5 ways not to fail in business
Successful entrepreneurs don't just dream up ideas, they execute them. Passionate doers and creative risk takers, they look with confidence beyond the possibility of failure and turn visions into reality.
Such entrepreneurial spirit comes with no shortage of determination and drive. In fact, a survey conducted by Sage Group found that more than half of small business owners in the U.S. said they "went from idea to open for business" in less than six months.
While the ability to get things done can be beneficial in business, some of the qualities that can make an entrepreneur successful can also be detrimental.
Marcus Lemonis, a multimillionaire and CEO of Camping World and Good Sam, has seen what happens when aspects of the entrepreneurial spirit get the best of a business owner. Lemonis is a serial entrepreneur who turns around businesses as part of his profession and as part of "The Profit" on CNBC . He offers up these tips for entrepreneurs hoping to avoid failure.
Stick to your core competency
Entrepreneurs should stick to their core competency when conceiving an idea for a business. This tip might seem obvious, but Lemonis said he's seen countless businesses fail because the owners decided to get into something they really knew nothing about.
A perfect example, according to Lemonis, is Pete Athans. A former real estate investor and car enthusiast, Athans sunk his entire life savings into creating a high-end used car lot outside Chicago.
In its four years, Athans Motors has lost $4 million. Lemonis attempts to turn around the business in the premiere episode of "The Profit."
"It's important to understand the business and know what your limitations are," Lemonis said. "Stick to your core competency and make sure that when you do that, you build a barrier to entry so people can't compete with you."
Maintain proper working capital
The saying "cash is king" applies to the success of a business more than some owners realize. The right amount of working capital is essential when starting a business, as is maintaining proper reserves to sustain any losses.
"Any new business will lose money in the first few months and maybe even the first year. You better have the cash resources to survive it," Lemonis said.
Crunch the numbers at the onset to get a realistic estimate of how much capital a business requires and how much cash it needs to keep in the bank, he said.
Keep ego in check
Determination and believing in success can be a good thing, but don't be blinded. An entrepreneur must realize when a good idea has turned bad. Study financial statements to know when it's time to reroute a business or even close shop, Lemonis said.
"Sometimes it could take a year or two years to become profitable," he said. "But in the interim, you have to know when it's time to cut bait. If the idea isn't working and it was yours, you have to put your ego in check and know when to stop."
Despite Athans Motors' losses, Athans still thinks it's a good idea, Lemonis said.
Hire and fire as needed
It's essential to know all the details of a business and its daily operations, especially when it's time to hire or fire an employee. By staying close to their business, owners can properly evaluate an employee's performance.
"If it's the wrong person for the wrong job, you got to know when to cut them," he said.
Furthermore, lack of money is not a good reason to avoid hiring help, Lemonis said.
"People say they can't afford to hire them. I say they can't afford to not hire them," he said.
Seek a partner if needed
Entrepreneurs often hold onto their business as if it's a baby, but if it's not working, they must know when it's time to get help. Allowing a partner to come in with fresh capital, fresh eyes and a fresh philosophy could mean the difference between success and failure.
"I think people get really caught up in not wanting to have a partner. And I would strongly encourage people to see the bright side of partnerships. And whether that partner is 10 percent or 50 percent or 20 percent, it doesn't matter," Lemonis said.
"One hundred percent of nothing is still nothing."
—By CNBC's Jeanine Ibrahim,
Tune into the premiere of season two of "The Profit" on CNBC Prime, Tuesday Feb. 25 at 10 p.m. ET/PT.