CHAPTER 1
starting a business is personal
Courage is doing what you’re afraid to do. There can be no courage unless you’re scared.
—Eleanor Roosevelt
A SMALL BUSINESS is more than just a way to make a living; it’s a way of living. Joining the ranks of the self-employed is more involved than changing jobs or careers. It represents a lifestyle change, a lifestyle for which not everyone is suited. In this first chapter, I discuss the motivation for starting one’s own business, the personality types for whom this is a viable path to success, and the considerations of one’s personal financial situation as they relate to making this shift in lifestyle. Each factor is key, because each can have a dramatic impact on your ability to succeed in a business of your own.
What’s Your Motivation?
Why do you want to start your own business?
• Are you running away from a bad situation with your current employer?
• Have you been unemployed for a while and are just looking to create income for yourself?
• Are you burned out in your current career and want to do something different with your life?
• Do you have a burning desire to start and build a successful business enterprise?
• Are you committed to doing whatever it takes to be a successful entrepreneur?
People give myriad reasons for wanting to start their own business. But not all of those reasons are good ones. Having a good reason for your efforts is crucial because your motivation for starting a business will play an important role in your ability to succeed.
For example, if your sole motivation for starting a business is to escape a job you hate, then you really need to rethink your choice. The same is true if you view self-employment as the only option for creating an income stream for yourself because you see no job opportunities on the horizon. In both situations, you aren’t driven toward business ownership; rather, you’re pushing yourself into it.
Remember, the grass is always greener on the other side of the fence.
Starting a business requires a huge personal and financial commitment, and it should not be something you enter into halfheartedly. There are significant differences in attitude, energy, and focus between running away from a situation and running toward an opportunity.
I’ve counseled many people who have lost their jobs and have come to me for advice about starting a business. It doesn’t take long for me to identify the ones who are only going through the motions. They don’t have the sparkle in their eyes when they talk about their business idea. It’s as if they are describing someone else’s situation rather than their own. I can sense that, if another job opportunity arose, they’d jump at it in a heartbeat. In fact, sometimes they’ll even ask me to let them know if I hear of any job opportunities that might be a good fit for them. Someone who is genuinely interested in building a small business would never say that. No way.
People who start a business as their “Plan B” are quick to throw in the towel, to close up shop. If you’re not entirely enthusiastic and totally committed to your business idea, you won’t have the stamina to stick with and nurture your venture so it grows. Customers and clients will sense the lackluster commitment, and that doesn’t foster confidence and trust. No one wants to do business with someone they believe is going to bail once a better deal comes along. Cus -tomers and clients want to know you are committed and that you will always have their best interests in mind.
Successful entrepreneurs are driven; they’re passionate about their business ideas. They derive energy from the excitement of building something from scratch. They see opportunities all around them, and they have a strong desire to control their own destiny. Although initially they may not have all the information they need to get started, that doesn’t deter them. They have an inherent go-for-it attitude. Determination and commitment create an insatiable desire to learn, to build, and to grow a business. Far from being a halfhearted attempt, the effort becomes their life’s work. They don’t just give it a try and “hope” it will work out. They are confident that they have what it takes to turn their dream into reality.
So, before you decide to strike out on your own, think about your motivation. Do you truly want to be self-employed? Are you sincerely motivated to build a business from the ground up? If you hesitate when you answer these questions, then you’ll be wise to give yourself more time for careful consideration.
Do You Have the Right Stuff?
There is something alluring about the idea of being your own boss. You don’t have to deal with office politics. There’s no more punching a clock. You can manage your day however you choose. You can take a long lunch hour or go on an afternoon outing with your friends. There’s no one to check up on you, so why not? There’s no need to be concerned about the number of sick days or vacation days you have because when you are on your own—no one is counting. Yes, it sounds like the ideal work situation. However, too much freedom can be a disadvantage if you don’t have the right personality to manage your time well.
While every business owner is unique, certain characteristics appear frequently among successful entrepreneurs. These traits include things such as drive, strategic thinking ability, excellent communication skills, technical knowledge, a positive attitude, independent thinking, and creativity.
