People start businesses for all kinds of reasons. Some expect to get rich, some want to be their own boss, some want to follow their passion and some want to control their own destiny (or at least try). Many have one thing in common; they fail. More than half, depending on whose number you use and how much time you give it.
When I started my business in 1978, there was very little information out there on how to start, expand and operate a small business. As a matter of fact, even the word entrepreneur was barely used, and if it was, it was often used disparagingly — as to describe the guy on the corner who was selling watches under his sleeve.
The world has changed. Today, there are countless magazines, websites, classes, organizations and consultants available to help the aspiring entrepreneur. Given all of these resources, the question arises: Why is the failure rate still so high? For all I know, the failure rate may even have gone up over the years, despite the fact that there are far more resources now. I believe there are three reasons.
First, many entrepreneurs learn to build a business the way some people learn to swim; they just jump in. They might have the basic skill, or even be very talented at the task at hand, whether it is baking or programming or candlestick making. What they lack is basic knowledge of marketing, management and accounting. Even though there are many resources available, they are too busy doing the task to learn how to do the basics. In this case, ignorance is not bliss; it is a ticking time bomb.
Bad management, bad accounting and ineffective marketing will suck the life out of a fledgling business if it is not corrected. I know, I was one of those jump-right-in entrepreneurs. I never had a full-time job, and I never had a mentor. Torture was more my mentor. Today, I am sorry to say, there is a further problem. Yes, there are lots more resources available to beginners, but many of those resources are close to worthless. Academic theory and self-appointed experts (who have never run a small business — except maybe into the ground) run amok. How is a beginner supposed to know whose advice to take?
Second, not everyone is wired to be an entrepreneur — just as not everyone is wired to be a social worker, a lawyer, a salesman or an accountant. The success or failure of a business has less to do with the idea and more to do with personality, drive, skill set and tenacity. Businesses don’t fail, people do. That hurts (again, I know). But failure does not make one a loser, and failure is not permanent. In fact, the lessons learned may very well be the springboard to future success. There are many entrepreneurs who have had fabulous success after fabulous failure.
Third, entrepreneurship is about risk. Sometimes it is calculated risk; sometimes it is a shot in the dark; sometimes it is delusional. This is where the current entrepreneurial fever can get dangerous. We have been led to believe that entrepreneurship is this romantic journey of discovery and creativity and believing in your dream. We all read stories about Facebook and Starbucks and countless other successes, but the large numbers of failures just slip away in the night, along with the owner’s life savings. The people behind those failures all believed in their dreams, too. Again, starting a business is risky. Even the most experienced entrepreneurs cannot always predict what will work and what won’t.
So, what is the solution? First of all, starting a business should not be like going to Las Vegas. There are things you can do to increase your odds of success. Learn enough about accounting to not be dangerous. You don’t have to become a C.P.A., but you should understand the income statement, the balance sheet, the difference between cash flow and profits, the basics of borrowing money and how to operate an accounting program. And no, I can’t do the last one — there were no computers when I started.
Do a business plan so you can see how all of the working parts go together. Go to trade shows and talk to people in similar businesses in other cities where they might be more likely to give honest feedback. And don’t confuse support with intelligent advice. Many of your friends and family will be supportive when you tell them your plan. Don’t confuse support with help. If they don’t own businesses, you are getting love, not wisdom. If you were sick, would you rather have a friend tell you you are going to be O.K. — or would you rather go to the doctor?
Naïveté in business will prove expensive. You will make mistakes, but make sure you can undo them. One mistake that is very hard to undo is going into business with a friend. It sounds like fun. It is comforting. It is probably not a good idea. If you go into business with someone, make sure it is a strategic alliance, with a clear understanding of what skills each person brings to the party. Make sure your goals are aligned. Even so, it is still probably a mistake — not because you are friends but because it is unlikely that you will stay on the same page when the problems start, which they will. Have an agreement in place that will govern the process if you decide that you want to split up.
One more thing: Going into business is risky, treacherous and demanding. But it is also invigorating, rewarding and beautiful, when it works. It is a lot like nature — with violent hurricanes and beautiful sunsets. I am not sure that you choose to be an entrepreneur; it chooses you.