Do You Have What It Takes To Be An Entrepreneur
Every year, thousands of Canadians from all walks of life respond to the call of entrepreneurialism. Young people fresh out of college or university, mature executives who have been set adrift by their corporations, parents who are raising children at home, and new immigrants are part of this growing force of independent business people. The majority of these people have no experience in buying or running a business.
Not everyone is cut out to be an entrepreneur and it is better to find out sooner rather than later if that is the case. Many people romanticize about going into business and believe they could run so much if they were running the show. But when the time comes to cash in their equity, mortgage their home, and write a cheque for a relatively large investment, their confidence often rapidly disappears. It is not unusual for first time buyers to lose confidence in themselves at any stage of the buying process, particularly in the final stages of closing. Before you go any further, ask yourself:
- Should I even consider buying a business?
- Am I doing this for the right reasons?
- Do I have realistic expectations?
This is the time to be totally honest with yourself. If you think that going into business for yourself will allow you to spend more time with your family then you should reconsider your decision. Buying a business and running it during the first couple of years can place a real strain on your marriage because of the time and emotional commitment. If you are going into business for yourself it is critical to have the support of your family. It is extremely important to discuss everything openly with your spouse as once you have purchased the business the risk of loss, security and the temporary affect on your life-style becomes a family affair whether you like it or not. You and your spouse may have different goals and a lower tolerance for risk than you may. The following guidelines should help in this area:
- Explain to your spouse your reasons for wanting to go into business.
- If they have any objections, try to zero in on exactly what their objections are. Don’t try to overcome their objections until you are sure you fully understand them. They may actually share some of your concerns but because of the reasons discussed earlier, it may be a bigger obstacle for them.
- Be prepared for some give-and take in a few areas such as the level of financial risk or the amount of time you wish to commit to the business.
- Invite your spouse to participate in the search and negotiation process. Have them attend and participate in meetings with lenders and professional advisors.
- Seriously consider if you have the full support of your family and ask yourself what pressure this will place on your relationship before you proceed.
As the failure rate for businesses is high, there is a degree of risk inherent in the purchase of any business. What level of risk are you prepared to accept? Contrary to the stereotype that entrepreneurs are gamblers; the risks involved in business are often moderate due to the amount of planning and due diligence. Yet, many people who want to go into business take a look at the high failure rate of independent businesses and decide that the risk is unacceptable. Although the statistics vary amongst the various government agencies and private companies that track the performance rate of businesses, it is generally accepted that 30% of new business fail in the first six months of operation, 75% fail within 5 years. The good news is that buyers of established healthy businesses have far better odds as four out of five businesses that are still in business after 5 years succeed.
The Untouchables Having a clear understanding of what you could lose and coming to grips with how much you are willing to risk for a business can reduce the stress level considerably. The following four tips will help you to achieve this.
- Divide your personal assets into "Touchables" and "Untouchables". Put assets such as your home, automobile, and around 50% of your personal savings (including RRSPs) into the “Untouchable” group. Place the remainder into the “Touchable” group, which are the assets you are willing to risk on a business. You might wish to modify these groups and percentages to suit your own situation but it is important to do the exercise.
- Set a limit for how much personal liability you are prepared to expose yourself to assuming the worst situation possible and stick to that limit. Wherever possible, limit your personal liability on any loans or lease agreements necessary to buy or operate the business. In some instances, you may have no alternative but to provide a personal guarantee if you wish to buy a business; however, it may be possible to either limit the guarantee amount or have an agreement that the guarantee is removed or reduced after a certain period or upon the occurrence of other events (e.g. a certain amount of the loan has been repaid).
- Consider the situation from a risk/benefit perspective. The prospective benefits must far outweigh the financial risk.
- Talk to your accountant and lawyer about how you might shield some of your personal assets from potential business liabilities. Any actions to protect your personal assets must take place before you incur any debt.
Surprisingly, there are a lot of people who invest their life savings into a business who give little consideration as to whether they have the skills to run the business. Most people start a business without ever completing an honest, thorough personal assessment or personal inventory. Without this self-appraisal, your personal success in business could be limited.
This section is intended to assist you in focusing on your strong points, identifying your weaknesses, and dealing with areas that need improvement. This will enable you to clarify your personal and business goals. To get the most out of your self- assessment, you should be free from distractions and take as much time as necessary.
Your personal inventory is divided into three parts: (a) knowledge, (b) skills, and (c) traits.
In addition to being profitable and providing a good return on your investment, a successful business must be something that you enjoy doing. Generally, what we enjoy doing goes hand-in-hand with what we are good at. Conversely, we are not usually good at doing things we don’t enjoy. However, there is a difference between aptitude and knowledge. You should eliminate most businesses for which you truly have no ability. It is possible to acquire most knowledge, although it may come at a cost and require more time than you have available.