Entrepreneurs and small-business owners are often described as contrarians. That is, they march to a different drummer, and are often described as eccentric. They are independent thinkers and risk takers; they’re resilient and innovative.
I’ve been both an entrepreneur and a high-level corporate executive at a Fortune 100 company. However, I never felt comfortable in the traditional career world. I hate bureaucracy, and I roll my eyes at the thought of playing the corporate game. I never understood the rationale for a lot of the big-company policies that seemed to be inefficient and burdensome—and that doesn’t begin to touch on my feelings about corporate hierarchy and protocol.
One company I worked for assigned office space based on a person’s level of management. First-level managers occupied a cubicle with a certain amount of square footage and were allowed one guest chair. As you moved up the management ladder, your space was enlarged, and tables and many chairs were added. If you were fortunate enough to make it to the executive level, your ultimate reward was an actual office with a window and a door. While all this nonsense had significant meaning in the corporate world, it meant nothing in the real world. I never ran into anyone who seemed impressed that I had a corner office with its own conference table and ornate furnishings. Those things are just physical trappings—meaningless in the outside world. (By the way, those spiffy furnishings were in sharp contrast to many offices I’ve had as a business owner.)
In a small company, even if you’re the CEO you’re part of the team. No job is beneath you. You do what you need to do to accomplish your goals. Whereas in the typical corporate environment, you follow the chain of command even if that isn’t the most expedient or prudent way to manage the task at hand. That’s why large corporations can’t respond as quickly to opportunities as small businesses can.
When you become self-employed, you have to be willing to relinquish the trappings of corporate life. Instead of being given a job title with defined responsibilities, you will be the chief cook and bottle washer. Everything falls on your plate, and you execute without a predetermined budget, support staff, or fancy office. In fact, new businesses are frequently launched in a garage or spare bedroom, with cardboard boxes functioning as file cabinets and a folding table serving as a desk. One of my businesses back in the late ’80s was called Wilson & Associates, the “associates” being my two cats, with my guest room serving as corporate headquarters.
The truth is, starting a business is a test of strategy, stamina, commitment, and resilience. It’s like being on the TV show Survivor—a game of survival of the fittest. But there is nothing glamorous about starting a business; it’s just hard work. And without the right personality for participation, you won’t win that game. So, it’s not enough just to have the right motivation for starting a business. Before you go any further, you need to determine whether or not you have the right “stuff.”
It takes a certain personality type to function comfortably and well as an entrepreneur. Business basics can be learned, but not everyone has the personality to flourish on his or her own. There’s no shame in being ill-suited for being in business for yourself, but be honest with yourself now, before you make the leap and find it’s too late to turn back.
Do you have the right stuff to be an entrepreneur? To help you decide, I’ve compiled a personality assessment. As you’re responding to each statement, be brutally honest with yourself. No one is judging you and you aren’t being graded. The assessment, which appears on the facing page, is for your benefit only. Answer each statement with a “yes” or “no.”
How many questions did you answer with a yes? The more yes answers, the greater your chances are of succeeding in your own business.
If only ten of your answers were yes, then building your own business will present challenges for you, but it won’t be impossible. However, if you responded to fewer than eight statements in the affirmative, then in my opinion you should seriously consider following another path, or at least find a strong entrepreneurial partner. Here’s why each of these characteristics is important:
• Self-starter. When you are an employee, most of your tasks are assigned by your boss. Generally, you understand what is expected of you, when it is to be completed, and how the work is to be performed. However, when you start your own business, there is no one telling you what to do. Not only is the work not assigned, but you have to get out and pound the pavement just to find business. That takes a lot of initiative. You’ll be working in an unstructured environment where everything—from identifying the opportunities to establishing the mode of execution—rests on your shoulders. There is no blueprint to follow. In many respects, you’re making it up as you go.
• Enjoy working by yourself. Most start-ups are one-person shows. In fact, many companies today start off as home-based businesses. When you don’t have a co-worker with whom to kibitz in the next cubicle or in the coffee room, you may feel isolated. Some people who get energized by engaging and brainstorming with others often report feeling depressed or de-motivated when they try to go it alone. Such feelings diminish productivity and limit your ability to succeed. People who fare best during the initial start-up stages of a business are those who don’t mind working on their own.
