About a year ago I was at a BBQ with a group of friends and one of them announced he was going into business and wanted a few words of advice. For the sake of this article let’s call him John. A few of the people attending had run successful businesses and each one made the mistake of offering some advice on what he needed to do to succeed.
I say it was a mistake because everyone was met with the “my business will be different and that won’t happen to me” response. Then one of the guys gave up in frustration and before walking off said “best of luck mate you just haven’t suffered enough yet! Get back to me when you have and I will be happy to help”.
I realised he was spot on. Why is it that when people first go into business they are reluctant to take on any advice? And then once they are in the thick of the day to day of running a business they are then too busy to ask for help?
Last weekend I caught up with John and I asked him how the business was going. He was busy working 6 days and sometimes 7 days a week. Then the usual story of trying to do the books at night, chasing debtors, his employees were all hopeless, not enough “good” clients, not making enough money etc. etc.
I reminded him about the conversation from 12 months earlier and he did remember the comment about “not having suffered enough”. He says he is suffering from the long hours, stress and uncertainty and wishes he had taken on a lot of the advice given. Unfortunately he was now too busy and would like to chat again about how to improve his business “when he wasn’t so busy”.
I think that means that he still has some more suffering to go.
What John has to realise is that the difference between success and failure for him is some basic business knowledge. He just doesn’t know what he doesn’t know.
As Albert Einstein said, “We can’t solve problems by using the same kind of thinking that we used when we created them.”
But why are business owners in particular so hard to help?
Is it because people that go into business are born optimists? They dream of the big house, lots of money, spare time to play golf, being the boss and driving around the BMW company car. These dreams provide the motivation to go into business but from my experience they don’t provide any motivation for people to listen and take advice from those that have already been there and done that.
So what will motivate John to start learning and doing things differently?
Is it the cold hard facts of business failure in Australia?
I have often heard the fact that 80% of small businesses fail in the first 5 years so I went searching for some supporting statistics. I found a research paper from the Australian Bureau of Statistics (8165.0 – Counts of Australian Businesses, including Entries and Exits, Jun 2003 to Jun 2007) which said that things were nowhere near the 80% failure rate; it was only 42%.
Wow, I was so relieved to read that. Then I looked at some of the actual numbers. Over a four year period 777,106 businesses ‘exited’ (i.e. quit, went broke, some sold). This is an average of 3,736 businesses per week. That is a lot of shattered dreams.
What about the lack of financial success of many business owners?
The good news was that 58% of businesses survived the first four years. But are these businesses making money? I couldn’t find any statistics so I rang some accountants that I knew that had a lot of small businesses (<20 employees) as clients.
I asked them what percentage of small business owners would be earning more money if they were putting in the same number of hours working for someone else. The responses were in the range of 50-60%. One accountant tells his clients that they should be earning what they could as an employee plus a premium of 50% for the risk and effort of running their own business – very few follow this advice.
What about making money when the business is sold?
When you tell people that 60% of business owners would make more money if they had jobs, one of the first responses is that that it is fine because they will make up for it when the business is sold.
I rang a number of business brokers and ask what percentage of people sell their business for the type of premium that would make up for all the years they earned less than they would of as an employee.
On average I was told up to 70% would get much less than they expected or need as retirement comes knocking. One very successful broker told me that he 90% of the businesses he sees aren’t even saleable. He gives advice on what people should do to improve the value of their business but by the time they have decided to sell, they are over it and don’t have the interest, desire or energy to reinvent the business.
So what is the greatest motivator for a business owner to change?
I am afraid that I have to say in the majority of cases it is a good old dose of pain and suffering. The greater the suffering, the more willing people are to start asking questions, listening , learning and then changing the business so it has a chance of succeeding.
I just hope that John makes the changes he needs too before he becomes a statistic.
What’s your strategy? Do you wait to experience ‘the pain’ or do you favour a strategy that involves learning in advance? Do you accept that your business has little value or doesn’t pay you enough or is now the time to do something about it.
Article by Andrew Vincent
an article I could relate to, but I feel that is where I was, not where I am now. Since we talked I have done new menus, with a price rise, the Web site is in the works and should be up in the not too disant future and I have realised from watching the dvds that developing a relationship with my accountant and bank mangager are imperative. I will do this after tax time so I have all relevant paperwork. My business is at a stage where I need money to make it grow.
