At some point, we’ve all been there. Over the last few years each of us—at least one time—has become fed up enough with our jobs to consider starting a small business. The process always starts the same way: we do some research on the Internet, make a few phone calls, and run a set of rough financial projections. Then, when we believe our idea is solid enough to begin discussing it with others, we lay out our high-level plans to friends, relatives and co-workers . . . only to be brought crashing back to earth when someone asks the following question:
“But 8 out of 10 small businesses fail, don’t they?”
And while these fateful words are still ringing in our ears, we gather up our research and financial calculations, and toss them in the back of a rarely-used drawer.
The fact that your small business dream has an 80% chance of forcing you into personal bankruptcy is scary. But this singular statistic does not tell the entire story. When you have a chance, grab a piece of paper and write down 10 people at random from your friend, relative and peer network. Once you have 10 names on your paper, go back through the list and make an ‘X’ next to the people you believe have the knowledge, motivation and passion to start a small business and keep it going. How many ‘X’s do you have? Odds are, you have no more than three marks on your paper.
Do you see where I’m going with this? The fact is, 8 out of 10 small businesses fail because 8 out of 10 people who start them have no business doing so. And why do these companies fail? Because their newly-minted business owners continue to fall into the same three traps their predecessors did. If you’re tired of making money for someone else and considering starting your own company, be sure to avoid these VERY common new business pitfalls.
Trap #1: The “I’m Good At This–I Should Do it for a Living” Trap
When I’m not working 50 hours per week at my real job or spending my nights blogging, I’m learning the art and science of barbecue. I love barbecue, and happen to think my slow-smoked pulled pork and St. Louis-style ribs are good enough to be on the menu at any restaurant in the three-state area. With this belief in mind I recently cleared an entire weekend to do nothing but slow-roast various meats in a 225-degree hickory pit, and realized something: I hate doing the work. After two days of preparing, smoking, slicing and serving nearly 100 pounds of barbecue to my friends and neighbors, something finally occurred to me: hovering over a fire all day and constantly smelling like Hickory wasn’t what I wanted to do with my life. The lesson here is simple: to avoid the most common small business trap, you need to have the foresight to test-drive your business idea BEFORE you invest your life savings in it.
Trap #2: The “I’m Going to Pursue my Passion” Trap
Although the phrase “Do what you love, and the money will follow” makes a great opening line for a commencement speech (and one hell of a bumper sticker), there is a very important fact that most business owners ignore: your ‘passion’ may or may not actually pay a living wage. The whole point of starting a small business is to gain employment and financial independence—not to help you spend every waking moment in love with what you’re doing. In the real-world, having fun is what hobbies are for; and successful business owners understand the difference between doing something they love, and doing something they don’t hate that also pays extremely well.
Trap #3: The “I Can Start by Selling to My Friends and Relatives” Trap
The idea of sucking money out of friends, neighbors and relatives is no longer exclusive to pyramid schemers and MLM participants. People who are looking to start real businesses often use social networks as a marketing ‘crutch,’ and rarely look beyond their personal contacts when planning the growth of their business. But every budding entrepreneur needs to ask him or herself a very simple question: when my friends and relatives stop buying, how will I reach people who don’t know me yet? The answer to this question is called a Marketing Plan, and if you don’t have one, you might as well start sending resumes to Fortune 500 companies again.
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Author: Eric_Rudolf (76 Articles)
Eric Rudolf is Director of Marketing for one of the fastest-growing professional development and training companies in the world, as well as a featured small business writer for LegalZoom.com and RainToday.com—a major marketing and sales portal operated by the Wellesley Hills Group. Eric can be followed on LinkedIn or Twitter.
April 17th, 2010 at 6:15 pm
All 3 are very common factors in small business, and a huge factor in why most fail. Starting a business is just not as easy as some people make it seem. Sure, I guess some can be easy, but most are tedious work, and people realize that once they actually set out to make that dream a reality.
