Starting a Business that will Succeed

According to the SBA, over 50% of small businesses fail in the first year and 95% fail within the first five years.

I had frequently seen this statistic.  However today, the flood gates opened thanks to some special conversations I’ve had with successful business people that were just unlocked by a chapter in Malcolm Gladwell’s Outliers.

Let’s start by assuming that people who start their own businesses, have a unique talent for the industry at hand, and a passion that drives them to want to succeed.  (We may already be on shaky footing with this assumption, but for any business to truly have a chance, this has to be true.)

So we have aptitude and desire.  Is that enough?  I myself, used to think so, but my mind has been changed.

I think there is a chain of logic here to consider when launching a new venture.

1) Environment-By this I mean location, timing, and frame of reference.  Like NASA, you not only need a great place to launch from, but conditions have to be right, and the team has to be at a place in their lives where they are ready to complete the mission.  The importance of these factors can be seen in the following points, and clichés on timing and location are rampant, but mostly true.

2) The 10,000 hour rule: Gladwell makes a point in Outliers about a fact I never knew.  In any given industry, sport, discipline, etc the key successful people have one thing in common . . .practice.  More specifically, at least 10,000 hours of practice.  This is true from Bill Gates to The Beatles and everywhere in between.  Innate talent when not exercised much more than the other guy doesn’t cut it.  It’s a fact. 

3) Loyalty does not equal promotability.  I have heard many C-Level executives refer to phenomenon known as being “promoted to the level of incompetence”.  An employee has done a great job at X for years, and you put him or her in charge of Y.  Oops.  Bad move.

I had this happen to me.  I worked for a company for 5 years in a senior sales role.  Things were clicking, firing on all cylinders.  Money was good, family life was great.  I knew my job in and out.  I was head hunted by a competitor to come and be a Branch Manager and launch a new division.  I didn’t know the 10,000 hour rule.  If I did, I would have realized that 5 years of employment at 50 weeks per year and 40 hours per week equaled guess what. . . 10,000 hours.  I was doing well, because I had finally “practiced” my job for long enough to be a major cut above my peers. 

I took the new role as a challenge and did well at the Sales and Marketing portion, but had a more difficult time managing the AR and AP, assuring quality, commanding the project managers’ attention etc, as I had no practice in that arena.  It took me about 18 months to realize my core strength was in the skill set I built over those previous 5 years and to return to what I am great at.

4)  Know when to fire yourself.  This is what makes a great leader.  Know your strengths and don’t hire yourself to do things outside of them.  Surround yourself with people who’s strengths are your weaknesses.  Utilize their 10,000 hours of practice in the areas they earned them in.  Don’t confuse aptitude for success, especially in a start-up where small decisions cause huge problems in management and cash flow that kill almost every business early. 

5) CEO’s only need to know 2 things.  People skills and accounting.

I had a client who told me this.  He ran several successful TV stations and newspapers, had multiple homes, and a private jet that took him back and forth between them.  I didn’t quite get that statement at the time, but in light of the previous 4 points made above, I think that he was completely right. 

In his book Small Business Management, Michael Ames gives 10 reasons that small business fail.  5 of those have to do with poor cash and inventory management.  A solid knowledge of how a balance sheet works, by the guy at the helm, seems to be key.  (Funny enough, the number 1 reason Ames gives is. . . “Lack of experience”.  10,000 hour rule anyone???)

A CEO who knows how to manage people, who has the foresight to hire people uniquely qualified to do things he is not, and the accounting knowledge to avoid the 5 money mistakes most small businesses make, seems to me well suited to take on the challenge.

So what do we take away from this???

If you want to start a business, and be in business 5 years down the road:

  • Look for the signs
  • Exercise your talents excessively
  • Be humble
  • Surround yourself with a diverse group of people
  • Focus on using money wisely
  • Learn how to treat people in a way that inspires them

Sounds like a message similar to one in another book I read once, but I can’t quite remember the title of that one right now, although I hear it is quite popular 😉

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