WELCOME TO SMALL BUSINESS:
Sure, It's Tough...It's Risky...But It Still Your Best Choice
You're Not Alone
Statistics show that about 750,000 new businesses are started every year in the United States. Almost all of these are small businesses. But the actual number is much higher; that 750,000 figure is based on the actual legal process of incorporation of new business entities. It does not include one of the major trends of the '90s, the one- or two-person small business usually operated out of a home, garage, or one-room office. These businesspeople operate as "self-employed." To save costs and hassle, they file taxes as individuals. If they have a business name, it is usually a "d/b/a" (doing business as) name, not an actual corporation.
These different trends make for confusing statistics but we can safely say, without risk of overestimating, that new small businesses are being formed in the United States at a rate of at least 1 million per year. That is far higher than in previous decades. And how many small businesses, new and old, are there in all? Here again, different statistical sources give different numbers, but it's a fair guess that the total is close to 30 million small businesses in the country.
So when you consider starting up your own small business, take comfort from the fact that you're in good company; you're riding the wave of the future. There are good, solid economic and social reasons why all this is happening and there's nothing crazy about wanting to do so. It makes eminent good sense.
But the good sense has also to be applied to running your small business, not just starting it. Starting it and joining the national small business club is the easiest part. Running it day-to-day and paying the annual dues is a damn sight harder.
So What's a "Small Business"?
We can roughly group small businesses into three categories, working from the largest to the smallest:
"Big" Small Businesses
These businesses have somewhere between twenty and one hundred employees and have usually been operating for a number of years. Sometimes bad luck or mismanagement will bring one down but in general they are home safe. They've grown from nothing, made all their big mistakes and survived...they've learned their lessons well. Their management is usually professional, they're efficiently organized and they're on top of their business, whatever it may be.
Such "big" small businesses are often run by owner-managers, who still maintain the dynamism, simplicity and informality of a small company -- and prefer it that way. There's a simple rule of thumb that says that once companies get past the 100-employee level, they start thinking and operating like Big Businesses.
There are large businesses that still manage to keep their "small" personality intact, through the personal preference and style of the owners. But there is a clear point in most companies' growth (if they continue to grow) when they start to lose the flexibility, informality and dynamism of a small business and start adopting the more rigid organizational style and administrative structure that are found in large corporations.
Some owner-managers of these "big" small businesses deliberately choose to stay the same size, innovating and improving year by year to stay on top of their competition, but resisting the temptation to keep striving for further growth in sheer size. These companies, through progressive improvements over the years in efficiency and productivity, can often increase sales and profits year by year, yet still stay roughly the same size and still maintain the personality, characteristics and style of a small business.
In general, these "big" small businesses are modern and sophisticated in their management methods...they have to be, at that level.
"Mid-Sized" Small Businesses
The majority of small businesses fall into this size bracket, with about five to twenty employees. Here you're looking at the millions of retail stores, restaurants, storefront services, gas stations, repair shops, machine shops, studios, printers, bookkeepers, business services and the like. Many of these are franchise operations, operated and managed by their owners.
Here, levels of management sophistication and efficiency vary widely and wildly, from modem franchise operations with all their accounting, controls and systems supplied (and monitored) by the franchiser, to old-style businesses, comfortably secure in their niches and run pretty much as they always have been.
Among this large diversity of types, shapes and sizes, you can't say that any one is better than the other. Different strokes for different folks. But you will find a remarkable consistency among those that have survived and are making a decent profit. They all keep their eye on the basics we are talking about in this book...even if their ways of doing so range from the latest computer technology to handwritten entries on file cards and notebooks.
"Small" Small Businesses
Many of these small, one- to five-people businesses are home based. You will also find a large number working out of one-room offices, small storefronts and assorted holes-in-the-wall. Some of them will grow, get better organized, start making more money and eventually move up in the ranks. Others will stay the same small size long-term, focused only on providing their owner-managers with independence and a decent livelihood.
Nothing wrong with that. Constantly growing bigger is not necessarily what some entrepreneurs want to do, once they have achieved their primary financial goals and a secure position. They'd rather not face the extra hassle. That's one of the rewards of small business: you decide what you want from your business in personal terms. The business doesn't decide for you...unless you let it.
One painful fact is that the mortality rate is highest among these, the "babies." But that fact should not discourage you. It's pretty natural when you stop to think about it. Just like babies anywhere, they're learning how to walk and talk, they're building up immunities to disease, they're learning to take care of themselves. Some "baby" businesses just don't make it through this period of vulnerability. You can learn lessons by looking at the ones that unfortunately didn't make it and asking yourself what they did wrong.
