Willingness to Stick It Out

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By Paul J. Christopher

Being grounded means that you understand that a business does not turn on a dime. It takes time, and the willingness and ability to stick to it are extremely important. The fact is, it takes time to build a business, for a reputation to be established, for customers to know you, and for vendors to trust you. It takes time to write a business plan, to modify that plan, and to implement that plan (and then to modify it again, as often as needed). It takes a day just to get the cable guy out to connect your Internet service.

A willingness to stick it out means that you are sufficiently a risk taker, that unless obvious disaster hits, you can see a future for yourself in your chosen business and will devote the energy to slowly lay the foundation for your success. It also means a willingness to make sacrifices—personal, social, and financial.

The kind of business you choose, with which you feel most comfortable, will be one that can be supported by your lifestyle and your finances. Starting a small Internet-based business is a great deal easier on the pocketbook and your psyche than making a five-million-dollar offer for a small restaurant chain—open 24 hours aday, seven days a week. Both have a degree of risk; both require grounding and commitment. But the latter is an expensive, aggressive plan. Can you support such a venture emotionally and psycho-logically—or any one of hundreds of ideas that may require more financial and psychological resources than you can come up with?

A key component for any entrepreneurial drive is the support system. A spouse and family not fully committed to the new venture are a recipe for disaster. Without being told, they know that they may have to sacrifice to help ensure the business’s success.This may not be a commitment everyone is willing to make. A great deal will change:

  • working out of the house
  • less vacation and family time
  • postponing major purchases such as a new house or carlonger working hours
  • restrictions on use of part of the home space for an office
  • personal as well as financial stress

Because the value proposition of owning your own business is so high, the appeal to many people so strong, there can be   a compulsion to act—to make decisions before all the support mechanisms are in place. Enthusiasm directs individuals to want to move quickly, responding to perception that an opportunity will be lost. Don’t let that sway you. Caution and thoughtful prudence should always rule the day. There will always be more deals, more opportunities, and a host of business choices. Don’t let others convince you that you must act now. You are being hustled—just as when the used car salesman tells you that this is the only vehicle like this on the lot at this price. Indeed, you say—and you should. Resist the pressure to act hastily.

Your ability to go the extra mile, to stick it out until the business matures and is financially sound, is strongly influenced by other support groups as well, such as partners or investors (active or passive), relatives and friends, former colleagues and business contacts, a business coach, accountants and bankers, lawyers, and tech consultants. Each support group has a different function. Accountants and lawyers serve unique roles and their expertisemay be infrequent; they will, however, inevitably be critical to your success. A business coach or your spouse may be your ultimate support personnel, since she will listen, observe, advise, counsel,and otherwise encourage you in your everyday endeavors.

Starting a business is something like going to war. It seems like a good idea at the time: bands play, politicians give speeches, promises of a short fight are made, zeal and patriotism are high. Of course, wars are never short and never without sacrifice of personnel and treasure. The longer the war goes on, the more difficult it becomes. You open your business with a reception, an announcement in the paper, mailings to all of your friends and colleagues; you are greeted with kindness, enthusiasm, and encouragement. Weeks later the phone calls stop, the cards, letters, and emails cease, and it is now the daily grind of trying to build a business. The war is on.

Risk and Reward

When you are trying to determine the kind of business best for you and your circumstances, know that you will always take on some risk. What is important is that the risk be in some proportion to the future reward. Consider a stock market investor who buys a company’s shares at a very high price; he does so with the expectation that he has paid a premium because he is sure that there is very little risk from the investment.

The Library: Free Information

It should be no surprise that your local library has a wealth of useful free information.

One of the largest group of library patrons is businesspeople of all stripes. What the library offers is almost unlimited outreach and information. This information source is not just the stacks of books or racks of magazines in the physical space.

The library also has sophisticated and talented reference specialists, who can help you find the information you need or find it for you. Almost every library is part of a cooperative lending consortium: if the material you want is not there, it can be borrowed from another institution.

Your future business should be evaluated in much the same way. If your expectations are that you will gain $500 a month in extra income, your risk expectations should be rather low. If, on the other hand, you have expectations of starting or buying a substantial business that will provide long-term security over your lifetime, your risk/reward ratio will be much higher and very different. Business owners get into a great deal of trouble when they invest heavily, taking on debt or a second mortgage for a house, and the business proposition is either out of balance because of potential future revenue (e.g., you paid too much for the business) or it is a bad business model with little chance of success (it should have been bought for a bargain price, not at a premium).

