I’ve taught entrepreneurs, evaluated their business plans, helped get funding and worked with new businesses as they navigate their first year and consulted with small businesses in the US and abroad.  Success or failure does not depend on one or two elements, it is a compendium of many factors.  Let’s look at a few of them and why they affect the outcome.

  1. What is success?

Your concept of success and mine may be very different and it’s important that you define what constitutes success for your business.  Failure to do so can result in dissatisfaction with a perfectly good outcome because others believe you could make more money, sell more product or otherwise benefit more. It’s your business. If an income of $50,000 per year and more time with your family is what you want out of this venture, then achieving that is a victory and you at liberty to turn a deaf ear to those who say otherwise.  If, on the other hand, your purpose in starting a business is to sell in in five years and cash out with a sizeable windfall, you have an entirely different sent of requirements and will need to gear your management of the company to achieve that end.

  1. A great Idea

This may seem like the key ingredient, and it certainly ranks near the top, but many mundane concepts do well and fulfill their creator’s goals.  A pizza restaurant may be a commonplace venture, but some do very well, either because they have an excellent product or some unique qualities.

That said, you must have a clear understanding of the direct and indirect competition before embarking on a start-up. In one class I taught in entrepreneurism most of the class had chosen retail businesses to start.  The world is full of business models which most people have never encountered.  Some of those businesses have the advantage of less competitive environments, some are recent enough that you could be in the advance of a new industry.  The advent of internet businesses had opened a world no one could have imagined just a generation ago.

The bottom line is you must know that a market exists for your product and how to reach it.  Don’t start the business and then try to figure it out.

  1. Expertise

The likelihood of success is immeasurably improved if you have substantial expertise in the business you are starting. Seems logical, doesn’t it?  And yet…people buy and start businesses they know nothing about.

Some popular examples include restaurants, retail of all kinds…the list is long.  If you have little background your learning curve could sink the enterprise.  I’ve seen some shocking examples of intelligent people deciding that they can learn a distribution or tech business and losing not only the business but their home and their future.

  1. Working in an industry isn’t the same as running a business

It is common for people to assume that because they have worked in a marketing firm or a construction company they know how to run one. Running a company is an entirely different set of competencies than working in the industry.  Consider the range of proficiencies you must have to successfully run an enterprise (finance, marketing & sales, managing people and resources, planning….it’s a long list) and compare that to the narrow confines of a single job in that industry. If you decide you can run a business in the industry in which you currently work, watch the person who is doing the job very carefully and gage how much of his/her know-how you possess.

  1. Don’t rush into it.

Here’s a scenario you should avoid:

We decide to start a widget manufacturing operation on the theory we have made widgets for the ABC company for years and understand how they are made. The theory is we will sell on line and hire one outside sales rep.  So we go find a suitable location large enough to accommodate future growth and rent it, lease machinery on our credit cards, set up a factory with the facilities we would have liked as employees, and hire a full complement of workers including office staff.

Six weeks into making widgets we are unable to make payroll and one of our two customers begins to return parts of orders due to quality control issues.  Both customers are late to pay invoices.  Sales person is constrained by lack of funds for travel and has failed to substantially expand the customer base. Having run out of funds, owners mortgage their houses to cover bills and payroll – and plow ahead.

Two years later owners are exhausted, $800,000 in debt and on the hook for leases on equipment and premises. They have been fighting for over a year and at least one is in divorce proceedings.

If you think this scenario is unlikely, think again.

Start with your most likely customers and their probable buying habits and work backward to determine how much money you can reasonably expect to have to run the company.  Buy or lease the minimum to start, hire the fewest people possible, anticipate very slow growth. The rosy scenario may cost you the business and much more. Underestimating may also have negative impact, but they are unlikely to be as severe.

In your planning for the business you must assume that you will require funds to cover expenses for some period of time.  Be realistic about what that time period will be.

I am cautiously congratulatory when someone tells me they are about to launch a business because I’ve been privy to so many failures. If you decide you are up to all the tasks then spend some time getting educated in the areas you don’t know – and call for help when you need it. Don’t do as most small business people do and wait until things are dire before calling in an expert or you may be paying someone to tell you that nothing can be done.

Share This