• People person. If you aren’t a “people person,” then being in business for yourself will be difficult, if not impossible. (Being a “people person” is not the same as preferring to have people around with whom to chat. You can work well alone and still be a “people person.”) When you are self-employed, you are the business. Regardless of how great your product or service is, people do business with people they like and trust. Therefore, your ability to build relationships with customers is integral to your business success. If you are more of a behind-the-scenes person, consider hiring someone or bringing in a partner who can be the “face” of the business and can interact easily and comfortably with your customers and clients.
• Risk taker. Building a business from the ground up is risky. It involves risks both personal and financial. Again, the majority of small businesses fail within the first three years. Those are daunting odds, so you need to be able to go beyond your comfort zone, rolling the dice and going for it. If you’re starting a business and the thought of taking risks keeps you up at night—then be prepared for many sleepless nights.
• Multitasker. When you start a business, you’re responsible for doing nearly everything yourself. Not everyone functions well with so many balls in the air. It can be very stressful. In the initial stages of business growth, there never seem to be enough hours to get everything done. You produce the product or provide the service, and at the same time you’re handling the bookkeeping and functioning as the sales force. That’s a lot of juggling. I’m going to go out on a limb here and say that most entrepreneurs are stress junkies: They thrive on working under pressure. You know the saying about how if you want something done, give it to the busiest person? That’s me. For some reason, I perform better when I have many things going at the same time.
• High-energy. Starting a business requires an infinite amount of energy. You only think you’ve worked hard in previous jobs. Wait until you go out on your own. To be successful, you will have to exert 150 percent of your time and effort. The business is with you all the time. But there is something about knowing that everything rests on your shoulders that can push you into perennial overdrive. Some people say they want to start their own businesses because they want more balance in their lives and more control over their schedules. They are being naïve. To be successful in your own business, you have to work harder and longer than you have ever worked in your life. That’s why being a high-energy person is essential.
• Eager to learn. When you start a business, you most likely choose something you enjoy and something at which you are good. However, no matter how good you are at doing what you do, you probably don’t know a lot about the fundamentals of starting and growing a business from the ground up. Therefore, you must be willing to listen and learn, and to acquire some solid business principles and practices. Too often, entrepreneurs think they can do it all themselves. Unfortunately, that attitude gets them in trouble. Smart start-ups understand the importance of getting the right advice and learning what it takes to build a business—and not just how to deliver to the market a specific product or service. I firmly believe that an eagerness to learn is one of the most important building blocks of business success. I’ll talk more about why this is critical in subsequent chapters.
• Good salesperson. Don’t consider yourself a salesperson? When you start your own business, you’d better. No one can sell your business better than you can. To be successful, you’ll find yourself selling all the time. So if the thought of making a sales call sends shivers down your spine, you’re going to have a tough time growing your business.
• Time manager. Because building a business heaps so many demands on your time, your time-management skill is crucial. New businesses tend to have unstructured environments. Failing to use your time efficiently will reduce your ability to achieve your business goals.
I see many new owners procrastinating. They bury themselves in busy work, like checking emails or running errands, instead of focusing on the important activities that will drive their business. Time gets away from them, and then those critical actions are put off for a day, a week, or even months. If you’re not efficient with your time, your business will suffer. As they say, time is money.
• Strong personal support network. It’s tough to start a new business venture without the support of your friends and family. The pressures of building a business are stressful enough without having to deal with people close to you complaining about how much time you’re devoting to it, or knocking you down for trying to build something. You need people around you who will be there to cheer you on and who will understand the personal sacrifices being successful will require.
• Self-confident. You are going to hear the word “no” a lot, so it’s helpful to have thick skin. Though business experts advise you not to take things personally, it’s hard not to when dealing with your own business. That’s because when you’re putting so much of yourself on the line for it, it’s difficult to separate the business from who you are personally. If you run short on self-confidence, you’re going to be uncomfortable in your own business. Customers and clients need confidence in your ability to deliver a quality product or service. Your future employees will expect you to be a confident leader. If you lack confidence in yourself, how can you expect others to have confidence in your business?
