Before you Quit your Job to Start a Business… Ask Yourself These Five Questions.
Of the four million new US businesses that open every year, about half are still in business after five years, according to the Bureau of Labor Statistics (Entrepreneurship and the US Economy.) In all fairness, not all of these businesses failed. Many were consultants who closed their solo practice to rejoin corporate employment or retirees who exited a non-sellable business. Most sources point to inadequate funding and poor cash flow as the leading cause of business failures which is akin to claiming the patient died when the heart stopped. Others link the flops to the owners’ flaws, misguided decisions, and egos in the way of getting help. Yet, among half of the businesses that still exist after five years, many owners beat these dismal statistics and enjoy an extraordinary livelihood despite their initial limited business background and capital. This begs the question: beyond having adequate business skills and enough capital, what else might improve the success of entrepreneurs?
Disconsolate owners commonly lament that they had no idea how “hard running a business” would be. The daily requirements of their chosen enterprise make their lives miserable. Yet, these same “hard-to-run businesses” prove to be successful for others who enjoy their entrepreneurial lifestyle. While coaching these business owners, I noticed a recurring theme. Those who pick a business that aligns with their strengths in career capital, leadership style, and their ideal life vision are more resilient, more creative, more successful, and also happier. They picked the right business for who they are and how they want to live.
So, how does one start the right business? It begins by first asking the right questions.
It begins with you.
This discussion sheds light on what existential and practical questions aspiring business owners should consider to best position themselves for success when making the major decision of getting into a business, should it be an independent startup, a turnkey concept (ie, a franchise), or the acquisition of an independent business.
I cringe when a soon-to-be business owner hails the economic merits of a business they want to create or buy as the only reason to invest. Or worse, how much they love the product. Surely, great profits and great products are essential. But no matter how authentic and delicious the Neapolitan pizza is, for instance, more is required to ensure its owner’s future success.
This, I wonder: does he know if this is the right business for him? Does he understand that other options might be a better and faster way to get the lifestyle he seeks? The myth small business novices often believe, even seasoned executives who have managed large budgets and teams in corporate environments, is that a small business is just a machine and a smaller version of a corporation. Once you plug it in, and oil all the moving parts, it will work no matter what. This is a rampant delusion, and here is why.
Fundamentally, a small business 100% depends on the mindset of its owner, especially during the early stage of growth when it is most vulnerable to crises of leadership. The leader of a small business is its most significant asset. If the leader is pleased with their life enabled by that business, it will be easier to succeed. If the owner invests in her personal growth, the company will grow and scale. Generally, the growth of a small business mirrors its leader’s heart and mind.
The opposite is true if the owner is miserable while running the business. For example, if he doesn’t enjoy interacting with its stakeholders: employees, vendors, customers, and the community, it is unlikely that the company will succeed. If the owner, their spouse, and kids resent the hours and days spent at “the shop” because he didn’t consciously choose a business that serves his priorities and his family’s, it will be a grinding uphill battle. A small business is like a marriage. And like a marriage, it is a partnership that rarely involves silent partners. How many entrepreneurs (or their spouses) blame their failed relationship(s) on the demands of a business that was cannibalizing their existence?
Business schools teach due diligence methods, projections of return on investment (ROI), and how to pitch the economic viability of an idea to venture capitalists. While this makes sense for a venture capital-funded startup, which priority is to satisfy the shareholders, it misses critical points for small to midsize owner-funded businesses. It also makes sense from the banks’ perspective. If financed with debt, business banks also require a profit-proving business plan. Small businesses are a huge part of the American dream and social mobility. Indeed, the financial success of a business is a crucial priority. But above all, business ownership is a vehicle to create a good life for its owners and family with the freedom to prioritize who and what is most important to them. When having a business comes at the cost of these priorities, most owners burn out. A burned-out owner is a poor leader. This is why exercising the early-stage work of starting the right business the right way is an essential part of success as a business owner.
If you are considering starting a small business of any kind, you might notice that while your index finger points at one business idea or another, three fingers are pointing right back at you. Thus, let’s begin with you and what you need to pick the right business for you:
- Understand your strengths and competitive advantage.
- Gain clarity on your vision of your ideal existence and your life’s objectives.
- Research businesses that are in alignment with both above.