Still a struggle, but I am hopeful
Thanks Andrew, will call for conference when I feel it is needed
Deb
Rendezvous at Dayboro
Wonderful article. Refreshing when people get proactive and solve problems using better ways of thinking. It works for me.
Many thanks
Thanks Andrew, my business IS very different to all other businesses. But as I now understand, so is every other business… The issues you higlight above apply to almost every business. What I find is that if you indicate that you need help, there is an abundance of “would be Business Coaches” out there to help you increase your profits or better manage the Risk. I find they’re just there to listen to what you want to do with your bsuiness and hold you to your word, and then charge you the earth for doing it. From my experience, most business owners are open to good advice. If an Accountnat charges $4000 for his services, but gives you $6000 more in your tax return, its value for money. Business coaches can’t give the same guarantee and I find some play on this fact. Yes I’m caught up between getting free advice that results in making me busier, not richer and paid advice that does exactly the same thing. How does one choose good advice?
Spot on Andrew. It amazes me every day how much pain small business owners are prepared to put up with. Only inpending disaster will prompt them to send up a flare!
Spot one, Andrew. i’d just widen the sights a little and add’ if you aren’t having the LIFE you want you haven’t suffered enough.. and if you don’t have the health you want.. you haven’t suffered enough. i fact it comes down to one basic principle; humans need to suffer to advance.
Ian Blair Hamilton
http://alkaway.com.au/
Having spent 20 years specialising in insolvency practice I saw more than my fair share of business failure. For the last 12 years I have been involved in advising, training and mentoring start up and growing small business managers, a much more positive view of small business.
Thoughout my insolvency years the accepted statistic was 80% failure and given the number of failures I saw assumed it was probably right. As Andrew has found it is a myth. In fact it is not as bad as he has inturupted from the ABS report. Exits also include many who just don’t start or voluntarily leave business to return to employment. These should not be included as failures. We don’t know the real figure but it could well be a 1/3 and that is still very high.
Of the business I saw during my insolvency days 80% to 85% were too far gone by the time we were called in to be saved. However at least 60% of those could have been turned around if the owners/directors had acted 6 months earlier.
Small business managers all too often work in a vacuum and the strees of doing everthing leads to a belief that they have to sort it out. When starting in business it is essential to join at least one network and be a proactive voice in that network. Share you experiences and help others and you will benefit from the experience of others. You don’t have to start with a straight piece of wood and try to work out how to create the wheel. The wheel was invented some time ago and works very well.
That’s a great article!
I feel like I have been suffering with my current business, although learning from most mistakes in the past is helping me more
everyday to develop better ways of dealing with previous problems with my start up.
Hi ,
How very true .Just about to hit my 9th year trading in metal fabrication industry ,and the last six months have been the best ever.
Last financial year I added up my hours on average spent in the factory, which worked out to about 18000 hrs then divided it by my income and the hourly rate worked out at $1.66 .
It sucks when your the one who earns the least but carries the headache.
I have also spent the last struggling 8 years buying second hand machinery which has finally paid off with the right job.
Now finally with this money from that word not heard so often “profit” will be invested back in to the business ,to increase sales ie; web site , start to develop new products and improve on the way which things are done .The change for company name and image will also be the next step,hopefully for this financial year.
The thing i believe is if you do everything right ,everything right will happen.
Regards
Peter Bonnici
What if you have suffered to the point of selling your home to keep your business open, and it feels like you’ve sold an appreciating asset to keep a depreciating one? Is this the point of no return? Are you doomed?
My experience is that SME’s do not readily invest in good advice for their businesses. It seems a small majority are willing to invest but generally our business culture is often to go it alone. As you so rightly say, “you don’t know what you don’t know” which is probably why it is so hard to convince people to take advice – they don’t know that they need it!
I had saved this article and have only just now come back to it, I knew there was a reason. Three weeks ago my business partner and I decided that we could not go on working together I am the one who always goes and asks advice about everything I am doing in business, I wanted a coach and my partner didn’t I wanted to get finance to obtain more help and my partner didn’t, I was sick of suffering only my partner thought that was what business was all about and the only way to make it. However I knew different because I read, study and talk to other people who have been there and done it before me and I listen, implement and constantly make changes. I am now the full owner of my own business and I love it it’s so great to hear that I am on the right track and that I did it now before it was too late! Thanks for a great article.