Starting a business can fulfill a lifelong dream, but the fear of failure can prevent us from ever even trying. I want to focus on how to mitigate the risk of starting a business and making your dreams come true.
Most small businesses fail in the first few years, not because they’re bad ideas, but because of incorrect planning and limited perspective. The emotional aspect of your business can cause you to miss some crucial components about being in business. You might view it through rose-colored glasses, unwilling to acknowledge the danger signs that things are going south.
I want to discuss how to reduce the risk of failure before you even get into your dream job or your business. I’ll start by telling a couple stories to illustrate my points, the first being my story…
I’ve always wanted to be an entrepreneur. When the opportunity came along for me to do just that, I jumped, quite literally, into my dream job. I had a couple of things going for me: I was still in college and had the fortunate opportunity to be the retail manager at the Polynesian Cultural Center in the cultural marketplace. It was a job that fell into my lap, but I soon realized it was something I really enjoyed doing. I enjoyed sourcing product, conceptualizing ideas, taking it to market, shopping for them, pricing them, etc.
I love everything to do with buy and sell, but until that time I wasn’t really quite sure what my process to success was going to be. I was unsure if I wanted to do this full-time. I wanted to do this to benefit me. When you’re working for someone else you are helping them fulfill their dream. If I wanted to fulfill my own dream I needed to go out on my own and do it myself.
My wife and I decided to look for a retail space in Waikiki and kind of transfer what we had learned at the cultural center into a business for ourselves. That type of planning put me in a power position for a couple reasons. First, I had experience in this business as a manager. Second, I knew all the components of the business:
- how to source product
- how to price product
- how to test the product
- there was already a market for the product
- how to manage people
- how to do accounting
I had done a little bit of everything as manager, so this was not a new concept for me. It wasn’t something I was going to blindly jump into, hoping I would succeed because I thought I would. I knew that this type of product was cultural merchandise – things related to Hawaii.
I knew if it worked at the cultural center, it would work downtown in Waikiki, as well. We basically catered to the same tourists and local people, so I knew that all I had to do was find a location that had foot traffic. In retail it’s all about location, location, location!
We found a little store in Honolulu with a similar merchandiser as we had. They wanted to move from that particular location because it was their second location. Their first store had been doing super well, so they decided to open a second location, but it was taxing the first location. This is often called the poison pill of retail – when you do really well at your original location, so you want to duplicate it everywhere, but your original location is the only one that is succeeding.
Why is the original location the most successful? The owner sits there and runs the original store, but when you open multiple locations, you have to depend on other people. That becomes a challenge for any person in retail or in business themselves. Ask any employer what their number one challenge is, and they will always tell you the same thing over and over again: employees.
They were making sales in that location, but they were not doing as well as they wanted to, so they were interested in selling the lease. Because they were making money I knew the concept worked, so we purchased their lease for a 400-square foot store. It was a relatively small space so the rent wasn’t too high. It wasn’t too much of a risk because we weren’t going with a new concept; the concept had already proven itself to do okay. It was manageable and as the owners we would babysit it, nurture it, and grow it.
Even though we purchased the lease, we still managed to mitigate risk. I didn’t quit my job and just open that store. Instead, I kept my full-time job at the cultural center, my wife ran the store Monday to Friday, and I ran it on the weekends. In case the dream job (dream idea + great location) that we envisioned didn’t work out, my full-time job allowed us to put bread on the table, pay the rent, have insurance, etc. It gave us a cushion or buffer against the extreme stress that comes with opening your own business.
When you roll the dice and everything is depending on that business being awesome, you are taking a chance that you hope works out, but very well may not. For many small businesses it doesn’t work out because of two things: profitability and cash flow.
Cash flow is so important when you are running your business, especially in the initial stages. You need cash generating from that business to pay the bills not only of the store, but also the bills at home. When we put those two together, but you haven’t done your homework right and your concept doesn’t just fly off the shelf, you’re setting yourself up for failure.
With this in mind, we ran that store for a year while I kept my full-time job. We got to a point where we were losing by working for someone else because I could have been at the store putting all my efforts into it. Sometimes we are so afraid to make a change that we procrastinate, when in reality we are ready to make the change since we have already proven it.
We were making enough money from the store; we weren’t making a ton but we were making enough that we even budgeted and saw that we could pay our bills at home, at the store, and would be breaking even, coming out a little bit ahead. At the start of the new year, I quit my job and went full-time into the store. I mitigated my risk, protected myself in case my business idea didn’t work out in case I made mistakes or calculated something wrong or misread trends.
Studying and looking at trends is one thing that you must realize and do in order to protect yourself. In contrast, let me share a story about someone else who didn’t do things quite the way we did. He got into a food truck business despite never being in the food business as a manager or similar position. He had been in limited positions within the food business like on the salad bar or sous chef or something.
He felt his food concept would be great, he just knew it! He just felt it in his bones, had all these fuzzy feelings that he was going to be just awesome… red flag right there! He took out a loan, got his food truck as planned and within two months he had cash flow problems. He started at the wrong time of the year, he was new to running a business, he stumbled and made mistakes.
He was still going through his learning curve, which is something you want to do in someone else’s business – you want to do it on their dime. You want to make all the mistakes working for someone else as you learn everything you need to do to perfect your business. You want to be in a position where the opportunity for you to jump from your job into your dream job happens when you are ready and have made all the mistakes and gained all the experience you need.
He didn’t have the patience to actually think it through and work it out ahead of time. Within two months he had realized the cash flow problem. My advice to him since it was almost winter (the worst time to be in the food truck business) was to get a side job to help pay the home bills while you continue to build your business from your food truck.
He had a great idea, and once he’s got things going for him and is showing that maybe month after month and week after week that his sales are increasing or he can do more marketing, he’ll be on an upward trend. He jumped into it too quick and if he didn’t have a backer or an investor who had a lot of patience and money, he’d be in trouble. If he had gone to a bank they would not have been understanding at all. Banks don’t defer payment, they require money upfront the first of every month, just like your rent and everything else.
So, what’s the end of his story? I don’t know. We’ll see…. we’ll see if he can continue to understand how he needs to develop his business since he wasn’t totally prepared in the beginning. He was not realistic with his planning or expectations. He would have benefitted from a mentor or enlisting the help of people who have been there.
Successful people look for people who have been successful in a business, then copy them and learn as much as they can from them. This helps you through those rough patches. Imagine if you could avoid making mistakes and how much further ahead you would be.
My coaching and mentoring business is meant to help people avoid those mistakes in the first place. You learn from people who have experience and are that much further ahead since you won’t have to go through what we’ve already gone through. Success is never an accident.
