Almost No One Knows How to Start (and run) a Small Business

Seriously. Almost no one.

I’m sure you’ve heard that somewhere around 80% of all small businesses fail. According to the Small Business Administration (SBA) Office of Advocacy’s 2018 Frequently Asked Questions, 80% of small businesses actually survive the first year. Surprised? I was, too.

But after the first year, it gets kind of ugly. Roughly half make it past five years, and only a third make it to ten years. That means that ten years out, 33% are still operating and 66% have closed their doors.

Why would this be?

According to a Forbes article by Chad Otar, there are five primary reasons that small businesses fail.

• No market need
• Not enough capital
• Not the right team
• Competition
• Pricing

If I had to boil this down to just two things, I would say it’s 1) planning on the front side; and it’s 2) planning on the back side. So, yeah… it’s all about the planning. 100%.

Folks seem to think that jumping into a small business is easy. I can’t tell you the number of people I have recently heard say, “I think I’ll open a bakery.” Sounds easy enough, I guess. I think these well-intentioned, would-be entrepreneurs probably really enjoy making muffins or cakes or cinnamon rolls at home and it seems like scaling that up wouldn’t take too much effort.

But have these people worked in a commercial bakery before? Do they know what equipment is required? Where to get it? How much that equipment costs? How to source flour, sugar, butter, food coloring, flavorings, product boxes, etc.? Do they understand the health codes involved (the FDA Food Code from 2017 is 767 pages long!)? What about OSHA regulations? Or licensing? How to hire? How they’re going to keep books? Pay taxes? Manage local city regulations?

Do they already have an established customer base or are they starting from the ground up? How will they pay themselves during the ramp up period? How will they get their business out there? How will they price their goods? If they’re doing large events, will they need contracts? How about a point of sale?

Where will the money come from for initial inventory and equipment? Where will the money come from to pay the rent? Is there somewhere affordable to rent? Will that location generate enough walk-in traffic to sustain? Will they be taking out loans to purchase equipment, pay startup costs, etc.? Do they have the credit score to secure a loan? What are the repayment terms? Is that loan a business loan? Is there liability to them personally if they default?

These are just a few of the questions that come to mind immediately. And I can see how, if someone had not thoroughly researched all of them–and any additional questions that would arise upon answering those initial questions–starting that small bakery business would be beyond challenging. It would be roadblock after roadblock, and likely financial hit after financial hit, which would cause even the most tenacious to consider closing the doors.

Let’s say that the home baker really had planned for most of the above. He’s off and running in a prime location, with plenty of funding and savings to cover his salary. He’s got a great product, well-sourced vendors, an amazing customer base, and all of his licensing, taxes and regulations nailed down.

The first few months are awesome and, even though he’s putting in crazy hours, he’s so excited to be doing his own thing that he’s barely aware of the toll the work is taking on him. Six months in, he’s not making enough to hire another person, but at 70 hours a week he needs a break. He’s barely seen his family, he’s so tired of the smell of cake batter he’s physically nauseous when he walks through the door, and he hasn’t been able to really clean his work space or his reception area because he’s been between his mixer, oven, and counter 40,000 times. He’s exhausted. What seemed like a really fun new venture has become a drag on his mental and physical well being.

I’m seriously not trying to be a Debbie Downer here. But this is not an unrealistic scenario. Most would-be entrepreneurs (at least 66%) really have no idea what it takes to start and run a small business. It’s an enormous undertaking, both on the front side and on the back side.

Why is this? Because most of these people have never run a small business before. And if they have, and it has failed, they haven’t gathered all of the information about why it failed before they start off on the next adventure.

If you’re thinking about starting a small business, you go ON with your bad self! It can be extremely rewarding and financially satisfying, too. But you have to be prepared to give what it takes, which really means PLANNING. To help you with that preparation, I have put together a FREE Small Business Startup Questionnaire. It will never take into account absolutely every question you need to answer, but it covers a lot of the big ones. Roll through the list. Do you have most of the answers? If not, start at the beginning and don’t jump in until you have them! Follow along here because I’m going to go through them in great detail in the coming weeks!

I can’t guarantee that your small business will succeed, but I can guarantee that those that fail to plan, plan to fail. Don’t be one of those! Do your homework now and kick off your business the right way!

Stay tuned for next week’s installment–What’s Your What? How to Define Your Product or Service, Part 1.