A. Introduction

“Hope springs eternal in the human breast,” said English poet and essayist Alexander Pope several centuries ago. He wasn’t describing people expanding or starting a business, but he may as well have been. Everyone who goes into business for themselves hopes to meet or surpass a set of personal goals. While your particular configuration is sure to be unique, perhaps you will agree with some of the ones I have compiled over the years from talking to hundreds of budding entrepreneurs.

Independence.

A search for freedom and independence is the driving force behind many businesspeople. Wasn’t it Johnny Paycheck who wrote the song “Take This Job and Shove It?”

Personal Fulfillment.

For many people, owning a business is a genuinely fulfilling experience, one that lifetime employees never know.

Lifestyle Change.

Many people find that while they can make a good income working for other people, they are missing some of life’s precious moments. With the flexibility of small business ownership, you can take time to stop and smell the roses.

Respect.

Successful small business owners are respected, both by themselves and their peers.

Money.

You can get rich in a small business, or at least do very well financially. Most entrepreneurs don’t get wealthy, but some do. If money is your motivator, admit it.

Power.

When it is your business, you can have your employees do it your way. There is a little Ghengis Khan in us all, so don’t be surprised if power is one of your goals. If it is, think about how to use this goal in a constructive way.

Right Livelihood.

From natural foods to solar power to many types of service businesses, a great many cause-driven small businesses have done very well by doing good. If owning a small business can help a person accomplish these goals, it’s small wonder that so many are started. Unfortunately, while the potential for great success exists, so do many risks. Running a small business may require that you sacrifice some short-term comforts for long-term benefits. It is hard, demanding work that requires a wide variety of skills few people are born with. But even if you possess (or more likely acquire) the skills and determination you need to successfully run a business, your business will need one more critical ingredient: money. You need money to start your business, money to keep it running and money to make it grow. This is not the same thing as saying you can guarantee success in your small business if you begin with a fat wallet.

Now, let me confess to one major bias here. I believe that most small business owners and founders are better off starting small and borrowing, or otherwise raising, as little money as possible. Put another way, there is no such thing as “raising plenty of capital to ensure success.” Unless you, as the prospective business founder, learn to get the most mileage out of every dollar, you may go broke and will surely spend more than you need to. But that doesn’t mean that you should try to save money by selling cheap merchandise or providing marginal services. In today’s competitive economy, your customers want the best you can give them at the best price. They will remember the quality of what they get from you long after they have forgotten how much they paid. In practical terms, that means you must buy only the best goods for your customers. Anything that affects the image your business has in your customer’s mind should be first-rate. It also means that you shouldn’t spend money on things that don’t affect the customer. For example, unless you’re a real estate broker your customers probably won’t care if you drive an old, beat-up car to an office in a converted broom closet, as long as you provide them an honest product or service for an honest price. Save the nice car, fancy office and mobile telephone until after your business is a success.

B. Self-Evaluation Exercises

Here’s a question to ponder: Are you the right person for your business? Because running a business is a very demanding endeavor that can take most of your time and energy, your business probably will suffer if you’re unhappy. Your business can become an albatross around your neck if you don’t have the skills and temperament to run it. Simply put, I’ve learned that no business, whether or not it has sound financial backing, is likely to succeed unless you, as the prospective owner, make two decisions correctly:

•You must honestly evaluate yourself to decide whether you possess the skills and personality needed to succeed in a small business.

•You must choose the right business. (How to select the right business is covered extensively in Article 3.)

A small business is a very personal endeavor. It will honestly reflect your opinions and attitudes, whether or not you design it that way. Think of it this way: The shadow your business casts will be your shadow. If you are sloppy, rude, crafty or naively trusting, your business will mirror these attributes. If your personal characteristics are more positive than those, your business will be more positive, too. To put this concretely, suppose you go out for the Sunday paper and are met by a newsie who is groggy from a hangover and badmouths his girlfriend in front of you. Chances are that next Sunday will find you at a different newsstand. I’m not saying you need to be psychologically perfect to run a small business. But to succeed, you must ask people for their money every day and convince a substantial number of them to give it to you. By providing your goods or services, you will create intimate personal relationships with a number of people. It makes no difference whether you refer to people who give you money as clients, customers, patients, members, students or disciples. It makes a great deal of difference to your chances of ultimate success if you understand that these people are exchanging their money for the conviction that you are giving them their money’s worth. The following self-evaluation exercises will help you assess whether you have what it takes to successfully run a small business. Take out a blank sheet of paper or open a computer file.

1. Your Strong and Weak Points

Take a few minutes to list your personal and business strengths and weaknesses. Include everything you can think of, even if it doesn’t appear to be related to your business. For instance, your strong points may include the mastery of a hobby, your positive personality traits and your sexual charisma, as well as your specific business skills. Take your time and be generous. To provide you with a little help, I include a sample list for Antoinette Gorzak, a personal friend who has what she hopes is a good business idea: a slightly different approach to selling women’s clothing. You’ll get to know her better as we go along. Her strengths, weaknesses, fantasies and fears are surely different from yours. So, too, almost certainly, is the business she wants to start. So be sure to make your own lists—don’t copy Antoinette’s.

