It Begins with You: Five Existential Questions Every Entrepreneurs Should Ask Before Starting a Business.
Only half US small business startups survive beyond five years. Many fail due to the owners’ inadequate skills or insufficient capital. And while other owners might have the necessary abilities and funds to succeed, they mistakenly choose or are sold a business that is not in alignment with their strengths and their life’s objectives. This discussion seeks to shed light on what existential questions aspiring small business owners should ask to best position themselves for success, and before they spend significant time, money and energy in starting any business, should it be an independent startup, a turn-key concept, or the acquisition of one that is for sale.
Of the 543,000 new US businesses that open every months, about half are still in business after five years according to the Bureau of Labor Statistics (Entrepreneurship and the US Economy.) To be clear, not all of these businesses failed. Many were consultants who closed their practice to rejoin corporate employment. Still many sources point to inadequate funding and poor cash flow as the main causes of business failures. Others link the flops to the owners’ flaws, misguided decisions, and egos in the way of getting help. Yet, among the half that still exist after the five years, many of their owners beat these dismal statistics and enjoy a great livelihood in spite of their initial limited business background and capital. Conversely, many who fail are business educated and well-funded, which begs the question: beyond owner’s adequate skills and capital, what else might enhance the longevity of new small businesses?
Disconsolate owners commonly lament that they had no idea how hard running a business would be, and that the requirements of their enterprise made their lives miserable. Yet these same “hard to run businesses” are proved to be successful for other entrepreneurs. Misaligned expectations often show that these owners picked the wrong business for who they are and what they want. A case in point, in the franchising industry franchisors who have identified the ideal persona of a successful owner in their system request that franchise candidates take a behavior assessment test to help ascertain that the candidates’ strengths fit the requirements of their business concept. For independent business startups or for acquisitions there is no vetting process to ensure that a new owner is the right fit for the business and vice versa. This discussion seeks to shed light on what existential questions 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 business, a turn-key concept, or the acquisition 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. Silently, I wonder: “How does he know this is the right one for him? Does she understand all her other options some of which might be better?” The majority of aspiring small business owners focus on vetting the business: its product or service, its trend, its market, its business plan, and even how the business socially looks on them as if it were a fashion statement. Likewise, business schools teach methods of due diligence, projections of return on investment (ROI) and how to pitch an idea to venture capitalists. Yet, as part of the American dream, the small business world is not just about making money for investors. Beyond producing an income, business ownership is also a vehicle to creating a good life for its owners and family. A greater way to increase your odds of success in business ownership is to take two steps back. First, identify your strengths and weaknesses, and second understand your life’s objectives. Only then should you research viable businesses that are in alignment with both. 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, there are three fingers pointing right back at you. Thus let’s begin with you.
1 – Who are you?
Self-awareness is difficult for most of us. 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. What indicators do you have in your teamwork or do you work best solo? How likely are you to influence others with or without an official badge of authority? Beyond your life experience, recognize your personality and typical behavior. Psychometric tests such as DISC, Myers Briggs and others can point to the right business for you based on your personality and behavior traits. How you communicate and how you 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 that of an entrepreneur who doesn’t like to socialize, yet starts a home-based consulting practice that requires her to find customers through business development activities. Lured by low startup costs and overheads, some choose a venture requiring them to overcome weaknesses instead of one that leverages their strengths. Eventually they realize “they had no idea how hard running this business would be” and of its requirements. When it comes to choosing the right business for who you are, the best approach is to focus on your strengths and hire or outsource the rest.
2 – What makes you tick?
Do you gravitate towards owning a business because you like learning new skills? Business can do that. Do you enjoy the game of competing? Business can do that. Do you like freedom? Business can do that. Do you like developing others? Business can do that. Are you fed up with glass ceilings and excuses for a pay that is incommensurate to your amazing performance? Your business will pay you what you deserve. Think of the owner’s job description for the businesses you are considering. However, to each of the pros there is a contra that you might need to embrace. Consider the following psychological demands of ownership of the particular business you are considering:
|The PROS you might like||Come with these CONS|
|Learning new skills.||Making mistakes.|
|Game of competing.||Wasting time and money.|
|Freedom of decision.||Making difficult or unpopular decisions.|
|Developing and managing others.||They may leave for your competition or become your competition.|
|Being in charge of one’s destiny and income.||Must be comfortable with ambiguity and uncertainty.|
Certainly, any of the above traits can be developed. Another advantage of business ownership is personal growth, and as your business grows so will you as long as you are willing to step outside your comfort zone.
3 – What is the right format for you?
