The Life of a Small Business.

When someone comes in and tells me that a new business is doing great, I usually refrain from answering.

Could be, could be. More likely, not so much.

Anyone with an ounce of effort can look successful in the first two to three years. Obviously, based on results, most people aren't. If their overhead is just the lightest bit too much, their margins just the slightest bit too little, their sales just the slightest bit too low, then they could be bleeding internally and not really know it.

I've always said that most people can do two out of the following three things; overhead, old product, and new product. Few people can do all three things consistently month after month, year after year.

Some of the words I'm going to use to describe phases in business may sound pretty negative. But remember there are all kinds of positives going on at the same time. You are your own boss, you're (hopefully) having fun and being challenged. The following are the downward pressures on a business. So try to keep both concepts in mind at the same time, O.K?

(Notice also, that I'm talking about motivation more than money, because it is at least as important, maybe more so. Strong motivation has more of a chance to overcome lack of money than money has to overcome lack of motivation, in my opinion.)

Disillusionment: So....any one can appear to be successful for 2 or 3 years. But there may be creeping dry rot underneath that takes time to become apparent. About 3 years in, there isn't quite as much money at the end of the month, you've spent your beginning funds and maybe even resorted to extra credit, the product and fixtures are getting run down and stale, the overhead is taking a bit longer to pay and getting more expensive, unexpected expenses come along on a regular basis, and you can't quite afford enough of the new product to satisfy demand.

This is the first crunch moment. Most people start making wrong choices and bad decisions around here. They might raise their overhead, thinking the infrastructure is at fault. More advertising, for instance.

Or they might lower their margins, thinking that if they are cheaper, people will buy more.

If you make the wrong decisions, you're toast around the year Five. Anyone with an option, like a better job, will opt out around here.

Burnout: But let's say you make the right decisions. You lower overhead, you promote your store through guerrilla marketing, you keep your margins strong, you adjust your inventory so it sells better.

At around year Seven, you reach the next crunch point. Because all those things you did to survive probably added mightily to your workload. You are on the verge of Burnout.

So, if you haven't bailed out in the 3rd year, the 5th year, and you make it through the 7th year, you are an 'established' business. Ironically, this is the stage that the public things most well-appointed businesses are already at, but very few are.

Boredom: At around the 10th year you face the next hurdle, boredom.

You've finally got around to treating your business as a business, instead of a hobby. You begin to realize that this isn't some after-college lark, but a friggen career! And once you've gone to your donut shop every day for 10 years, you can barely stand the sight of donuts.

Here you either suck it up and treat it as work, or you do what I do and start experimenting or playing with your business -- which puts you back onto the battlefield.

Now you are a battle-scarred veteran. Most successful businesses reach this point somewhere around 10 years, I've heard. You can actually afford to take time off, you may be savvy enough to be able to expand and so on. I've always heard that Sam Walton was well into middle age before he figured it all out. And, from my observation, very few people get to this stage -- businesses do more than owners, as they are passed off on the next entrepreneur, but very few get here.

In my own business, it took more like 20 years to reach this point, because I kept getting knocked back down to the bottom of the hill. Beware the bubble. Beware the premature expansions!

The final phase? The dangers haven't gone away, of course. You're just much more aware of them

If you make it to 20 years, you can even become the 'old codger' like me, dispensing advice that no one listens to.