- Only then, when you have identified the most ideal business for you and the life you want, exercise due diligence in vetting the economic viability of the business(es) you picked.
1 — Who are you?
Self-awareness can be difficult for most of us. We are usually more self-aware of our limitations than of our brilliance. Buried in your résumé is a gold mine of enlightening clues: the roles you had, what you learned, what you liked, and what you disliked about each experience. Think of what tasks you do well while others struggle. Here are a few examples:
- What indicators do you have of your effectiveness in teamwork, or do you work better solo?
- How likely will you influence others with or without an official badge of authority?
- Beyond your work experience, what is your typical behavior regarding change, details, analytics, relationships, and leadership? Some psychometric tests can be helpful tools to assess your current strengths and create a plan for further development.
- How you communicate and process information might point you to a sales-oriented business.
- How you handle changes and details might direct you toward a project-oriented business.
A common example of a poor fit is an entrepreneur who is an introvert with no sales and marketing experience, yet starts a home-based consulting practice that requires her to find customers through business development activities. Lured by low startup costs and minimal overheads, many consultants inadvertently choose or buy a venture requiring that they overcome their weaknesses instead of one that leverages their strengths. Eventually, they realize:
“They had no idea how hard running this business would be.”
Identify your genius zone, which is somewhere at the intersection of where you excel and what you genuinely enjoy. Everything else should be avoided, delegated, or outsourced.
These are difficult questions to answer alone. The right coach will show you what you might not be aware of and what is holding you back.
2 — Why do you want to own a business?
Beyond seeking freedom, flexibility, and a lifestyle that suits you, determine why you find business ownership attractive. Do you gravitate towards owning a business because you seek to learn new skills? A business can do that. Do you enjoy the game of competition and collaboration? A business can do that. Do you like developing others to their potential? A business can do that. Are you fed up with glass ceilings, grueling commutes, travel away from your family, and “reasons” for compensation that is incommensurate with your amazing performance and sacrifice? Your business will pay you what you truly deserve. Nonetheless, like any career, think of the owner’s job description with the business you are considering. Is this something that fits you like a glove, or do you anticipate a steep learning curve?
Evaluate the requirements of the particular business(es) you are considering. A client who had worked in high tech most of his career decided to open a retail shop without digging deep into the role he was about to assume. He found it painfully difficult to hire, manage and retain sales staff and managers in the retail industry. Back when he was in high tech, an HR department screened and vetted all employees. Consider the pros and cons of entrepreneurship. Sure, any quality or skill can be developed, eventually. A great advantage of business ownership is personal and professional growth. As your business grows, so will you as long as you are willing to step outside your comfort zone. But if you pick a business where you need to acquire completely new professional knowledge, will you be able to learn these new skills fast enough for the business to survive? If not, you have several options:
- You can reserve a greater working capital sum so that you can operate the business while you acquire the knowledge needed to ramp up the business. Depending on the business, this might be very expensive.
- You can also speed up the process and avoid mistakes by hiring a business coach who will guide you while you acquire new knowledge and learn what to outsource. Borrowing someone else’s knowledge while you ramp up and learn often is the most economical alternative.
The new skills you need to learn to run that business on your own have a price tag, not just in training but in the time it takes to become proficient. In other words, if learning new skills stretches the timeline to business profits, the costlier it will be to keep the lights on in your business and in your life.
3 — What is the right path to business ownership for you?
Consider the three paths to business ownership: 1- creating an independent startup from an idea, 2- acquiring a for-sale business, or 3- developing a turnkey concept such as a franchise or a business opportunity. Each path has a long list of unique features, benefits, and downsides. Before jumping in, aspiring entrepreneurs who objectively examine the pros and cons of each business path gain tremendous education and can avoid costly strategic errors in identifying the best business for them. No path is better. Anyone who claims that one is less risky, more profitable, or easier to operate than the others most likely has a self-interested motivation. What matters is to pick the path that aligns with your life objectives AND that capitalizes on your strengths. To achieve your personal definition of success in any business, you must clearly understand the pros and cons of each path. And then vet the economic viability of the business you pick.
