Small business myths and dilemmas

Do you have what it takes to succeed in business? Some people think it takes special skills to be a successful entrepreneur. I think it’s a myth. If you question your own entrepreneurial credentials, take a look at some of the people I’ve worked with—from solopreneurs to 50 or more employees:

  • Two art majors started making hand-printed greeting cards for friends. Now they own a print shop with a bunch of employees. They’ve printed my books.
  • A woman was making pear condiments in her kitchen. Soon she was selling pallets of her specialty foods to Costco from her warehouse. I have a photo of her driving her forklift.
  • A woman in IT had gluten intolerance, started baking things for herself. She now has a bakery, several retail outlets including a new one in the San Francisco Ferry Building, sells online, and has 30+ employees. She still doesn’t understand her P&L.
  • A Japanese immigrant worked as a busser in a restaurant, and saved his money. The restaurant went bust, he bought it for a pittance. Twenty years later, he has one of the best restaurants in the Bay Area, and has had a Michelin star.
  • A woman took over her husband’s bookstore when he died of a heart attack. She didn’t really enjoy the business, but she trained somebody else to run it for her, and she actually hired two more people.
  • A Hispanic guy got hurt on his construction job, and went on disability. While he was waiting for some job retraining, he started doing gardening for neighbors. He was chastised by the state for accepting money while on state aid. He now has three trucks and two gardening crews working for him.
  • A woman got fired from her sewing job, took a couple of favorite customers and did sewing for them. She now has a sewing workroom with ten employees. She recently bought out her former boss.
  • A banker took his early-retirement buyout and started a yoga studio, and he just loves doing that.
  • My wife BJ, the least entrepreneurial person I know, left her job when she got passed over for a promotion. She scanned the want ads for a new job for about six months, until she had so many HR consulting clients she had no time for that. Ten years later she keeps her schedule full without any marketing, just by referrals.

None of these people would have scored high on anybody’s entrepreneur test beforehand. But they’ve all done well. It may be true that not everyone is cut out to be an entrepreneur, but I challenge you to point ’em out ahead of time.

Are you one of these “accidental entrepreneurs?” Your issue is, once you are up and going, how can you make the best of it? Not just to survive in business, but to thrive, and get where you want to go.

What It Takes to Succeed

For these folks to succeed as entrepreneurs and take their business where they wanted it to go, they had to master a handful of basic lessons. Here’s what they have told me. My guess is, these apply to you as well:

Find your natural gift and build your business around it. Not only what business you are in, but what you do in the business. These folks learned to succeed by doing what they were best at—design, product selection and merchandising, working with customers, spotting and negotiating deals, whatever—and handing off all the rest.

Insist on making a profit. Know what things cost, and how profitable each sale is. Don’t spend money unconsciously. If you’re not good at the numbers, hire a strong numbers person and have them give you the financial data you need in a way you can understand and take needed action. If they don’t do this, replace ‘em!

Pay yourself first, and well. If the cash is just not there, tune your business model until it is. Or is this just a hobby for you?

Listen to the market. Let it tell you what to sell, and what to ruthlessly pare back. Let your customers tell you what they want to buy from you, then give it to them.

Learn to sell by being who you are. Let your passion show through. Be there with your prospects and customers. Looked at this way, selling is not a fearful activity.

Don’t be the Lone Ranger. Get past your “only I can do this job” mindset. Bring in top quality people. The better people these owners had on their team, the bigger and more profitable they became, and the easier their job was. And the longer their vacations!

Let go those who don’t measure up. Don’t be held back by the limitations of your people—whether employees, subcontractors, or professional advisors such as accountants.

Stop being a control freak.  When you have good people, trust them to do the job you’ve hired them for. Trust but verify. Watch over things, but don’t jump in and do them yourself.

Get the secret knowledge out of your head. Learn to turn everything into systems, checklists, procedures manuals—even the things that you’re sure only you can do correctly—so that others can do them.

Set a plan, even when the uncertainties are daunting. Stick with it, review it regularly, and revise it as needed. A plan should be just a page or two, and should be dog-eared, coffee stained, and covered with notes.

