Running a successful small business is not for the weak at heart. Note that I said “successful”. Every day budding and seasoned entrepreneurs start small businesses across the world with dreams of marginal to great success, but approximately 50% of all small businesses fail within 5 years.
There are many reasons why businesses fail. Changes in the economy, corporate lawsuits, product failure, trademark infringement and the list goes on. There is not a business owner out there whose SWOT analysis can account for every single potential obstacle to success, but there are a few things that the younger budding entrepreneur can do in order prevent failure out of the gate. If you are considering starting or purchasing a small business, here are six preventative measures to take in order to keep your head above water:
- Put some skin in the game – Most small business owners look for investment dollars — Cousin Eddie’s kidney fund or possibly an angel investor. Before bringing up your business idea at Thankgiving dinner, put your own wallet (and credit line) on the table. Maybe you don’t have $9 million to put into a new machine that will change the future of cancer research, but let’s be honest… if you are smart enough to actual invent that machine then you will have investors beating down the doors to invest in you. For every dollar you ask “friends and family” to invest, be willing to “dig deep” for equal to or greater to the amount. Any investor – no matter who they are – respects sacrifice, and it demonstrates your confidence and passion in your idea. It will also prevent your Thanksgiving attendees from giving you the bird.
- Do a lot yourself – Dedicate the blood, sweat and tears necessary to launch your business and resist hiring others to do it. Entrepreneurial victory is not a fleeting dream fulfilled by hours at the pool postulating potential marketing ideas or meeting at Starbucks over a $6 frappacino. It comes from hours of networking, sales calls, project/product management, building relationships, dealing with customer issues and going to Kinko’s at 4 a.m. in order to get a proposal out to a client before they wake up to check their e-mail. Investors value this and customers love talking to the one who has both the idea and the ability to execute. Entrepreneurship requires both sacrifices of time and money and much like raising a teenager, your company requires a personal investment of both.
- Take advice – Get a mentor. There are thousands of “been there, done that” men and women who are willing to help you navigate the pitfalls of entrepreneurship. I know you know everything, but the amount of time you spend listening to someone who has been through the entrepreneurial journey will pay you ten-fold in dividends. 1 million cups is an organization that has meetings where you can present your idea, and get free advice on how to be successful. Many new companies fail because their founder is too proud to listen, so for God sakes Google “mentors in <my city>”. Don’t forget to say “thank you.”
- Don’t spend ANY money-Ok, so I just told you to put money into your business and now I am telling you not to spend any money. At different points in time you will need to put money into your business, but don’t get spend happy. Be intentional to spend money on activities where potential for return is higher than the potential for loss. Barter with other entrepreneurs to exchange goods and services. I often see small business owners spending marketing dollars on antiquated advertising channels or buying equipment prior to insufficient demand from customers. Why purchase a second corporate van when your catering staff is only at 70% capacity on one van? Plan for the future, but don’t spend with hopes when you are far from maximum capacity in your current operations. It will save you from sleeping in an underutilized van (down by the river).
- Never run out of cash – a two-time successful entrepreneur friend of mine related some advice that his business school professor gave him. “There are only five things important in running a business: never run out of cash, never run out of cash, never run out of cash, never run out of cash and finally, never run out of cash.” Offer your clients a 5% discount for paying invoices early. Buy on credit (to start) – credit card companies are easier and less emotional to negotiate with than family and friends. Develop partnerships with those who are in a direct position to generate cash instead of bringing on a partner (for example – staying with the catering company – don’t try to network with people who are having weddings or events when you can build a partnership with an event planning company or a facility that regularly hosts receptions). Guard your cash with your life.
- Tend to the home fires – you think it is tough being an entrepreneur? Try being married to one. Starting and running a company will consume you if you let it. The start-up road to being your own boss is littered with the dead bodies of those you love (and who love you) who have been cast aside in your pursuit of the brass ring. If you are lucky enough to have the love of someone in your life, don’t sacrifice it for anything. You can always get a job if you fail in running a company, but there are only a few people in this world willing to put up with your shit.