Antoinette Gorzak: My Strong and Weak Points Strong Points (in no particular order)

1.Knowledge of all aspects of women’s fashion business 2.Ability to translate abstract objectives into concrete steps 3.Good cook 4.Faithful friend and kind to animals 5.When I set a goal, I can be relentless in achieving it 6.Ability to make and keep good business friends—I have had many repeat customers at other jobs

Weak Points

1.Impatience 2.Dislike of repetitive detail 3.Romantic (is this a weak point in business?) 4.Tendency to postpone working on problems 5.Tendency to lose patience with fools (sometimes I carry this too far—especially when I’m tired)

Your list of strong and weak points will help you see any obvious conflicts between your personality and the business you’re in or want to start. For example, if you don’t like being around people but plan to start a life insurance agency with you as the primary salesperson, you may have a personality clash with your business. The solution might be to find another part of the insurance business that doesn’t require as much people contact. Unfortunately, many people don’t realize that their personalities will have a direct bearing on their business success. An example close to the experience of folks at Nolo involves articlestores. In the years since Nolo began publishing, they have seen all sorts of people, from retired librarians to unemployed Ph.D.’s, open articlestores. A large percentage of these stores have failed because the skills needed to run a successful articlestore involve more than a love of articles.

2. General and Specific Skills Your Business Needs

Businesses need two kinds of skills to survive and prosper: skills for business in general and skills specific to the particular business. For example, every business needs someone to keep good financial records. On the other hand, the tender touch and manual dexterity needed by glass blowers are not skills needed by the average paving contractor. Next, take a few minutes and list the skills your business needs. Don’t worry about making an exhaustively complete list, just jot down the first things that come to mind. Make sure you have some general business skills as well as some of the more important skills specific to your particular business. If you don’t have all the skills your business needs, your backers will want to know how you will make up for the deficiency. For example, let’s say you want to start a trucking business. You have a good background in maintenance, truck repair, and long distance driving, and you know how to sell and get work. Sounds good so far—but, let’s say you don’t know the first thing about articlekeeping or cash flow management and the thought of using a computer makes you nervous. Because some trucking businesses work on large dollar volumes, small profit margins and slowpaying customers, your backers will expect you to learn cash flow management or hire someone qualified to handle that part of the business.

3. Your Likes and Dislikes

Take a few minutes and make a list of the things you really like doing and those you don’t enjoy. Write this list without thinking about the business—simply concentrate on what makes you happy or unhappy. If you enjoy talking to new people, keeping articles or working with computers, be sure to include those. Put down all the activities you can think of that give you pleasure. Antoinette’s list is shown as an example. As a business owner, you will spend most of your waking hours in the business, and if it doesn’t make you happy, you probably won’t be very good at it. If this list creates doubts about whether you’re pursuing the right business, I suggest you let your unconscious mind work on the problem. Most likely, you’ll know the answer after one or two good nights’ sleep.

Warning

If your list contains several things you really don’t like doing and nothing at all that you like doing, it may be a sign that you have a negative attitude at this time in your life. If so, you may wish to think carefully about your decision to enter or expand a business at this time. Chances are your negative attitude will reduce your chances of business success.

D. Reality Check: Banker’s Analysis

Banks and institutions that lend money have a lot of knowledge about the success rate of small businesses. Bankers are often overly cautious in making loans to small businesses. For that very reason it makes sense to study their approach, even though it may seem discouraging at first glance.

1. Banker’s Ideal

Bankers look for an ideal loan applicant, who typically meets these requirements:

•For an existing business, a cash flow sufficient to make the loan payments.

•For a new business, an owner who has a track record of profitably owning and operating the same sort of business.

•An owner with a sound, well-thought-out business plan.

•An owner with financial reserves and personal collateral sufficient to solve the unexpected problems and fluctuations that affect all businesses.

Why does such a person need a loan, you ask? He or she probably doesn’t, which, of course, is the point. People who lend money are most comfortable with people so close to their ideal loan candidate that they don’t need to borrow. However, to stay in business themselves, banks and other lenders must loan out the money deposited with them. To do this, they must lend to at least some people whose creditworthiness is less than perfect.

2. Measuring Up to the Banker’s Ideal

Who are these ordinary mortals who slip through bankers’ fine screens of approval? And more to the point, how can you qualify as one of them? Your job is to show how your situation is similar to the banker’s ideal. A good bet is the person who has worked for, or preferably managed, a successful business in the same field as the proposed new business. For example, if you have profitably run a clothing store for an absentee owner for a year or two, a lender may believe you are ready to do it on your own. All you need is a good location, a sound business plan and a little capital. Then, watch out Neiman-Marcus! Further away from a lender’s ideal is the person who has sound experience managing one type of business, but proposes to start one in a different field. Let’s say you ran the most profitable hot dog stand in the Squaw Valley ski resort, and now you want to market computer software in the Silicon Valley of California. In your favor is your experience running a successful business. On the negative side is the fact that computer software marketing has no relationship to hot dog selling. In this situation, you might be able to get a loan if you hire people who make up for your lack of experience. At the very least, you would need someone with a strong software marketing background, as well as a person with experience managing retail sales and service businesses. Naturally, both of those people are most desirable if they have many years of successful experience in the software marketing business, preferably in California.

3. Use the Banker’s Ideal

It’s helpful to use the bankers’ model in your decision making process. Use a skeptical attitude as a counterweight to your optimism to get a balanced view of your prospects. What is it that makes you think you will be one of the minority of small businesspeople who will succeed? If you don’t have some specific answers, you are in trouble. Most new businesses fail, and the large majority of survivors do not genuinely prosper. Many people start their own business because they can’t stand working for others. They don’t have a choice. They must be either boss or bum. They are more than willing to trade security for the chance to call the shots. They meet a good chunk of their goals when they leave their paycheck behind. This is fine as far as it goes, but in my experience, the more successful small businesspeople have other goals as well. A small distributor we know has a well-thought-out business and a sound business plan for the future. Still, he believes that his own personal commitment is the most important thing he has going for him. He puts it this way: “I break my tail to live up to the commitments I make to my customers. If a supplier doesn’t perform for me, I’ll still do everything I can to keep my promise to my customer, even if it costs me money.” This sort of personal commitment enables this successful business owner to make short-term adjustments to meet his long-range goals. And while it would be an exaggeration to say he pays this price gladly, he does pay it.