From several decades of associating with and coaching business owners, I learned that this type of introspection and research is easier said than done. This is why I developed a framework to minimize the risks of mismatch between you and your business and get to profit faster with a roadmap titled “Right Business Right Life.” It has four stages: research, vetting, planning, and the launch. Each stage has milestones to objectively guide you in avoiding expensive mistakes and launching your business on a rock-solid foundation, should it be creating an independent startup from an idea, developing a turnkey concept, or aquiring a for-sale business.
- Starting a business from an idea:
With an independent startup, you have complete creative freedom to develop your idea for a product and business concept. Each decision is yours to make. The venture might entail greater risks since it is unproven and it could take years of expenses and opportunity costs before you figure out the right products, the right market, and the right systems. The Right Business Right Life formula helps you speed up success with step-by-step pre-launch research and vetting before you incur significant startup costs. In addition to ensuring that you start the right business for you, it guides you to validate and prove (or disprove) your idea for your independent small business startup idea so that when you are ready to launch it, you’ll avoid expensive trial and error.
- Buying an established business:
If immediate cash flow is your top priority, you might consider acquiring an existing business that is already profitable. Here, as an entrepreneur/investor, you have an opportunity to examine its historical performance and make your own projections. However, you might have less creative freedom in the short term. Often there will also be less potential to build additional equity from this initial investment. If the business is fully optimized, the seller is cashing on the equity. You are willing to pay for it in exchange for cash flow. Hence to grow additional equity, you’ll likely need to invest extra capital to expand and scale the business. In addition, finding the right business to acquire can feel like drawing straws. Although there are many businesses for sale, finding one that is successful in the sector of industry and geographic area of your choice can take months or even years. When you find a business you like, you’ll pay for the expertise of professionals, a CPA for example to verify the financials. The deal can still fall through in negotiations and you’ll have to start the research over. Still, if you are nearing retirement or you prefer a “plug-and-play” concept, it can be worth researching the acquisition of an already profitable independent business.
You might also consider a resale of an already developed franchise location. At a theoretical lower end of the risk-taking spectrum, a franchise resale can provide you with both positive cash flow and a proven and systemized concept with the support of a franchisor. As long as you don’t mind the control of a franchisor, and as long as you pick the right franchisor, this might be a good choice. Again, the Right Business Right Life formula guides you to objectively research and vet a for-sale independent or franchise business that you might acquire.
- Developing a turnkey concept:
If you are new to business ownership, or you feel uncertain about your current abilities to operate a business, you might consider a shortcut by beginning your business career with a franchise. In exchange for the franchise fee and royalties, you’ll leverage the systems, training, and support provided by the franchisor. Keep in mind that a franchisor will not give you a history of financials like the seller of an existing business would since the unit has yet to be developed. If “item 19” is included in their disclosure, you will have a general idea of how their other franchisees are performing in other territories. Additional but less obvious ways to validate the economic viability of franchise concepts are revealed in the Right Business Right Life formula. To some, franchise ownership can offer the comfort of a proven concept, the opportunity to develop business skills, and often in an industry that is new to them. New graduates who do not have a technical or business degree to land a decently paid corporate job, and who have access to some capital might appreciate how a franchisor’s self-interest in their success will provide foundational training for a nascent career in business. College applicants might even compare the ROI in a franchised business versus the tuition and living expenses for an undergraduate degree or for an MBA, for example. No doubt this was on the mind of Mark Zuckerberg’s dad when he offered him a choice — college or a McDonald’s franchise. Many successful independent business owners had first been franchisees who sold their successful franchise unit(s) to launch their first innovative startups. This said, there are great franchises and many horrible others that can ruin an owner’s life savings. It is imperative that you objectively research and validate any turnkey concepts beyond the seeming popularity of their product and the marketing hype. Engaging a franchise consultant, or a broker, to help you with your search can be useful. However, keep in mind that their compensation depends on you investing in any business that’s within their own limited network of 300+/- franchises, regardless of whether it is the right one for you or not. Only you can determine whether it is the right business for you. Hence it is critical that you invest in educating yourself with unbiased, practical knowledge to navigate the world of small to midsize enterprises or SMEs.
Again, none of these business ownership paths is intrinsically better or more guaranteed to succeed than others. Each has distinctive pros and cons and requires a unique method to prove or disprove its economic viability. What makes each ideal depends on how aligned they are with you, your strengths, your objectives, and your life vision.
4 — Do you want to own a business or be owned by one?