Business Mortality: The Bad News
The bad news is that on average a majority of small businesses don't make it. They fail or fold in their first year or two.
This news should bother you, and that's all to the good. Running a little scared is the best way to run a business and the surest way to stay alive. Knowing how easily others have failed will stiffen your spine when the time comes to make hard decisions.
There's a widely quoted statistic that's been around since they invented business schools and started teaching Statistics 101. It says that over 70 percent of new business ventures fail or close down in their first two years.
Nobody knows what the exact percentage is today and it really doesn't matter. The key point is, it's damn high; it's certainly well over 50 percent. The message is clear and deadly: most new businesses-meaning small businesses -- are not prepared, in some form or other, for what they are about to face. When the first hiccup comes (and it always does), they don't have the financial resources or staying power to make the necessary adjustments, correct their mistakes and keep battling on. They get wiped out by the first salvo in the battle.
So what does that tell you? That the ones who folded were unprepared and ill informed. They went into the poker game without an adequate bankroll, without studying the rules, without knowing how to calculate the odds and without checking out the other players in the game. It may sound heartless, but they had it coming. Feel sorry for the others, who made all the right moves but then got blown away by the unpredictable storms and tempests that sometimes happen in the business world, in spite of their best efforts.
Business Survival: The Good News
And the good news? The good news is that the survival rate has been improving in recent years.
Recent research is showing that the 70 percent death rate -- that longstanding, oft-quoted piece of statistical wisdom -- is dropping. There are more survivors.
The explanation for this drop in the death rate of new businesses is that ours has become a much better informed world. Much as people may grumble and complain about the deteriorating quality of television, the press, radio talk shows and education in general, the fact is that recent years have seen a stunning, remarkable surge in the amount of information being thrown at the average citizen. And a good part of this steady stream of information relates to business, finance and economics.
Years ago, business news was for Businessmen, with a capital B. Dad, in his comfortable, secure job, did not need to know anything other than the technicalities of the business in which he worked. Mom had to know how to bake tuna casserole and change diapers.
The Information Revolution and the other assorted social, cultural and economic revolutions currently being fought out have mixed things up nicely. Now there isn't a single reasonably intelligent, reasonably balanced, reasonably normal man or woman in the United States today who is not: (1) concerned about their personal finances; (2) worried about their jobs; (3) aware of firings, downsizing, bankruptcies and other business phenomena; and (4) informed of general business and economic news. It's a different world.
So the folks who are now starting out on the same small business path as their predecessors (who generated those chilling statistics) are just naturally better prepared and more realistic about what they are getting into.
The latest statistics are telling you that if you make a real effort to inform yourself about business realities and if you work hard at preparing yourself for your small business venture, that alone should switch the survival odds in your own small business venture -- from 70/30 against you, maybe to 30/70 in your favor.
Why Choose Pain and Sacrifice?
If and when a small business fails or folds, the pain and financial losses are extreme. Most of the burden falls on the businessperson responsible for the failed venture and his/her family and close friends. It's not a fun experience, to put it mildly.
Yet even if you do prepare well, work hard and survive in your small business venture, it's still going to be a tough, hard grind, for who knows how many years. Who needs that? Why not just hold on to that comfortable guaranteed-for-life job at International Widgets Corp. and calmly live out your allotted lifespan, blissfully safe and secure for the duration?
Because, pal, starting your own small business may well be the only attractive alternative you will have, the way the business world's headed these days.
Jobs like yours are going the way of the dinosaur. International Widgets will probably be taken over next quarter by Global SOBs Inc., who will unceremoniously can your redundant (as they view it) ass, with two weeks' severance pay and a Mickey Mouse watch in grateful, heartfelt appreciation of your twenty-five years of faithful, dedicated service. Welcome to Al Dunlap world.
Or you may have already lost that well-paid job, through no fault of your own. Or your well-paid job may suddenly have become a lousy, badly paid job. Or you may have been forced into early retirement. Or you may be young, smart and talented, and your job prospects are limited to Greaseburger Heaven, at $5.75 an hour, part-time, twenty hours per week.
Or maybe you have some cash stashed away: hard-earned savings, retirement funds, an inheritance, a graduation present, insurance money from the late lamented spouse, whatever. It's money but what good is that going to do you? Start spending it and soon it'll be gone. Put it into stocks, bonds or CDs, and it's probably not going to generate enough annual income to keep you alive, carefree and happy. Instead, you may want to give serious consideration to investing it in your own small business. It's a good investment option, so long as you give up on the idea of "carefree and happy" for the next few years. Because you're going to have to work hard to protect that investment.
