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Chapter 1

The Truth of It All

THE PAINFUL TRUTH is that the majority of first-time entrepreneurs who take the plunge into business ownership fail early and often. The seeds of their downfall are sown early as the entrepreneur’s blind ambition and belief in their personal quest often leaves logic and sound planning in the compost pile. In this day and age, virtually all businesses’ strategies are to grow quickly with alliances and other strategic partners. Gone are the days of building a business one brick at a time and taking pride in 5 to 10 percent annual corporate growth.

Over the last two decades, I have tracked and interacted with approximately 315 firms. Of these, approximately 22 percent, or seventy, of the firms reached the minimum baseline of success they had set out for themselves. About thirty-three of these baseline firms have truly built or sold the business of their dreams, and thirteen of these firms would be considered a smashing success. These sobering facts—those thirteen successful ones represent barely 4 percent of those that began— should warn the players in the arena, as well as those ready to leap in, that you must be prepared more than ever for launching correctly and being able to execute quickly. These numbers are reflective of national averages so caveat emptor, or buyer beware!

The following charts emphasize this point, that entrepreneurs have a hard road to travel. And some industries make for an especially challenging route.

The chart below shows the overall failure rate of businesses, no matter the sector or industry.

LEADING MANAGEMENT MISTAKES

 Going into business for the wrong reasons

 Advice from family and friends

 Being in the wrong place at the wrong time

 Entrepreneur gets worn-out and/or underestimated the time requirements

 Family pressure on time and money commitments Pride

 Lack of market awareness

 The entrepreneur falls in love with the product/ business

 Lack of financial responsibility and awareness

 Lack of a clear focus

 Too much money

 Optimistic/Realistic/Pessimistic

BUSINESSES WITH BEST RATE OF SUCCESS AFTER FIFTH YEAR

 Religious Organizations

 Apartment Building Operators

 Vegetable Crop Productions

 Offices & Clinics of Medical Doctors

 Child Day Care Services

BUSINESS WITH WORST RATE OF SUCCESS AFTER FIFTH YEAR

 Plumbing, Heating, Air Conditioning

 Single-family Housing Construction

 Grocery Stores

 Eating Places

 Security Brokers and Dealers

 Local Trucking

Source: http://www.statisticbrain.com/wp-content/uploads/2011/07/businessfailure.jpg.

In virtually every sector looms the fear and specter of a competitor taking quantum leaps ahead that will eclipse your own Herculean efforts. Endlessly we hear the lament of a business owner about some far-off company or competitor, an obscure participant on the playing field, who suddenly releases a new product that has dire consequences for the rest of the players!

Time and timing are your two cruel enemies. There is no longer the luxury of stepping back and admiring what you have created. As an owner, what you have built today you must metamorphose drastically month after month. Scalability and foundations for growth will be your hallmarks of success. Unless you have a unique patent or technology that needs not be deployed, the race or “land grab” for market share is always underway in a helter-skelter rush to market prominence.

Why is the failure rate [of new businesses] so high?

There are too many “unfit” entrepreneurs entering markets for the wrong reasons. They are drawn to entrepreneurship by the perceived image of the entrepreneur—a rich, famous, smart individual who stands out as hero … I use the term “unfit” here to refer to people who, while [they] may be good at the technical work they do, are NOT good at creating, running, or growing businesses.¹

Over the last decade, the rapid turnover and creation of new businesses has shifted the focus of small to medium-size business from “build to hold” to “build to sell.” The enormous amount of capital that can now be deployed by strategic partners, private equity groups, angels, and family offices to buy what once would have been considered a firm not ready for market has changed the playing field forever. This is all good news for the entrepreneurs who have come out of the chute hard and built their company to be acquired. These professional buyers and investors are not necessarily looking for a perfectly humming company. They are seeking to acquire an organization that is advancing rapidly in its industry and oftentimes has a large geographic or industry footprint. These future buyers of entrepreneurial businesses pride themselves (for right or wrong) in having a deep bullpen that can join or direct the entrepreneur’s firm to even more rapid growth. These professional buyers seek to combine it with other synergistic partners to drive the company further and faster in a way a stand-alone entrepreneur never could.

If, however, entrepreneurs seek a lifestyle business or want to buy a job, then their goals and aspirations are different from a “build to sell” campaign. The long-hold owners can run their business in a much looser fashion and take liberties that they will not be called on the carpet for. Being part of a stable industry and supplying a service or product to their community is an honorable and less risky affair; it has lesser returns but more sanity. Long-term owners do not have to heed midnight calls or texts that the world is coming to an end from investors or potential buyers focused on maximum productivity. The risks and rewards shift dramatically for the long-hold entrepreneur— lesser risks in their favor, rewards not so much!

One of the major stumbling blocks we see is people who have horse blinders on and willingly ignore the truth because it undermines their dream. It is amazing how many people plow their life savings, sacrifice the well-being of their families, and risk their physical health in a business endeavor that is doomed from the outset. With horrid fascination, we watch these slow-motion train wrecks unfold. At some time in this disastrous process, they grasp reality. But, then, are they too late to salvage or set their course for salvation?

No matter where you are in the life cycle of your business, you must surround yourself with trusted advisors. There is a difference between advisors and decision makers! Entrepreneurs can call the shots as it is their show, but they should make sure they have wise and learned people weigh in for each key component of their business. It is never too early or too late to have up-to-date pertinent opinions from successful professionals in their area of experience. Don’t let the lawyer give the buyer advice on the balance sheet, and don’t have the accountant weigh in on a growth strategy. Instead, accumulate their opinions at critical junctures, and as the buyer/entrepreneur, make your own informed decisions. Perhaps the buyers/operators should have a Grand Wizard with whom they speak on their overall strategy tying in data and feedback from each of these disciplines. Even a buyer/operator’s closest friends and colleagues don’t like to work for free. An entrepreneur should find a way to bind them to the firm for the duration, as common goals and joint history give great insights for decision-making.

NOTES

¹ Raymond Adeyemiking, “The failure rate is so high because …,” http://adeyemiking.com/post/319250723/the-failure-rate-is-so-highbecause.