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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