Eighty per cent of small businesses fail within the first five years. Steven Farlow, executive director of the Schlegel Centre for Entrepreneurship at Wilfrid Laurier University, pinpoints a common reason. “It’s one word: delusion.”He continued, “Delusion that there’s really a market – that there really is a businesses. Just because you and I are passionate about that idea doesn’t mean anybody else is. … The first thing we do with these bright young entrepreneurs is, we force them to speak to prospective customers and validate that there really is a market, and that their solution matches the problem.”
This advice is not as obvious as it may seem. A study released this week by Scotiabank showed that 26 per cent of small business owners did not seek any advice for their startup (32 per cent asked friends and family, and 28 per cent asked an accountant).
John Clendenning, marketing guru and owner of Elmira’s Screaming Tree Media, is surprised that number isn’t higher.
“The ones I talk to … really sit quietly and hunker down to themselves, or create a little clique and talk to their friends,” said Clendenning.
“There’s this mistaken impression that all entrepreneurs are headstrong and determined and break doors down,” said Farlow. “In fact, many of them are humble and listen. They’re not the big risk-takers we have this common perception of – in fact, they’re not risk-takers at all. They know how to mitigate risk by working with others.”
He added, “Most successful entrepreneurs are smart enough to have mentors, advisory boards – people they speak to.”
To start a business requires an enormous amount of time and energy, and while the study claims that being one’s own boss and jumping on an opportunity are two of the biggest motivating factors for entrepreneurs. Farlow, however, disagrees.
“Those are the conventional reasons why people think people start businesses, and there’s a much, much more common reason. It’s that motivation – that passion and drive to create and build things.”
He continued, “It’s, ‘I have an idea, and I have the passion to create it, build it.’ There’s nothing more thrilling in a person’s career life.”
But with passion can come shortsightedness. The new study offers five tips for starting a small business: develop a sound business plan; invest in your own education; get your finances in order; keep your overhead low; and learn from the experts. That first step is where people commonly trip up.
“Some have no clear plan,” said Clendenning. “If you’re a plumber, you’re really good at plumbing, so you think, ‘Hey, I should plumb.’ Well, the owner of the business shouldn’t be the plumber. … The entrepreneur is the marketer of the company, builds a culture and builds a brand, but they shouldn’t be wearing that hat of being the doer for very long.”
Clendenning notes that marketing is one of the most important elements of any business – which, contrary to popular belief, is not the same thing as advertising. It’s not enough to simply be a good plumber if the area is full of plumbers.
“Why am I going to be different? What’s my unique sales proposition? What’s my risk reversal guarantee? What are the compelling reasons to choose me? And how am I going to market?”
Clendenning added, “Don’t just wander in and hope things are going to be good.”
While the Scotiabank study shows that 42 percent of small business owners have no regrets about how they started their companies, there are some common lamentations: 19 per cent say they wish they had considered how many hours a new business would require, and 19 per cent regret trying to do it all at once.
In addition, 32 per cent of respondents said that finding customers was their biggest challenge, with balancing a family and business (19 per cent), access to credit (16 per cent), and managing cash flow (14 per cent) not far behind.
“Forty hours a week and a pension become 60-80 hours a week and no safety net at all,” Clendenning laughed. “It’s more risk, but more reward.”
Farlow has a piece of go-to advice for would-be entrepreneurs: “Don’t kid yourself. When there’s a clear, fundamental flaw… stop. Stop, learn from it, and begin again.”