Save money as you go along. Build up a cushion for tough times and a fund for expansion. Those that did this all along stayed in business throughout this tough downturn.

Take care of yourself. If you burn yourself out, you can’t provide the services you are passionate about. The notion of the 24-7 always-on entrepreneur is a dangerous myth.

Build your business around your life, not your life around your business. You’re in business to get to do what you want. Otherwise you might as well have a j-o-b.

Know when to let go and get out–whether you sell, pass it on, or just lock the door–and head on to the next thing.

You don’t have to be a rocket scientist to master these lessons. But having some help makes it easier.

This is where I come in. I’ve helped these folks grow to the size they want, put a lot more money in their pocket, take long vacations, then come back and find things ran well in their absence.  So give me a call.

 

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What things do people believe about small businesses that just aren’t true?

Small Business Growth Myth #1: Lack of capital is the #1 cause of small business failure.

In my experience, lack of capital is a symptom of other problems in the business. This myth is like saying that heart attacks are a leading cause of death, but forgetting that most heart attacks occur to people who haven’t been taking care of themselves for years.

Same with business. Running out of money is often the endpoint of years of bad decisions. For example:

Not watching the numbers closely. Not having financial statements you can understand, and not getting or reviewing statements in time. You should tell your bookkeeper/accountant exactly what numbers you need to track, when, and how you want them displayed. If they don’t give you what you want, replace them.

Not controlling costs. Keeping unnecessary payroll and other expenses. Some owners borrow money to avoid laying people off. During tough times, if you’re not ruthless with expenditures, you won’t have the reserves to take advantage of later opportunities.

Focusing on revenue instead of profitability, therefore not paying attention to the margin of jobs or sales. Taking any work. “I’ll make it up on volume.” “Maybe they’ll grow to be a big customer.” Don’t bet your business on these beliefs. Insist that every job must make a profit. Make sure you have systems that allow you to allocate costs to profit centers, so you can know the profitability of each thing you sell.

Under-pricing. Many small businesses try to meet the prices of large, well-capitalized competitors, rather than competing on unique services and features that set them apart and command higher prices. Set your prices to include your desired profit margin.

Not anticipating needed growth capital, so that a growth spurt causes a cash flow squeeze. It’s very difficult to grow relying on current cash flow. People criticize companies like Apple for amassing a huge cash hoard, without realizing that this is necessary to fund growth, innovation, and keeping options open.

Having the wrong kind of financing. Financing growth with a short-term line of credit that must be paid off each year, rather than with a 5- to 7-year term loan. And how many of us have financed growth on our credit card, thus saddling ourselves with interest payments that eat up the profit needed to repay the loan?

Not saving during good times, so that you have a fund for tough times. Too many owners would rather spend than save because they don’t want to pay taxes on the profits.

Not being “bankable.” For example, if you run your business to minimize taxable income, you’ll never get a bank loan. Try telling your banker that you really do have a profitable business, despite what your tax returns show. Take your banker to lunch, and ask what the bank will need from you in order to approve the loan you will need.

Not refining your business model to stay competitive and to meet the emerging needs of your customers. Just staying the same because it’s the easy thing to do. The old cliché, “Work on your business, not just in your business,” means that you as owner need to keep looking at opportunities, challenges, alliances, and strategies.

Ineffective marketing. If you don’t keep looking at what works, refining your offering and outreach, and dumping the rest, your business will slowly decline. Where can you get the most bang for your marketing buck? What ineffective things should you drop? How can you leverage your effort?

I’m sure you can think of others. If you address these problems in your business, you’ll never have to use “I ran out of money” as an excuse.

 

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Business growth dilemma #3: Grow profit while you keep personal touch

November 29, 2011

How can you bridge the “bean counter” mentality–profitable yet impersonal–and personal touch mentality–customers love you as you stay small and poor?

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Business Growth Myth #3. “I can’t find and keep good people”

November 26, 2011

If you fail to get needed help, if you opt to go it alone, if you have people who only follow orders and take no initiative, this guarantees you remain a small operation.

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