Consider the pros and cons of several format in business ownership: a startup, an acquisition, a franchise or a franchise resale. Each has a long list of unique features and benefits matched by an opposite that you need to prioritize. Aspiring entrepreneurs who soberly and thoroughly examined the pros and cons of each business format, before jumping in, gain tremendous education and avoid strategic errors in identifying the best business for them.
In a startup you have complete creative freedom to develop your idea, each decisions is yours but the venture entails greater risks since it is unproven and it may take years of expenses and opportunity costs before you figure out the right formula, the right market and the right systems. As with investing in the stock market, at 20-30 years old you have plenty of years to recover from the ebbs and flows of the economy and from your mistakes as business owner. Although riskier but potentially more creativity and equity rewarding, a startup might still be a good fit for you at any age depending on your comfort with risks and your business ownership experience. Your vision for your brilliant idea could be to scale it and become a franchisor someday since most franchised businesses began as independent businesses that grew and scaled.
If you are new to business ownership, or you feel uncertain in your current abilities to operate a business you might consider beginning your business ownership career with a new franchise concept and, in exchange of franchise fee and royalties, leverage the systems, training, and support provided by the franchisor. To many entrepreneurs franchise ownership offers the comfort of a proven concept and the opportunity to develop business skills, often in an industry that is new to them. New graduates who do not have a technical or business degree to land a well-paid corporate job might appreciate how a franchise can provide a foundational education to a lifetime career in business. Graduate school applicants might even compare the ROI in a franchise business versus an MBA or other graduate degree. It is also true that many successful independent business owners had first been franchisees who sold their successful franchise unit to eventually launch their innovative startups after they cut their business teeth through franchising.
Or, if immediate cash flow is your top priority, you could acquire an existing business that is already profitable. Here you will 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 less potential to build additional equity from your initial investment. Initial cost of your investment will typically be greater since it will account for the equity accrued by the seller if the business is positive cash flow. If for example you are nearing retirement or are at any age but prefer a plug-and-play concept, you might consider the acquisition of a profitable independent business or the resale of a developed franchise location. At the lower end of the risk taking spectrum, a franchise resale can provide you both existing cash-flow, proven concept and location, all with the support of a franchisor.
Again, none of these business platforms are intrinsically more guaranteed to succeed than any other. 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?
Solely aligning your affinities for cars, clothes, beauty, food, or cool apps with your business choice is unwise. Perhaps you are excellent at fixing cars, selling clothes, providing beauty services, making food or developing apps. However, running a business consists of spending most of your time on strategizing, systemizing, networking and growing it. Being the key producer is precarious. If you bootstrap your business and need to both run it and provide its services and products, growth will be slower. Consider the opportunity cost 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 will resent the exhaustion of doing it all and will be unlikely to build any equity since revenues will mostly depend on your individual contribution. You also run the risk of driving yourself and your business to the ground. 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 most first time owners. Are you seeking to cash in your hard work in some years and sell it for multiples of its net income? If so, you will need to ensure you are not the main individual contributor but a team leader making the conscious decision of growing an optimized business machine.
5- What life do you 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 of the key reasons to own a small business are the freedom and flexibility that it can offer if you choose the right concept for you. I have met entrepreneurs who did not first consider the activity cycles of their business and became increasingly dispirited when they discovered what they had signed up for. A business to consumer type (B2C) typically is busy when its customers are not working, which means you the owner are working evenings and weekends. Your family life might suffer when you open a pizza joint that stays open until 10:00PM. What about Holidays? I owned a spa for many years and all Holidays including Mother’s Day were the busiest times which intruded with my new priorities once I became a mother and before I could hire a manager. Examine the ideal schedule of your days, weeks, and months and contrast it with the activities of the business you are considering. Conversely, if you are passionate about golfing, skiing, or surfing or you have other day time responsibilities, a B2C might be perfect, but a business to business (B2B) might not be as the bulk of your activities will be during typical business hours. Equally, if your goal is to only work a few hours per week so that you can focus on your other priorities or to keep your corporate career while owning a business, you might research businesses that can be operated part-time or even absentee. Part-time ownership (15-20 hours weekly) becomes a possibility when you hire a full time manager. Absentee models that require 5 hours per week of your time or less are usually simpler models with fewer moving parts and such as laundry services, vending businesses or some retail shops. Ultimately, if a business fits your life according to whom and to what is important to you, your journey to success will be rewarding and sustainable in the long run.
Many aspiring main street entrepreneurs are so dazzled by the prospect of striking it on their own that they focus most of their research and planning on how to make the business work instead of first identifying a business that will work best for them. These entrepreneurs fall into, and often fail in a business, 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 design. For greater success and happiness, be self-aware of your strengths and limitations, and have clarity on the life you want. Then objectively align yourself with a business that can do all that.