• Resilient. I was invited to lunch with a group of college-level business and entrepreneurial students to talk about what it’s like to be in business for yourself. One of the young men asked me what I believed to be the most important criterion for success. I said “Resilience.” No matter how well you plan your business launch, you’re going to encounter obstacles and setbacks. (In fact, lots of successful business owners experienced at least one business failure before they became successful.) But instead of dwelling on failure, successful entrepreneurs pick themselves up and move on. As someone once said, the mark of a true success is someone who hits rock bottom but bounces back even higher than before.
• Decision maker. Business owners absolutely must be comfortable making decisions on their own; otherwise, nothing will get done. If you’re one of those people who hems and haws and can never seem to make up your mind, then running a business is not for you. In business you must be decisive. Taking too long to make up your mind can mean lost opportunities and seriously negative consequences for your business.
• Strategic thinker/visionary. Strategic thinkers make good entrepreneurs because they don’t dwell on detail. They’re people who can see the big picture and determine what needs to be done to get from point A to point Z. They see an opportunity and move forward to seize the moment. Successful entrepreneurs think big even though they start small. (I’ll discuss this more later.) In other words, if you can’t envision what you want your business to become, it will be difficult for you to map out the steps needed to create a successful, sustainable enterprise.
• Persistent. If at first you don’t succeed, try, try again. Successful business owners understand that it takes persistent effort to make their businesses work. It takes discipline to work on moving the business forward every day, and a commitment to doing whatever needs to be done to reach their goals. Take, for example, the business owner who was told by her delivery company that a big order would not arrive as scheduled because a snowstorm had stalled the truck. Determined not to let a mere blizzard cause her company to fail, she located the truck, got behind the wheel, backed it out the wrong way down a one-way street, and managed to arrive on time at her client’s doorstep. Now, that’s persistence.
Legend has it that it took Thomas Edison 1,000 attempts to invent the lightbulb. And it’s been said he claimed that he did not fail 999 times, but rather he learned 999 ways in which not to make a lightbulb. Renowned inventor and businessman Charles F. Kettering commented, “An inventor fails 999 times, and if he succeeds once, he’s in. He treats his failures simply as practice shots.” Bottom line: If you’re going to succeed, you can’t be one who gives up quickly.
The Financial Realities of Starting a Business
Jumping into self-employment without first understanding the effect it will have on your personal financial situation is a serious mistake. Too many business start-ups I’ve dealt with haven’t taken the time to calculate the real financial impact on themselves, personally. I think a lot of people mistakenly believe that when they start the business, there will be money coming in right away. Yes, let’s hope there will be some revenue soon, but probably not enough to remain in your pocket.
From a personal financial perspective, there are three major questions you need to consider: (1) How much money are you comfortable losing? (2) How long can you go without an income from your business? and (3) How will you recover if the business fails?
How Much Money Can You Afford to Lose?
Some people are willing to gamble everything they’ve got to get their business off the ground. They are so committed to their idea and their vision that nothing else matters. Reckless? Perhaps. There are many stories of people who were on the brink of bankruptcy and refused to give up their dream—but their persistence, determination, and passion paid off because they hung in there and were able to go the distance. Of course, there are even more stories in which the opposite is true.
Other potential small-business owners don’t want to risk any of their own assets. Often, people tell me that they don’t have any money to start their business, or they simply don’t want to invest any of their own funds, so they want to know how to find investors or how to get a loan. Note: No one is going to invest in your business if you don’t have a significant amount of skin in the game. You’ve got to put your money on the line, too.
There’s no mathematical formula that suggests how much money you should invest in your new business. That answer depends on your own circumstances. However, you should know that start-ups rarely get funded by using other people’s money. That’s particularly true if you are a first-time business owner, without a track record of success.
How Long Can You Survive Without a Paycheck?
In their early stages, most businesses don’t generate enough money to pay the business owner a salary, so in your financial assessment you need to consider the likely loss of income.
