches of American Main Street and online business as a small business entrepreneur and a coach. Its objective is to help you become the successful creator of the new life you envision by objectively guiding you in researching and choosing the right business. In the next weeks, I’ll share free sections of the book with you before it’s released for publication and available for purchase. CHAPTER 4 – Where You Side-Step Six Inherent Biases of Small to Midsize Enterprises (SMEs) Fortunately for serious minds, a bias recognized is a bias sterilized – Benjamin Haydon The first and most critical stage of getting into business for oneself is the early stage of deciding to become a small business entrepreneur and what business we choose. Yet, most spend more time researching the purchase of a vehicle than plotting their life with the business they seek to create or buy. Initial research is the most overlooked stage of small to midsize entrepreneurship. There is nothing worse for a new business owner who invests time and often their life savings on a venture, just to realize one year, two years, or five years later that they hate their life as the owner of that business or that they are disappointed with its outcomes. The reason for their disappointment is typically a combination of these four: time, money, people, and purpose. Surprises are the outcomes of misaligned expectations with a particular business because an aspiring business owner skips or skims the early stage work of research and vetting. It’s not entirely their fault. The sector of small business entrepreneurship has inherent biases that can derail any venture. I promise that in sections II and III of this book, I’ll share with you a thorough investigation of the research stage of the Right Business Right Life™ formula (RBRL). But first, let’s examine the common traps that can lead anyone to make the strategic error of betting on the wrong horse, the wrong business, or choosing to stay in an unsatisfactory career. As the famous painter Benjamin Haydon quotes: “…a bias recognized is a bias sterilized.” #1: Business low barrier to entry, a blessing, and a bias Starting a business is easy, right? In the land of opportunities, anyone can start a business. Administratively, all we need is to pay roughly $100 to get a business license from our city, and boom, we are officially in business. We can even easily set up our own LLC, even though having an LLC does not mean we have a viable business. Conversely, to gain employment in any company, we must cross several barriers to confirm that we are a good fit. Besides having the right education and experience shown on our résumé, there are applications, interviews, assessments, and background checks to reveal our ability to get the job done. There is no such qualifying process in the business world for anyone with an entrepreneurial itch. That’s where the trouble starts. When we are the lone decision-maker in creating a business from an idea or buying one, we are prone to making poor decisions or being influenced by the wrong people, especially when we don’t know what we don’t know, which is all of us when we start a new entrepreneurial path. Relying on trial and error IS what makes business ownership hard. It’s the reason small business ownership gets a bad rap as being “too risky.” It’s why most small business owners work really hard. Harder than they should. They work hard to fix the mistakes caused by trial and error instead of research and due diligence. It is unfortunate because owning the right business for the life we want is a remarkable way to live. It is easier and less risky to be in business for ourselves than to be at the whims of a company that can lay us off any Friday. Only YOU can fire YOU when you own your business. Business ownership can be easier IF we get into the right business for the life we want. Proving that both owner and their business are a good match for each other is the first and most strategic decision that makes your success more likely. Effectively this is what we do in the research stage of the Right Business Right Life formula. We unbiasedly prove the viability of a business with its owner before we focus on vetting that it will make money. Meet Joseph, who jumped into starting a business too fast but leveraged the setback to create the right business and right life for himself and his family. Joseph, a diligent loan agent for a big-city bank, had lost the interest he used to have for his job. He was tired of the endless paperwork and hustle of the banking world. All the while, he nurtured a dream – a dream of golden, paper-thin crepes, a fragrant memory from his childhood. Raised on the heartwarming tales of his French grandmother, Joseph held dear their recipes, each one a delicious artifact of his heritage. He fondly remembered his grandmother’s stories from her youth in Brittany and how she learned to make the perfect crepe, her skilled hands flipping the rounds with practice. On a Tuesday at the bank, Joseph found himself entangled in an unjust claim. A client accused him of a mistake he hadn’t made. His manager sided with the client, leaving Joseph feeling betrayed. Fueled by the sting of this incident, Joseph handed in his resignation letter. In a whirlwind of excitement, he impulsively rented a quaint brick-and-mortar shop downtown. He envisioned ‘Chez Joseph,’ a charming creperie that served his family’s authentic French crepes. As he stepped into his dream, the new business owner realized his former life hadn’t prepared him for this. The world of loan paperwork seemed trivial compared to negotiating with vendors, managing inventory, setting up a menu, attracting customers, and keeping them happy. The weight of being a business owner, a dream that once seemed so exciting, began to turn into a stark reality. Diving headfirst into his venture, Joseph had overlooked one crucial element – the research needed before starting a business. He had assumed that his love for crepes and his family recipes would be enough to