Friday, January 30, 2015

Why most small businesses don't survive.

This morning, I mentioned I was letting go of my list of downtown business Comings and Goings that I'd been keeping for the seven years of the Great Recession.

I mentioned that "most" small businesses don't survive, downtown or anywhere else.  I'll actually expand on that assertion and say, almost no small businesses survive.

Maybe my standards are too high, but I think a successful business is one where the owner makes a living for a career.  I'm aware that not everyone approaches business that way -- that some have limited time horizons.  But at least, as far as I can tell, very very few businesses last more than 10 years as a going concern.

Service businesses seem to do best.  Retail after that.  Restaurants have it the worse.

But my assumption is that business that is doing well for the owner (either monetarily or emotionally) usually doesn't close down.  No matter what anyone says.  (Except for burnout, and more about that below.  Just to say, working yourself to burnout is also a failure.)

I'm now in my 32nd year of managing or owning Pegasus Books in downtown Bend.  It's been in the same (expanded) location for the whole time. 

And I have some observations about small business that maybe somewhat reductive and simplistic, but I think get to the root of the matter.

First of all, to me it doesn't matter why you close down. You can maintain you had a "successful" business because you were making money -- but in my opinion if you close down you didn't have a "successful" business.  (The only exception to me is if you sell out or close down for retirement.  Or I suppose if you make a huge profit selling your business -- which is so rare as to be barely worth mentioning.)

I think there are two equally valid reasons businesses fail.

Lack of money, of course.

But equally important is burnout.

The two are related of course -- not making money leads to burnout, and burnout leads to not making money.

So here's the crux of it.  In order the making a living in a small business, you have to put in time, energy, and money.  You have to work hard.  You have to take on risk.  You can never settle, but constantly have to change things, add things, drop things, and grow.  It is a constant struggle.

If you don't do the above things, you will fail.  I guarantee it.  I've seen lots of businesses fail because they don't want to take on risk.  Or they don't want to change and adapt.  Or they want to hire managers rather than work the store themselves.  Or they take too much money out of the store and don't replace inventory, or fail to invest in the necessary upgrades.

But the Catch-22 of the matter is that if you do all the necessary things to make enough money to make a living, you constantly risk burning out. Constant change and risk and hard work and on and on takes a toll.  It ain't fun after awhile.

What I've noticed is that so called "successful" business that suddenly close up -- you know, because of "other" opportunities, are usually people who went too far in promising the customers everything in the world.  The more promoting and adding on and working you do, the more you risk burnout.

So there is a very fine line between Burnout and Success.

My way of handling this is to diminish anything that makes money but is unpleasant if I possibly can, and instead, to accentuate things that may not make as much money but are pleasant.

Obviously, this is a pretty fine line, but I recognized early -- because I was pressed up against the wall -- that hating my business was at least as dangerous as not making money.

I always want to tell the newer gung-ho businesses to be moderate.  Don't take too much money out of your business; work it as much as you need to, but don't overdo it.  Don't make tons of promises -- or offer too many extra services.  Stick to doing a good job on the basics. Ask yourself if you will still be comfortable offering such services five or ten years down the line when it no longer has a beneficial effect but is taken for granted. Take on risk, but not too much. 

In other words, don't underestimate the danger of burnout in your pursuit of money. 

If you own a business, you want to like your business. People will reward you if you like your business -- they'll pick up when you don't, or when you're being cynical, or when you are on your way out the door. 

So that's my simplistic answer as to why most businesses fail.  They either don't make money -- or they work so hard for the money, they give up.

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