“I had to sell my car to get some money to do this business. I sold everything I could think of. I looked around my house to see what, if anything, was worth anything in here. I even had to sell a ring that was very dear to me. It was given to me by my grandfather 30 years ago,” shares Paula Bennett-Aromando, a recently divorced mother who launched Bling Jeans Company. “It’s not just a matter of making a business run; you have to make a life run at the same time, and that is very trying at times.”
Most financial experts recommend that you have at least six to twelve months of living expenses saved before you launch your business. (Some people say three months, but I don’t think that’s realistic.) If you have a spouse or domestic partner who can support you or share expenses for a while, that will certainly make the transition from a W-2 employee to business owner easier. But it also means that whoever is going to cover the bills for a while needs to be as committed to your business success as you are. Set realistic expectations in terms of how long it may take before you can generate an income again, keeping in mind that it always takes longer than you think it will. Do a personal financial review and create a budget. Without your income, you may need to do some belt-tightening.
What Is Your “Plan B” if Your Business Fails?
Yes, it’s important to think positively about your business venture. But I do encourage you to be a realist, and as such you should have a worst-case scenario. So what are you going to do if your business fails? You’ve lost the financial investment. You’ve lost time building a traditional career. Can you live with the consequences?
Consider your age. How long do you have to rebound financially from a failed business? The younger you are, the better your chances are of recovering. Be very careful about using retirement savings for the initial capital your business needs, especially if you are over 40. Beyond a certain point, it becomes difficult to rebuild your retirement nest egg. Also, keep in mind the taxes and penalties that may be imposed should you decide to tap into those funds. I know that when you need money to get started it is tempting to dip into that pot, particularly when you are confident your business is going to be a success. But remember, the odds are not in your favor. There are plenty of people working at jobs they hate today because they used their retirement savings to fund a business that didn’t work out—and now they need a paycheck in order to survive.
Your Personal Credit Rating
Although it is difficult to obtain financing for a start-up business, it is not impossible. However, if you are seeking funding to start your business, make sure your personal credit is in good standing. Your personal credit rating will also be important for establishing credit with a landlord or vendors.
If you don’t know what your credit rating is, you can obtain one free credit report annually from each of the major credit rating agencies: Equifax, Experian, and TransUnion. I recommend spreading the reports out over the course of the year to keep track of activity on your account.
Once you receive your credit report, review it to make sure it’s accurate. If you find errors on the report, get them corrected. If you have a low score, now is the time to try to improve it. If there are particular issues that have damaged your credit history, such as medical bills due to a catastrophic illness, you may be able to explain the situation to a potential lender, investor, vendor, or landlord. However, it is best to clean up your credit report before you get too far along with your business endeavor.
Here are the credit-report agency websites:
A Final Note
Entrepreneurship has its advantages and disadvantages, its risks and rewards. One of the advantages is you never have to wait for permission to try new ideas. You can act quickly. If the idea doesn’t work, you can drop it just as easily. This kind of flexibility can be great and provides a significant competitive advantage for a small business. But it also has a major downside. What if your idea is such a flop that it costs you a significant amount of money? And perhaps even worse, your professional reputation. You may not have the ability to overcome the mistake, and as a result, you could be forced to go out of business.
As your business grows, you’ll probably find the need to add employees, and that means you’ll have to meet a payroll, week after week. In addition, your company will need sufficient cash flow to pay creditors as well as fund your working capital needs. All of these things must take priority over writing yourself a paycheck.
Moreover, you’ll face adverse situations—many caused by circumstances beyond your control. Overcoming these setbacks and keeping your business profitable will require long hours of hard work—and maybe not the kind of work you want to do. But, again, you can forget about work/life balance in the early years.
Keep in mind that starting a business is a lifestyle change, just like making a decision to lose weight and get healthy. To be successful, you need to make a long-term commitment to the process and stick with it. We know yo-yo diets don’t work. Neither do businesses that lack the personal commitment of the founder. You need not only the right mindset, motivation, and personal resources, but also the resolve to go the distance.
Notwithstanding all that I have said up to this point, one thing I can tell you for sure is that starting and growing a business of your own is the most rewarding experience you’ll ever have. It’s your baby. Other than maybe being president of the United States, I can’t imagine a position in which you can feel as empowered. And when it works—when you get it right—WOW!