Going Into Business
So you are thinking of going into
business. This can have advantages and disadvantages. Running a
business of your own will bring a sense of independence, and a sense
of accomplishment. You will be the boss, and you can't be fired,
though there may be days when you would welcome it. Because you can
pay yourself a salary and the profit or return on your investment
will also be yours, you anticipate a good income once your business
is established. You will experience a pride in ownership - such as
you experience if you own your own home or your own automobile. You
can derive great satisfaction from offering a product or service
which is valued in the market place.
By being boss you can adopt new ideas
quickly. Since your enterprise undoubtedly will be a small business
- at least in the beginning - you will have no large, unwieldy
organization to retrain, no board to get permission from, each time
you wish to try something new. If the idea doesn't work you can drop
it just as quickly. This opportunity for flexibility is one of small
businesses greatest assets.
These are some of the advantages and
pleasures of operating your own business. Now take a look at the
other side. If you have employees, you must meet a payroll week
after week. You must always have money to pay creditors - the man
who sells you goods or materials, the dealer who furnishes fixtures
and equipment, the landlord if you rent, the mortgage holder if you
are buying your place of business, the publisher running your
advertisements, the tax collector, and many others. All of these
must be paid before you can consider the "profits" yours.
You must accept sole responsibility
for all final decisions. A wrong judgment on your part can result in
losses not only to yourself but, possibly, to your employees,
creditors, and customers as well. Moreover, you must withstand,
alone, adverse situations caused by circumstances frequently beyond
your control, To overcome these business setbacks and keep your
business profitable means long hours of hard work. It could very
well not be the work you want to do. As someone else's employee you
developed a skill. Now, starting a business of your own, you may
expect to use that skill 40 or more hours a week. Instead, you must
perform the management tasks as well. You must keep the books,
analyze accounting records, sit back and do long range planning,
jump and handle the expediting and, when everyone has gone home and
you finally have caught up with the paper work, you may even have to
sweep the floor.
As your business grows and you become
more successful, you may not do some of these activities. As an
owner-manager, however, you must - at least at first - give up the
technical aspects you know and enjoy doing, and focus on the
management aspects. To get your business off to a successful start,
you must be a manager not an operator.
You will never be entirely your own
boss.
No matter what you choose -
manufacturing, wholesaling, retailing or service business - you must
always satisfy your customers. If you don't give the customers what
they want, they'll go somewhere else and you'll be out of business.
So every customer, or even potential customer, is your boss. Your
creditors will also dictate to you, and your competitors' actions
may force you to make decisions you don't want to make. National and
local government agencies will insist that you meet certain
standards and follow certain regulations. The one thing you can
decide yourself is how you will satisfy all of these bosses.
Are You the Type?
The first question you should answer after recognizing that there
are two sides to the prospect of establishing your own business is
"Am I the type?"
You will be your most important employee. It is more important
that you rate yourself objectively than how you rate any prospective
employee. Appraise your strengths and your weaknesses. As a
prospective operator of your own business, acknowledge that you are
weak in certain areas and cover the deficiency by either retraining
yourself or hiring someone with the necessary skill.
Numerous studies have been made of small business managers over
the years. Many look at traits and characteristics that appear
common to most people who start their own businesses. Other studies
focus on characteristics that seem to appear frequently in
successful owner-managers.
First, consider those characteristics that seem to distinguish
the person who opens a business from the person who works for
someone else. These studies investigated successful and unsuccessful
owners, some of whom went bankrupt several times. Some were
successful only after the second or third try. The characteristics
they share might almost be said to predispose a person into trying
to start a business. Of course, not all of these characteristics
appear in every small business owner-manager, but the following seem
to be most predominate.
Strong Opinions and Attitudes
People who start their own business may be members of different
political parties, feel differently about religion, economics and
other issues. They are like everyone else. The difference is they
usually feel and express themselves more strongly. This is
consistent. If you are going to risk your money and time in your own
business you must have a strong feeling that you will be successful.
As you will see later, these strong feelings may also cause
problems.
If you want to start your own business you probably have mixed
feelings about authority. You know the manager must have authority
to get things done, but you're not comfortable working under
someone. This may also have been your attitude in a scholastic,
family or other authority structure.
If you want to open you own business you are likely to have a
strong "Need for Achievement". This "Need for
Achievement" is a psychologist's term for motivation and is
usually measured by tests. It can be an important factor in success.
The person who wouldn't think of starting a business, might call
you a plunger, a gambler, a high risk taker. Yet you probably don't
feel that about yourself. Studies have shown that very often the
small business owner doesn't differ from anyone else in risk
avoidance or aversion when measured on tests. At first thought this
seems unreasonable since logic tells us that it is risky to open
your own business. An Ohio State professor once explained this
apparent contradiction very simply. "When a person starts and
manages his own business he doesn't see risks; he sees only factors
that he can control to his advantage."
If you possess these traits to some degree or other it doesn't
mean you will be successful, only that you will very likely start
your own business. Some of these characteristics in excess may
actually hamper you if you are not careful.
The characteristics that appear most frequently among
"successful" small business managers include drive,
thinking ability, competence in human relations, communications
skills and technical knowledge.