It is important to understand the difference between knowledge and skill. Knowledge can be obtained through study, whereas skill is something you actually do and comes from practice. While it is reasonable to assume that most people can obtain a reasonable amount of knowledge by studying a subject, there is no guarantee that a person can become competent in a specific skill merely through practice or repetition. For example, you could study and gain a fair knowledge of art but you may never have the skill to become an artist regardless of how much you practice. It is fair to say that over time you may improve with practice, however your level of skill may only improve marginally over time. Understanding the distinction between ‘knowledge’ and ‘skill’ is very important when you consider the necessary requirements to run a business successfully. If you are lacking in knowledge (particularly product knowledge), you can usually overcome it, however, if are deficient in a skill (e.g. mechanical), it may be difficult, if not impossible to overcome it.
- Write down and rank in order the five things that you feel you know the most about. Don’t limit this list to your work experience as you may have education or specialized training that is not readily apparent from your work experience. Include hobbies, sports and other recreational pastimes as they may point you in a direction you have never considered but one where you might be successful and enjoy what you are doing.
- Write down the five things you feel you have the least knowledge about. Most people find this list easier to develop.
The next step is to do the same exercise with your skill set. Whereas knowledge relates to things that you know, skill relates to things that you can do.
- Write down the five things you feel you can do better than most other people.
- Write down the five things that you feel you do poorly.
This exercise will help you to identify your skills as well as your deficiencies.
Traits are things you are, rather than things you know or can do. Traits can be described as personality characteristics. Numerous studies have demonstrated that successful entrepreneurs tend to have several traits in common. A number of these traits are described below under ‘Mental Traits’. You have no doubt seen or heard several various entrepreneurial traits described in clichés such as risk takers, self-starters, highly motivated, positive thinkers, team builders and people oriented. Generally, the traits of an entrepreneur are remarkably similar to the traits of any good businessperson i.e. good work habits, creativity, focus, and an element of risk taking. Conversely, successful entrepreneurs can also be outgoing or shy, workaholics or absolutely lazy, introverts or extroverts, people oriented of totally arrogant.
It is also important to note that the term ‘entrepreneur’ used to be exclusively applied to someone who actually created a new enterprise business. Recently, it has tended to be used to describe anyone who runs his or her own business. There are no tests or checklists that can guarantee your success or disqualify you from owning your own business with the possible exception of one common denominator, which is a driving passion for the business. Nothing was ever achieved without desire. So, do not be overly concerned if you do not possess all, or even the majority, of these qualities. The key question is how significant the missing traits are to the type of business you are considering and your business goals. Understanding your personal strengths and weaknesses will allow you to compensate for them by hiring employees, bringing in partners, or taking additional training.
Traits can be subdivided into two categories: Physical and Mental.
The majority of traits are mental, however, you will obviously a high level of stamina and energy is important to meet intense demands and ongoing pressure of running your own business, especially during the first few years. In addition, you will need to be able to handle any specific physical demands that the business requires.
Total commitment, determination and persistence A strong determination to succeed and achieve your personal and business goals regardless of personal sacrifices can overcome many obstacles. It can also compensate for weakness in other areas. This requires your total dedication and commitment to the success of the business
Ability to deal with setbacks
Even though you might feel disappointed at times you don’t allow yourself to be discouraged by minor setbacks. You need to have the ability to treat failures as learning experiences so that similar problems can be avoided in the future. Successful entrepreneurs view setbacks as temporary barriers to achieving their goals.
Willingness to accept calculated risks
Successful entrepreneurs have the ability to identify risks and weigh their relative dangers. They prefer to take calculated risks that are high but realistic.
The ability to delegate
Although the business owner must be in overall control of the business it is impossible for one person to perform every task. The ability to delegate some tasks is very important.
Able to handle stress, ambiguity and uncertainty
An entrepreneur must be able to live the uncertainty of job security and the guarantee of a regular paycheck. This is the complete opposite of the corporate world. Stress and ambiguity are woven into the very tapestry of a new business; new employees whose jobs may not be totally defined, new customers, and unpredictable revenues. Successful entrepreneurs accept uncertainty as an integral part of being in business and take it in their stride. You will have to be able to handle temporary failures without panic.
Strong goal orientation
Entrepreneurs set clear goals that are challenging but attainable. They have the ability to focus their energies their energies on achieving their goals and not get sidetracked. In order to be successful, you will need to continually re-evaluate and adjust your goals to ensure they remain consistent with your business objectives. Rather than being content at the attainments of new goals, successful entrepreneurs enjoy the challenge that setting new goals brings.
Seeking and using feedback
In order to know how well they are doing, and how they might improve their performance, successful entrepreneurs constantly seek out and use feedback from employees, their management team and professional advisors or mentors. Not only does this provide instant feedback, it also stimulates the people whose advice is solicited.
Successful entrepreneurs have a strong belief in themselves. They believe that they are personally responsible for controlling their own success or failure, and that it is not decided by luck, circumstance or external events.
Versatility and resourcefulness
Entrepreneurs are capable of dealing effectively with many subjects or tasks simultaneously. The ability to multi-task effectively is particularly important for new business owners, as there may be fewer employees available to handle all the tasks.
Team building and human relations
Entrepreneurs have strong leadership qualities. They have the ability to lead by example and can interact well with people of varying personalities and values. This is especially important when dealing with employees, bankers, investors, partners, suppliers or customers and is reflected in characteristics such as sociability, consideration, empathy, cooperation, tact, and a sense of humor.