You have probably heard the statistics: three out of every four new businesses fail within one year. Why is that?
The expectations and motivations that people go into business may be part of the problem. Have you heard any of these phrases?
- Be your own boss.
- Get off the treadmill and work for yourself.
- Stop working for the man and start your own business.
- Live your dream by running your own business.
These phrases are often used by someone trying to sell you a business idea, a get rich quick scheme, a franchise, a coaching service, or something else that will make money off you.
These types of phrases bother me because they give false hope to entrepreneurs. Running your own business can have many benefits. But false expectations, and the investments built on them, can be a primary reason for business failure.
People considering launching their own business are better served when they know the truth about being a small business owner:
1. Be your own boss.
Truth: Every single customer or client is a “boss” for a business owner, who will fire you on a whim.
2. Get off the treadmill and work for yourself.
Truth: Most business owners work harder than any of their employees, including longer hours, more stress, and more problems to solve.
3. Stop working for the man and start your own business.
Truth: You are either working for a boss or working for a client/customer. Customers and clients are like many little bosses.
4.Live your dream by running your own business.
Truth: Running your own business can be great, or it can be a nightmare, depending on how well it goes.
One main reason that businesses fail in the first year is the business owners’ wrong expectations. Maybe they were expecting more clients, more income, less problems, less expenses, or something else. Either the business plans were based on flawed premises or, after the business started, the business environment changed.
The way to prevent these problems is to consider risks, potential problems, and worst-case scenarios.
For example, consider what you will do if your marketing efforts do not result in the number of new customers that you expected. Consider what you will do if the bank freezes your line of credit. Consider what you will do if your main referral source dries up or refers work to your competitor. Consider what you will do if the cost of materials in your business increases substantially.
By considering these tough scenarios, you can give your business plan and honest assessment and think through possible solutions to these problems (it’s a Plan B).
At this point, if you decide to start all your business, at least you are doing it with your eyes wide open, fully aware of the risks and potential problems. When challenges arise, and small business owners will tell you that they always do, you will have the benefit of having already analyzed potential problems and possible solutions. You will have a Plan B when Plan A doesn’t work.
By solving problems before they happen, you substantially improve your odds at surviving the first year of being in business. Also, an honest assessment of potential problems may cause you to wait for a better business opportunity before you start a business.
Put it into practice: What are the greatest threats to your business? Make a list. What can you do to prevent these problems or respond if these problems occur? Next to each threat, write your ideas that come to mind.