ensure his success and happiness. Even though he had vast experience reviewing business plans for his commercial loan clients, his training as a loan agent had not prepared him for the reality of managing a restaurant and its employees. He had to juggle the roles of a boss, mentor, conflict resolver, and sometimes, counselor. The employees, with their distinct personalities and unique problems, were not as easy to handle as loan files. His days were long, starting before sunrise to procure fresh ingredients, and ending late into the night, balancing books and managing inventory. The dream of freedom he associated with entrepreneurship felt like a distant memory as he found himself trapped in a cycle of endless tasks that now seemed futile. It was a harsh wake-up call for Joseph. He had overlooked the importance of fully understanding his day-to-day role as owner of this particular type of business and the life that it gave him. When I met Joseph, he was selling his business for a fraction of what it cost to build it. I could see the exhaustion etched deeply on his face. I could relate to his pains. Fortunately, he had not given up his entrepreneurial dream. Together we set up to research a better business path that was more compatible with his strengths and with the life he wanted to have. A year later, Joseph started a company that allowed him to merge his financial acumen and love for food into one cohesive entity. The business model is a digital platform dedicated to budding food entrepreneurs. Here, Joseph helps these new entrepreneurs navigate the challenging world of starting and financing their own food-based businesses. By marrying his skills as a loan officer, his experience as a food entrepreneur, and his passion for storytelling, Joseph created a scalable niche business. Plus, operating as an online platform meant he could manage his work hours effectively, with the flexibility he craved for his family, hobbies, and community work. #2: The biases of business education. Business schools focus on the economic viability of a business, never on how it might fit its owner’s skill set and life priorities. They teach students to be successful corporate employees of big companies. Years after I had built my successful Main Street bootstrap, I attended business school because I thought it would make me a better small business leader. My classes taught business administration at a macro level. Case studies of trade with China, or IKEA’s attempt to expand in Russia are fascinating topics, but I didn’t learn anything practical to succeed as a small business owner in the trenches of Main Street. Actually, a mom-and-pop business was essentially looked down on as inconsequential. Interesting considering that almost 50% of the US Gross Domestic Product and half of our jobs are generated by small businesses. The assumption is that what works for big businesses sure is going to be suited for small businesses. Business schools concentrate on turning innovative and disruptive ideas into scalable, venture-capital-funded businesses that will make their shareholders financially happy. Unlike a small business, a VC-funded business is not about the good life of the founder. It’s about investors’ return on investment. I find it ironic that if business education really is about learning to maximize a return on investment, it contradicts its own existence. Investing $ 100K to over $ 200K in the right small business often yields a better return than getting in debt for the same amount for a college education, in the United States at least. I believe colleges should teach both small to midsize enterprises (SMEs) and big business success. Not everyone can or wants to create the next Facebook, Amazon, or Tesla. If business schools taught SMEs, the principles introduced in this book on how to succeed with a small business by ensuring it’s a good fit for its owner and vice versa ought to be part of the curriculum. #3 The startup bias: Are you starting a venture capital funded or an owner-financed small business that might make it big? Do you believe that to succeed, all you need is to find investors for your innovative and brilliant idea? “If only I had investors for my idea” is one of the most frequent excuses I hear from aspiring business owners. In reality, until you have invested your time, money, and energy in your idea, you’ll have better odds of raising money with the lottery than with investors. To find investors, you must research and validate the idea and build a viable business model before pitching it to raise capital. It means creating a minimal viable product sold to a proven market segment of early adopters, showing evidence that the business model can fly. Only then decide if it is the right time to trade ownership and future profits in exchange for capital. In exchange for startup money, as a founder, you’ll give up equity and the freedom to build a business according to how you want to grow it and how you want to live. Even if your ambition is to scale your small business idea, start by putting as much skin in the game as possible, even if it is with debt, so that you get to make the 100% of the decisions for as long as possible. When Sarah Blakely started Spanx in 2000, she had never taken a business class. She funded her idea with her $5000 in saving from her job selling fax machines door to door. Blakely bootstrapped her business for 21 years keeping 100% ownership in the business. It was not until two decades after the initial launch that she brought in an outside investor. When she sold a majority of stakes to Blackstone Equity while retaining significant equity, her company was valued at $1.2 billion. She had started a small business from an idea but retained 100% ownership by reinvesting her own money until it made sense to bring in investors. #4 The financing bias: The SBA and banks approve your loan. Does it mean your business is solid? In the US, the Small Business Administration (SBA) is a government-funded small business advocate. It no longer provides