So, whatever your personal circumstances, you may well discover that in this modern, turbulent and unpredictable world, starting your own small business may be the best alternative you have for making a decent, well-paying living long-term, and controlling your own career and financial fate.
If the price of having chosen this direction is the need to make considerable personal and family sacrifices, for a number of years, you may consider it a fair trade-off. Unless you still believe in rose gardens, free lunches and fairy godmothers.
Hitting the Jackpot
Of course, there's always that other seductive, enticing reason for starting your own small business.
The dream of glory, success and Big Bucks. Of the good life, the fun life, the carefree life. When your business becomes a wonderful, stunning success, everything comes together and everything works out perfectly.
When you hit the jackpot.
It actually can happen. The odds are pretty long but it has happened to a number of successful entrepreneurs. Often it's plain dumb luck. Sometimes it's outrageous smarts. Usually it's just endless hard work. But it can and does happen to the lucky few.
However, hitting the jackpot must never be your main objective. It's not something you'll ever be able to guarantee. If it happens, so it happens. But it can be a fatal distraction if it becomes your main motivation in starting your own business.
Some small businesses fail precisely because their owners allow their wild dreams of hitting the jackpot to distract them from short-term priorities, from the grungy, sweaty work that often needs to be done, and from the day-to-day problems that need to be resolved. They take their eye off the survival ball, they start dreaming of next year's successful jackpot instead of tomorrow morning's tasks, and...pow! They're blown away by costs, customers, competitors or whatever else snuck up behind them while they were dreaming and sandbagged them while their guard was down. The dream never had a chance.
So, for your own protection-and sanity-think of your business, first and foremost, only as a better way of making a decent living and taking control of your life. Not as a ticket to fame, riches and the good life.
If you get lucky and your small business becomes a huge money machine, wonderful. I'll be happy for you. Send a postcard from Tahiti.
Just don't ever count on business jackpots.
They're in the hands of the gods. Not yours.
The Rewards Are for Real
Now that I've finished administering the nasty medicine, let's relax a little and talk about the good side. Yes, indeed, there is a good side.
Although small business has its hardships, it also has its rewards. You'll appreciate the rewards that much more, because they come hard won. Here's a short list:
Remuneration: Once you've got your business up and running, you should be able to pay yourself at least as much salary as you would receive in a regular job, and probably more. In some cases, much more.
Perks: You're the boss. So long as you don't tread too heavily on the IRS's toes, you can creatively grant yourself a bunch of little advantages that you'd never see as an employee.
Expenses: Here again, while keeping a careful eye on Big Brother IRS, there are many expenses that your business can absorb-and legitimately deduct-that would otherwise be your personal expenses.
Job Security: As long as you stay in business, no one can fire you. Your only concern becomes the security (survival) of your business. The freedom from "boss people" with life-or-death power over your job security is a major plus, especially in this downsizing business world.
Games and Politics: You're free of the frustrations, irritations and time wastage from the internal games and company politics that are a key part of protecting your job in many large corporations. If games and politics start happening in your own small business, you're the boss and you're to blame. You have the power to stop it.
Personal Efficiency: Unlike the corporate world, where good performance often goes unrecognized and unrewarded, in small business the results of working better are all yours to enjoy. Every effort you make to improve your personal working efficiency is totally to your and your business's benefit. There's a huge personal payoff in learning to work better. You actually enjoy figuring out how to improve your efficiency.
Personal Time: You work hard, you put in long hours, you work nights and weekends when necessary. But you also learn the real value of every hour, to yourself and your family, and you learn to manage your personal time better. So you don't have guilt pangs when you treat yourself to a late morning, a midweek afternoon off, a long weekend, or, God forbid, an actual vacation.
These rewards all come with one major precondition: your sense of responsibility to your business and yourself must be total. There's no fooling yourself in this world. You get to start collecting the goodies only if and when your business can afford them...and you're the only judge of that. You've got to work at keeping yourself honest. If you start spending money the business doesn't have or wasting precious time when urgent problems need attention, your small business will quickly end up joining the 70 percent crowd, the ones who don't make it.
So here's one final recommendation: fine-tune your conscience and your self-criticism before you start your small business. You'll need them.
And the biggest reward? Remember that horribly overworked phrase job satisfaction, so loved by personnel managers, corporate psychologists and management gurus? A phrase that has become steadily more hypocritical and meaningless in this Brave New World of restructuring, reengineering, layoffs and downsizing.
Job satisfaction is still very much alive and well in the small business world. It takes on a whole new meaning when you're running your own show and the show's running well.
It's the best reward of all.
It's the greatest feeling.
It's what makes the hard work, the strains and the worries all worth while.
So welcome to Small Business.