March 08, 2014 • By Dennis Beaver
If you, or someone you know is seriously considering starting a new business, today’s column is intended to be the kind of sudden awakening that only a splash of cold water or the sound a fire alarm at midnight can produce.
As you will see in a moment, questioning your decisions, perhaps even asking if you have completely lost your mind rarely comes from friends.
If answers to the probing questions you will find here lead to a serious reconsideration-or abandonment—of those plans, then more than money will have been saved.
“What are you able and willing to risk?” asks Gary Goldstick, based in Lake Oswego, Oregon, one of America’s foremost business turnaround consultants and author of Business Rx, How to Get in the Black and Stay There (www.ghgoldstick.com)
“Risk,” Goldstick points out, “goes well beyond money; but that’s the starting point.”
If I fail what happens to our life style?
How much money am I willing to risk? You simply have to ask yourself this question, as starting a business is always an iffy proposition. Chances are excellent that everything you sink into it will be lost. The Bureau of Labor Statistics reports that on average 55 -60 percent of new businesses fail within the first five years and 75 percent fail within the first ten years.
Then, go one step further, and ask yourself, ‘How much can I lose and still maintain anywhere near the life style that we have become accustomed to? Is if fair for me to jeopardize our comfort, educational plans for the kids, our retirement, because, like the Johnny Paycheck song, I want to sing, “Take that job and shove it I ain’t workin here no more!”
“These are the first, and usually the most important questions which must be answered honestly and with the agreement of your significant other or spouse,” Goldstick cautions.
Now, let’s assume everyone is willing to roll the dice and step on-board the Business Train. Will it take you to that promised land of customers knocking on your door? What makes you so sure?
Before signing that lease or opening your business bank account, answer this next set of questions:
What evidence do you have that your business concept will succeed?
“What is your business concept – your idea? Let’s say you want to open a store. What is it going to sell, where is it going to be located? What customer traffic do you expect? Do you have data that this type of a business has succeeded in similar communities? What evidence do you have to believe that it could be successful where you live?
“Even very bright, accomplished people fail to ask these questions, and the results can be tragic. I know a couple in Portland Oregon in their mid sixties – the husband is 59 and a CPA with a Fortune 500 company-who fell in love with the idea of opening a spice store, similar to one they had seen one in the Bay Area..
“Tired of the corporate world, they decided to “take the plunge”, sold their house, cashed-in their 401K, put everything they owned on the line and, encouraged by their friends, opened their own little spice shop in one of Portland’s small trendy bedroom communities.
“With most spices, a little goes a long way. We just don’t buy much or often. So, a large population base is absolutely essential for a spice shop to be successful. They have been operating for one and a half years and are not yet at break-even. This business has little chance to succeed. When the wife spoke with me she said, holding back her tears, ‘We have NO MONEY!” The husband, a professional who should have known the numbers and the risks, was silent.
Why friends are the worst source of advice ?
“Friends encourage you, and always provide lots of emotional support.” Goldstick observes, adding, “You will hear only compliments, about tax advantages, being your own boss, how exciting not taking orders from anyone, and on it goes, well-meaning but often dangerous support in an atmosphere where anything that isn’t positive will be filtered out.
“Few people will say, ‘Are you out of you mind!!! Why do that at your age?’”
“Unless you go to a financial analyst, business consultant or someone who will vet your idea, you will not get objective feedback. Nobody will say, ‘Have you really thought this thing through?”
Still thinking of going into business? Is someone in your family a great cook?
If it’s a restaurant you want to open don’t miss our next story. And, ever wondered why a business owner refuses to admit that they are in trouble? We’ll tell you that as well.
Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.