small business financing. Instead, it guarantees up to 70% repayment to the banks that are willing to underwrite SBA loans for small businesses. The SBA and banks require a business plan to prove that the business will be successful enough to repay its loan but also collaterals for loans above $150,000 at the time of this writing (SBA loan requirements change according to Congress’ budgets and priorities.) The loan application might demonstrate that the skill set of the borrower fits the business to be financed. That’s it. Ensuring that the priorities and purpose of the borrowers are in alignment with the business model is not part of the loan application. It is understandable. Banks are not in the life or career coaching business. Furthermore, their risks are mitigated with both your collaterals required to back the loan and the SBA guarantee that 70% will be reimbursed to the bank in case of your default. Your 30% cash downpayment covers the rest. Unfortunately, it usually gives the new business owner the false impression that getting a loan approved intrinsically proves that the idea is vetted or that the business or franchise you are buying is a good choice and that you’ll succeed. It doesn’t. It just demonstrates that the bank has confidence that it will get its money back one way or another: from the SBA guarantee or your collateralized assets, or both. Furthermore, even if the company can be profitable, it doesn’t mean that it is the right fit for you or that you will be happy and successful with it. An SBA loan is a great financing tool. But before you jump into writing a business plan, get into debt, and use your home to guarantee a loan, verify with research that the venture is the right one for you and the life you want. #5 The acquisition market biases: How business brokers and franchise consultants are incentivized. Instead of starting a business from the ground up, you might consider buying one. In this case, you have several options, each with its unique advantages and disadvantages, which we will get into greater detail in later chapters. Here I just want to point out one systemic market bias that might cause us to pick the wrong business. It has to do with the process of buying a for-sale business or investing in a franchise concept and the stakeholders’ self-interest. Buying a business with a broker. Suppose you are considering buying a cash-flowing business instead of starting one from the ground up. You reach out to a brokerage firm to find a business for you. The broker readily accepts to find you a business to invest in. A few weeks and months pass, and you are nowhere close to finding a business you like. You realize that most of the businesses the broker shows you are theirs or their company’s listed businesses, which means they are in contract with the sellers. Like many first-time business buyers, you’re about to learn that the business brokerage sector is set up to work for the sellers, not for the buyers of businesses. Business sellers pay a significant commission -usually around 10-12% of the business’ negotiated price- to their listing agent, who will then split the commission with the buyer’s agent if there is one. You’ll find that most successful brokers prefer to work with sellers, not buyers of businesses. It is an imperfect system for the buyers of businesses. Even if, as a buyer, you find a broker who agrees to research businesses for you at no upfront cost, you’ll learn that they are incentivized to accomplish one outcome. Their goal is to sell you any business you are financially qualified to invest in, preferably one they are listing, so that they can get a full commission for their time. What does this imply? The broker is not here to ensure you buy the best business for the life you want to have. Or that the business is in perfect alignment with your strengths. It simply doesn’t matter to any of the brokers and, to some extent, to the seller if the company you’re acquiring is the right fit for you. Their job is to introduce business buyers and their business listing client (the seller) to each other and ensure that the commercial transaction is completed on a solid legal and administrative footing and avoid future lawsuits. It is an effective system but flawed. The commission system that compensates business brokers is meant to ensure a successful transaction on behalf of the sellers. A business broker’s responsibility is to provide the opportunity for a sale and legitimacy to the transaction. Again it doesn’t imply that they know what your best long-term interest is, nor if your strengths are aligned with the right business for you. Don’t assume that having a friendly business broker representing you as a buyer will ensure that you are buying the business that makes the most sense for you. You and only you can do this. Hence it is critical that you have the right information to make a savvy decision. Better yet, have a framework in place (one like the Right Business Right Life formula) to help you pick the right opportunity for you. Investing in a franchise with a franchise consultant. Franchising offers an alternative option between starting a business from scratch and investing in a business model. Franchisors invest significant resources to attract potential investors/franchisees into their network. They employ in-house franchise developers and often collaborate with independent franchise brokers, also called consultants or coaches. Note that most franchise consultants have no prior business ownership experience, and unlike business brokerage, there are no State licensing or educational requirements to become a franchise consultant. Similar to business brokers, consultants receive a commission or finder’s fee when they introduce potential investors that become franchisees. Like business brokers and agents, franchise consultants provide their services to potential buyers at no cost, as they are compensated by the franchisors upon a “successful placement” through finder’s fees, typically ranging from $10,000 