Is Entrepreneurship for You?
In business, there are no guarantees. There is simply no way to eliminate all the risks associated with starting a small business -- but you can improve your chances of success with good planning, preparation, and insight. Start by evaluating your strengths and weaknesses as a potential owner and manager of a small business. While starting a business has its considerable rewards, such as the satisfaction of working for one's self, it is not for everyone.
Carefully consider each of the following questions to help determine whether you have the right temperament, skills, experience, and motivation to start a business. If you are one of the few cut out for entrepreneurship, keep in mind that even successful businesspeople often have a few failures early on.
1. Are you a self-starter? It will be entirely up to you to develop projects, organize your time, and follow through on details.
2. How well do you get along with different personalities? Business owners need to develop working relationships with a variety of people including customers, vendors, staff, bankers, and professionals such as lawyers, accountants or consultants. Can you deal with a demanding client, an unreliable vendor, or a cranky receptionist if your business interests demand it?
3. How good are you at making decisions? Small business owners are required to make decisions constantly -- often quickly, independently, and under pressure.
4. Do you have the physical and emotional stamina to run a business? Business ownership can be exciting, but it's also a lot of work. Can you face six or seven 12-hour work days every week?
5. How well do you plan and organize? Research indicates that poor planning is responsible for most business failures. Good organization -- of financials, inventory, schedules, and production -- can help you avoid many pitfalls.
6. Is your drive strong enough? Running a business can wear you down emotionally. Some business owners burn out quickly from having to carry all the responsibility for the success of their business on their own shoulders. Strong motivation will help you survive slowdowns and periods of burnout.
7. How will the business affect your family? The first few years of business start-up can be hard on family life. It's important for family members to know what to expect and for you to be able to trust that they will support you during this time. There also may be financial difficulties until the business becomes profitable, which could take months or years. You may have to adjust to a lower standard of living or put family assets at risk in the short-term.
Why Small Businesses Fail
Success in business is never automatic; in fact, most new businesses fail within their first five years. It isn't strictly based on luck -- although a little never hurts. It depends primarily on the owner's foresight and organization. For starters, every business idea should be fleshed out with a well-researched business plan. Even then, of course, there are no guarantees.
In his book Small Business Management, Michael Ames gives the following reasons for small business failure (Gustav Berle adds two more reasons in The Do It Yourself Business Book, numbers 9 and 10):
- Lack of experience
- Insufficient capital (money)
- Poor Location
- Poor inventory management
- Over-investment in fixed assets
- Poor credit arrangements
- Personal use of business funds
- Unexpected growth
- Low sales
Starting a small business is always risky, and the chance of success is slim. According to the U.S. Small Business Administration, over 50 percent of small businesses fail in the first year and 95 percent fail within the first five years.
These figures aren't meant to scare you, but to prepare you for the rocky path ahead. Underestimating the difficulty of starting a business is one of the biggest obstacles entrepreneurs face. However, success can be yours if you are patient, willing to work hard, and take all the necessary steps.
On the Upside
It's true that there are many good reasons not to start your own business, especially if you aren't able to commit an emormous portion of your time and energy. But for the right person, the advantages of business ownership far outweigh the risks:
- You will be your own boss
- Hard work and long hours directly benefit you, rather than increasing profits for someone else
- Earning and growth potential are far greater
- A new venture is as exciting as it is risky
- Running a business provides endless challenge and opportunities for learning
Before Getting Started: Talk to an Attorney
One must confront all of the challenges and potential pitfalls of entreprenership before taking the plunge. But the best way to become successful is to be prepared, including the various liabilities and regulations that impact businesses. Consider meeting with a business and commercial law attorney when planning your business.