Drive, as defined in the study, is composed of responsibility,
vigor, initiative, persistence and health. Thinking ability consists
of original, creative, critical, and analytical thinking. Competency
in human relations means emotional stability, sociability, good
personal relations, consideration, cheerfulness, cooperation. and
tactfulness. Important communications skills include verbal
comprehension, and oral and written communications. Technical
knowledge is the manager's comprehension of the physical process of
producing goods or services, and the ability to use the information
purposefully.
Motivation or drive has long been considered as having an
important effect on performance. Psychologists now claim you can
increase the motivation and the personal capacities that will
improve your effectiveness and increase your chances for success.
Much of the development of such achievement motivation depends on
setting the right kind of goals for yourself.
What Business Should You Choose?
Many of you have already decided what business to choose. Others
may still be seeking answers from counselors. Whether you have
decided or not, you will find it helpful to continue your
self-evaluation.
Begin by summarizing your background and experience. Include
jobs. schooling, and hobbies. Then write down what you think you
would like to do. Does what you would like to do match up with what
you have done? It is helpful if your experience and training can be
put to direct use in your new enterprise.
What are your prospective needs? What are your prospective
customers' needs? You may make money doing something you don't like
if people will pay for it. On the other hand, you will never make
money if people don t need your product or service no matter how
happy you are doing it. Experts have said more companies fail
because they are in the wrong business than because they are
"doing business wrong".
Read, listen to the experts, talk to business people, try to
determine where growth will occur. Most new businesses can only get
customers by taking them away from someone else, or by attracting
new people entering the area. In other words, don't start a
contracting business in a community where the population is
decreasing even if you are a good contractor.
At this point, try to match your background and interests with
what you see the needs to be. If they match, wonderful. Now all you
have to do is discover how to offer the customers more for their
money than do your competitors.
If the needs and your background don't match, don't despair. Get
training by working in a company that provides a product or service
that is needed. Find a job in a well managed, successful company of
the kind you are contemplating. Then absorb as much management
know-how as you can while learning the technical skills.
Education can help too. While there may be no educational
requirements for starting your own business, the more schooling you
have along the right lines the better equipped you should be.
(Some fields require licenses, certificates, even degrees in
specific educational areas.) Certainly it is helpful if you have had
courses in record keeping, sales and communication. These needn't be
college or even high school courses. They can come from adult
education programs and the like.
Is there a need for what you want to sell or do? Are you prepared
to fill that need? Are you interested in the area? Can you learn
what you need to? Will there be a continuing and growing need for
your product or service?
Your Chances of Success
What are your chances of success if you go into business? New
businesses are always being started. Almost as many are failing or
being discontinued. A year of poor business conditions is likely to
be followed by a greater than average number of failures or
closings. A year of good business conditions tends to be followed by
large increases in the total number of businesses. In general, the
number of firms increases with increases in human population, total
personal income and per capita income and since these factors have
increased regularly, the total number of small businesses usually
rises every year.
This growth is not free of growing pains, however. At the same
time new businesses are being born other businesses are being
discontinued. Some of these discontinuances are legally business
failures; other owners give up to avoid or minimize losses and are
not failures in the strict sense. Still others discontinue for
reasons such as the death or retirement of the proprietor, the
dissolution of a partnership, or the sale of the business to a new
owner.
Younger businesses tend to discontinue first. Many do not make it
through the first year. The discontinuation rate of those that
survive this first year "burn-in" declines steadily until
at the end of several years the rate has dropped dramatically. So,
your chances of success improve the longer you stay in business.
Poor management is the largest single cause of business failure.
Year after year, the lack of managerial experience and aptitude has
accounted for around 90 percent of all failures analyzed by Dun
& Bradstreet, Inc.
Many factors may adversely affect individual firms over which
owners have little control. In such cases, the astute manager can
often soften the blow or, sometimes, change adversity into an asset.
Examples of factors over which the owner has little control are
overall poor business conditions, relocations of highways, sudden
style changes, the replacement of existing products by new ones, and
local labor situations. While these factors may cause some
businesses to close, they may represent opportunities for others. A
local market place may decline in importance at the same time new
shopping centers are developing. Sudden changes in style or the
replacement of existing products may bring trouble to certain
businesses but open doors for new ones. Adverse employment
situations in some areas may be offset by favorable situations in
others. Ingenuity in taking advantage of changing consumer desires
and technological improvements will always be rewarded.
In the final analysis, it is up to you. Will your management be
competent? Will you be able to judge, and then satisfy, your
customers' wants? Can you do this accurately and quickly enough to
more than compensate for risks due to factors beyond your control?
Such accomplishment requires expert management.
Your Return on Investment
Will the rate of return on the money you invest in your business
be greater than the rate you could receive if you invested your
money elsewhere? While your decision to go into business for
yourself may not depend entirely upon this, it is a factor which
should interest you. Too frequently people invest money in their own
businesses under the misapprehension that the financial return will
be far greater than the return from other investments. Investigation
of the average annual returns in the line of business in which you
are interested may be worthy of your time.
Your decision to go into business may not depend entirely on
financial rewards. The size of the potential return on your
investment may be overshadowed by your desire for independence, the
chance to do the type of work you would like to do, the opportunity
to live in the part of the country or city you prefer, or the
feeling that you can be more useful to the community than you would
be if you continued working for someone else. Do not overlook such
intangible considerations. But remember, you cannot keep your own
business open unless you receive an adequate financial return on
your investment.