Contrary to popular opinion, solely aligning your hobbies or your passion for cars, clothes, beauty, food, or cool apps with your choice for a business is often unwise. Perhaps you excel at fixing cars, selling clothes, providing beauty services, giving yoga classes, making food, or developing apps. However, running a business successfully consists of spending your time strategizing, systemizing, networking, and growing it. Being the key or sole producer of revenues in your business is precarious. If you bootstrap your business and you need to run it AND provide its services or products for a while, growth will be slower but still possible, depending on your stamina. Consider the opportunity costs of time spent doing everything, especially if there are overheads such as rent and other fixed costs. Ultimately your vision should be to wean your enterprise from you as a producer. Otherwise, you just bought yourself an expensive job. Eventually, you, and your loved ones, will resent the exhaustion of doing it all. If you want a business for freedom and a lifestyle that you enjoy, be sure to pick a business that you can grow without relying on your exclusive input to generate revenues. A small business where you are the sole producer of revenues is not scalable because your own resource of time is finite.
Another key element to consider before choosing a business is the equity you want to build and your exit strategy, a rare thought in the mind of many first-time owners. If you are the main revenue producer, it’s unlikely that the business will build any equity. Revenues that depend on your individual contribution will disappear once you exit the business and sell it. Are you seeking to cash in your hard work of building a business in some years and sell it for multiples of its discretionary earnings? If so, ensure you are the leader of an enterprise, not just a job, and make the conscious decision to grow an optimized business machine.
5 — How do you want to live your life?
There are no reasons to approach business ownership like a corporate job that dictates much of its employees’ lives. Yet, most first-time owners are so programmed to make their life fit their job that they continue to live that way even when in business for themselves. Two key reasons to own a small business are the freedom and flexibility it can offer if you choose the right business model for you.
I have met entrepreneurs who did not first consider their business’ activity cycles and seasonality and became increasingly dispirited when discovering what they had signed up for. Purposely pick a business that will cater to your ideal life. Not one where you will need to arrange your life to accommodate its needs, again, as a job would.
After you take the time to ask these five questions you’ll have a framework to guide you in researching, finding, and launching the business that can deliver your ideal version of the entrepreneurial lifestyle. Many aspiring entrepreneurs are so dazzled by the prospect of striking it on their own that they only focus all of their research and planning on making the business work instead of first identifying a business that will work best for them. Most of these entrepreneurs eventually fail to create a successful life because they focus on finding the “hot” idea, concept, or trend or are sold one. Soon they discover that their business dream is a nightmare. Yet, when choosing the right venture for you, small business ownership can be an exhilarating career that gives you the freedom to craft a life of your own design and plenty of room for personal and financial growth. For greater success and happiness in life via business ownership, take the time to exercise due diligence with the research, vetting, and business planning, before you jump in and invest greatly. Seek to be self-aware of your strengths and your blind spots and have clarity on the life you want. Then align yourself with a business that can do all that.
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Hey there!
If you are thinking of creating or buying a business, consider surrounding yourself with unbiased advisors who will support you objectively in your research, in vetting, in planning, and finally, in launching the right business for you.
If we haven’t met yet, I’m Patricia Bottero. I am a huge fan of the freedom and flexibility that can be earned with a business you own. As a Start-a-Business Coach, I founded OPEN FOR BUSINESS, a start-a-business lab and coaching agency, because I found that a great cause of business failures stems from new owners who started or bought the wrong business or were sold one. From my decades-long career in the trenches of America’s Main street Business, I’ve developed the Right Business Right Life step-by-step formula to guide aspiring business owners in early-stage research and vetting of their ideal business.
If you wish to begin your entrepreneurial career on a rock-solid foundation by minimizing risks so that you can build a great life for yourself and your loved ones, I’d love to discuss your vision of entrepreneurship.
If we learn we are a mutual fit to collaborate, we’ll also discuss how I might be your guide and accountability partner in your research, in vetting, planning, and launching the right business for you so that you can succeed in crafting your life by design.
I invite you to book a free strategy call with me to discuss your business project.
Cheers,
Patricia Bottero, MBA- Founder at OPEN FOR BUSINESS
pb@openforbusinesslab.com
PS: To connect with me on LinkedIn: https://www.linkedin.com/in/patriciabottero/
