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May 31, 2010 ON YOUR OWN

The reluctant entrepreneur | Starting or buying a business requires total commitment

By Stephen Vlachos

As the recession loosens its grip on our economic jugular, we can expect an upswing in the creation of new businesses. Many folks have found themselves laid off or have suffered through an extended period of underemployment, which can make self-employment attractive. Is this a good reason to start or buy a business? It can be, but not if you’re a “reluctant entrepreneur.”

The odds of success for a new business are better than we are often led to believe. For years, we’ve been told that only 50% of new businesses survive the first year and only 5% are still around five years later. The odds are actually better than that. Recent Small Business Administration statistics reveal that 66% of new businesses survive the first two years and 44% are still operating after four years. Still, joining the ranks of the self-employed is risky business and is suitable only for those fully committed to success.

All kinds of reasons are bandied about as to why businesses fail. You’ll hear that the business was underfunded, in a bad location, had a poorly prepared business plan or was eaten alive by its competition. Certainly these can be factors, but I would suggest two primary causes of business failure.

Failure factors

First, many business owners aren’t “all in” with the enterprise they’re creating or acquiring. I am always troubled when a prospective self-employed person creates backup plans in case their foray into business ownership doesn’t work out. To me it’s a flashing signal — go no further, you’re not going to make it. A business founder needs total commitment to succeed. Putting it all on the line does nothing but increase the chance of great success. Starting or buying a business requires supreme confidence that you are going to be successful, even beyond your greatest expectations.

Absolutely, there is risk with self-employment, but there is also the opportunity for reward. Often the rewards are beyond anything you could imagine at the outset. Most business owners would agree that once you’re on your own, you never again want to be someone else’s employee. The financial reward achieved by your hard work is gratifying and measurable. The freedom to make decisions that benefit your business, your family and your employees, however, is priceless.

The second primary reason businesses fail is that they are sometimes only partially conceived. Just because friends and family say you make a great meatloaf doesn’t mean you should open a restaurant. Similarly, I have met a number of folks looking to start or acquire a business who have told me they can sell anything. That may be true, but what happens after you sell the stuff? Unfortunately, many home chefs and corporate sales pros have never learned how to read a financial statement. They have no concept of handling payroll, establishing pricing or what it takes to put together a marketing plan.

This is where the concept of total commitment comes into play. A person new to business ownership needs to have some understanding of how all the facets of the business interconnect with each other. If you don’t understand all the components that make up a business, make sure you have a team in place that can help until you do. Remember, no business can survive on meatloaf alone.

Opportunity knocks

History has shown that an ebbing recession can be a great time to start or acquire a business. Consumer and corporate spending begins to loosen up. Potential customers have low inventories. High-quality employees are looking for work. A number of competitors have not survived the downturn. The cost of leasing or buying business property is exceptionally low. Advertising media offer attractive rates.

Still, with all of these positive dynamics, the number one indicator of future success lies with the qualities and commitment of the business owner. Lenders want to see a committed borrower. Prospective employees want to see a committed leader. Friends and family want to see someone with a passion for their business and a passion for success.

I view entrepreneurs as American heroes. Our free enterprise system of government works only when jobs are being created. We all recognize that small business is creating employment in our country. If you are ready to make a total commitment to a business, this could be the perfect time to do so. With hard work, the reward outweighs the risk. Self-employment can do wonderful things for you, your family, your employees and everyone you choose to do business with. Other entrepreneurs will applaud your efforts and cheer your success.

 

Stephen Vlachos, principal at Caswell Vlachos Group LLC, a business brokerage firm in Portland, is a serial entrepreneur and business consultant. He can be reached at svlachos@caswellvlachos.com. Read more On Your Own here.

 

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