to $100,000+, based on their agreement. However, it’s important to note that these consultants/brokers face risks as their compensation is not guaranteed if you, as the potential franchise buyer, decide not to invest in any of the few franchises they have presented to you. Consequently, their “free” time to assist you in selecting the best franchise for you is limited. While most strive to find a suitable match, their vested interest, like that of brokers, is to guide you toward buying any franchise as quickly as possible. Additionally, franchise consultants are constrained in presenting franchises solely from their “vetted” network, usually consisting of around 300-400 unique franchises out of the thousands available. If you invest in a franchise outside their network, or even one in their network that they have not officially presented to you, the consultant does not receive any compensation for their time. Therefore, they are incentivized to place you only in any franchises they have “shown” you, regardless of its suitability. The process of buying a franchise with a consultant is effective up to a point, but it is not impartial. Note that business brokers and franchise consultants have a place in the market. They provide a useful service as intermediaries. However, how their service is compensated is biased and doesn’t guarantee impartiality which can lead to disastrous choices for you if, as a new business owner, you are not informed. Before launching OPEN FOR BUSINESS, I spent several years working as both a franchise consultant and a member of a business brokerage firm. While I don’t regret these experiences, they were eye-opening and left me dissatisfied. The limited access to “vetted” franchises hindered my ability to serve my clients fully, and the business brokerage model I was involved in didn’t align with my values. During my time in the industry, I realized that while franchising can be a suitable path to business ownership for some, it can prove disastrous for others. I discovered a multitude of franchise concepts, some excellent, but many others turned out to be scams or, at best, provided minimal value in exchange for the hefty franchise fees and royalties paid. Furthermore, I observed that certain well-known and popular franchises mistreated their franchisees in legal yet unethical and harsh ways, often resulting in the franchisees losing their investments and filing for bankruptcy. Upon leaving the brokerage and franchising world, I was determined to create an impartial framework that would assist business owners in finding the most suitable form of business ownership for their goals and life vision. This led me to develop the Right Business Right Life formula, and subsequently, I launched my company, OPEN FOR BUSINESS LAB. My ultimate goal is to equip aspiring business owners with objective and unbiased resources to help them succeed regardless if they decide to create or buy a business or develop a franchise. #6 The knowledge bias: The curse of not knowing what we don’t know until we know it. According to Martin Broadwell, there are four stages of learning: In every new endeavor we undertake, we don’t know what we don’t know. Likewise, most of us who start or buy a business for the first time have been employees our entire life. We likely have great expertise in other areas but lack the awareness of the realities of small to mid-size enterprises (SMEs) from an owner’s perspective. We are either in the first and second stages of unconscious incompetence or conscious incompetence and are likely to follow our intuition about starting a business or heed the advice of others who are biased or inexperienced. The only person who can determine if a particular business is a good fit for you and vice versa is YOU. This is why it is critical that you become acquainted with the opportunities as well as the dangers of SMEs before you pick a business and take the time to investigate. Even though I started and grew a business over two decades, I didn’t truly understand how the sector of SMEs operated. I was too busy in my myopic life running my company. It was when I worked in franchising and business brokerage that I saw the bigger picture of the good, the bad, and the ugly. Small business ownership can appear deceivingly simple to the outside world. Whether from being employed by a small business or being customers, most of us have a warped view of each business type. When I operated my brick-and-mortar spa business, friends, family, and outsiders would romanticize my life as a business owner. They imagined that I would spend my days wallowing between luxurious facials, steam baths, and mani-pedis. Observing and patronizing the small businesses we interact with on a daily basis only reveals the tip of the iceberg. It is easy to make assumptions about what our life will be like as an owner until we are actually in the trenches of owning and running the enterprise. Unless we make a conscious effort in early-stage investigation, most of us operate with our own risky biases that expose us to unpleasant surprises. The objective of the RBRL formula is to guide you to become the creator of your successful life as a business owner. Once you are equipped with its impartial framework, you will be immunized against the pitfalls and marketing narratives of small to mid-size enterprises. You will make savvy business decisions to consciously and competently start a business that aligns with your values and can be the vehicle for the life you and yours enjoy. Would you like early access to your copy of the book as soon as it is released and receive a bonus book companion coaching session? During the private coaching session, I’ll guide you through the exercises and templates in the book. Available to the first 20 VIPs who purchase the book. To join the VIP waitlist, click here. Getting started If this is you…[Free Book Preview #6] ~ RIGHT BUSINESS RIGHT LIFE™ – From Fed-up Employee to Freed-up Entrepreneur
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