Risks can come in many forms. Naturally and obviously, there is financial risk: you invest and your business fails and you lose your capital. But you may have lost more than that: You may be upto your ears in debt with bank loans and credit card advances. You may even have lost your house because it was used as security for the business. You may ultimately file for bankruptcy and must start again—without a full-time job, adding insult to injury.

There is also economic risk: You have an excellent concept, a well thought-out plan, financial backing, and the professional expertise to be successful, but the overall economy falls into recession. Money from lenders or investors disappears overnight as both groups become more conservative. Vendors you had counted on demand payment up front or put limits on your credit line. Customers you had counted on are buying less or are overly price-sensitive. Suddenly you are constrained by events over which youhave no control.

There is always interest rate risk: you are the least likely to get high credit limits and good rates because you are the most likely to fail. (Bankers, too, understand risk and reward and will lend to new ventures only if they are assured of a premium on their loans.) If your new company is capital intensive, that is, requires large purchases in inventory, equipment, or personnel, small increases in interest charges can be like a cancer on the business—slowly eroding net profit and cash flow. Once interest rates go up, they tend to move quickly; just as predictably, they tend to go down very slowly as banks and financial institutions attempt to recover lost profits from bad loans. As a business owner, you have little choice but to accept and anticipate interest rate changes. As a borrower, you can do nothing to change this cycle—only avoid it by not borrowing at all, using your assets and other people’s money (“OPM”). You may not have a source of investment capital available, so borrowing may be your only recourse to fund the business.

There is also marketing risk, which can be an odd assortment of outside events that you cannot control either: product obsolescence (particularly in high-tech and consumer products); better or cheaper product launched by a competitor; loss of a major distributor; loss of key (hard-to-replace) personnel; and delays in product launch.Some marketing risks you may be able to control—within limits. Others, such as an unexpected resignation of key personnel, you cannot control.

Operational risks are the easiest to control and anticipate, but that does not mean that they are not out there and that they cannot bring a business down. A dishonest partner or embezzling employee; a supplier who goes out of business; a warehouse fire; a catastrophic computer failure—these are just some of the kinds of operational risks that can destroy a business. Good internal controls, adequate follow-up on problems, and vigilance may ultimately reduce these kinds of risks.

Capitalization risk is one of the most difficult problems for new businesses. Even though you are grounded, even though you wrote and rewrote your business plan, even through you did a thorough analysis of cash needs in years one and two, you find yourself undercapitalized—unable to hire and train employees, cutting the marketing budget, not paying yourself a salary (or for that matter reimbursing yourself for ordinary business expenses), and unable to pay basic bills on time. This is frustrating because you felt you had the numbers down pat—with a cushion to spare. Everything costs more, and there are always unanticipated expenses, some of which can be substantial.

Undercapitalization is so stressful that only business owners with iron resolve do not give in to the pressures. And, of course, the more you need the cash, the harder it is to find the cash. Bank lines of credit are maxed out and the banker says no to any additional funds. Investors look at your income and cash flow statements and see only red and turn you down for investment. Your spouse, family, and supporters are sure that putting additional money into the business is a bad idea—their view is to cut your losses, get a day job, and try to dig yourself out over the next ten years.

Finally, include management risk—the risk that you, your staff, or your partners simply lack the skills or expertise to pull it off. Of particular concern is you as the leader/owner/founder and whether you have the necessary skill sets to management business functionally. Small businesses, by definition, fall short in depth ofmanagement—it may be only you, not a full staff of departmental experts. Can you make up for this structural deficiency? Thus the discussion comes full circle: matching background and experience with the type and kind of business you wish to own.

 

book cover: How to Get a Great Job: A Library How-To HandbookThis article is excerpted from the book The Entrepreneur's Starter Kit:50 Things to Know Before Starting a Business by Paul J. Christopher (2012, Huron Street Press, an imprint ALA Editions).

 Please note that unlike the majority of content on the @ your library website, The Entrepreneur's Starter Kit:50 Things to Know Before Starting a Business is copyrighted material and is not available for reuse under Creative Commons license.

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