April 21st, 2010 at 10:20 am
A little research goes a long way when starting a business. It gives you the foresight necessary to try to build something successful.
April 21st, 2010 at 10:52 am
Agreed! A few hours of surfing the web or talking to a current business owner can go a long way. I think in many cases, people don’t do the research because they truly do not want to discover that their idea might not be feasible.
Thanks for writing!
- Eric -
June 1st, 2010 at 10:35 pm
Great post Eric..
Anderson..
June 2nd, 2010 at 10:22 am
Thanks for the comment, Anderson. We’d love to see you back here again soon!
- Eric -
June 19th, 2010 at 5:54 pm
Great post. And it speaks directly to my annoyance with so many people and their “fairytale” mentality. I think many small businesses fail because the owners just don’t realize HOW much work it is going to be, how much time they will spend getting it started and growing it into a successful endeavor. They subscribe to the Disney version of owning your own business…being the boss and having all the little birds and mice happily singing and doing the work for you and everything just falling into your lap. Meanwhile successful companies have the owner realizing they will be doing the dirty work, that they actually ARE Cinderella, and that there is no fairy godmother to come magically make it all work!
Shalon
June 23rd, 2010 at 1:26 pm
Hi Shalon:
You make some GREAT points. For whatever reason, over the years various entities (media, professional speakers, life coaches, mentors, etc.) have been beating this “Chase Your Dream–Work for Yourself!” drum, without taking any time to also explain the multitude of downsides, risks and traps that also exist. You speak as if you have definitely been there before
Thanks for writing, and good luck!
- Eric -
December 10th, 2010 at 3:39 pm
Don’t underestimate the power of passion.
I fully agree that passion alone doesn’t pay the bills, however, it’s a false assumption that making money and having passion are opposites. The two go very well together imho. Even more so: without passion for what you are doing, it’ll be very difficult to achieve financial success; you’ll drop out too easily when the unavoidable hurdles appear.
In a book I wrote, “Startup Best Practices: Conversations with Silicon Valley Entrepreneurs”, passion consistently ranks as an essential merit for successful entrepreneurs.
Have a look at more tips and tricks by downloading my book for free at http://www.efactor.com/sbp or visit http://www.StartupBestPractice.com.
December 10th, 2010 at 11:52 pm
I’ll grant you this not-so-subtle plug of your book, in exchange for telling you you’re completely missing the point. “Passion” should NEVER be used as a primary determinant for starting a business, and I can give you at least five reasons why: 1) the business you’re passionate about might not pay a living wage, even if run perfectly, 2) it might be a dumb idea, 3) it might be in a declining industry, 4) you might be a terrible business person, and 5) you might figure out down the road that you hate it. If you had bothered to speak with entrepreneurs who succeeded AND those who failed when writing your book, you would have discovered something quite enlightening—that the 8 out of 10 small business people who failed were just as “passionate” about their businesses as the 2 out of 10 who succeeded.
December 11th, 2010 at 11:20 am
Thanks for your feedback. 1) to 5) are potentially true, but the point that you are missing is that 1) to 5) can be true for ANY business. I fully agree that passion alone won’t make a successful business, but it sure helps a lot in having the perseverance to make it a success.
I’ve seen plenty of startups who went in it for the money primarily, because the prospects looked so good, only to find out that they were part of the 8 who failed anyway. I believe passion, TOGETHER with several other factors are essential in buidling a succesful company. It’s not either or but and and.
I think that people should always do what they’re passionate about. Whether to do that as an entrepreneur, as an employee or as a hobby, obviously depends on the person and the circumstances. But no matter what form, please follow your passion.
Thought provoking discussion by the way, nice.
December 13th, 2010 at 12:24 pm
I understand your perspective, and I agree. The point I was trying to make in the article is simply that being ‘passionate’ about something does not in any way guarantee success—and that the old saying “Do something you love, and the money will follow” is meaningless drivel, better suited for a commencement speech than a small business handbook. Thanks for taking the time to write, and good luck to you!