About a year ago I was at a BBQ with a group of friends and one of them announced he was going into business and wanted a few words of advice. For the sake of this article let’s call him John. A few of the people attending had run successful businesses and each one made the mistake of offering some advice on what he needed to do to succeed.
I say it was a mistake because everyone was met with the “my business will be different and that won’t happen to me” response. Then one of the guys gave up in frustration and before walking off said “best of luck mate you just haven’t suffered enough yet! Get back to me when you have and I will be happy to help”.
I realised he was spot on. Why is it that when people first go into business they are reluctant to take on any advice? And then once they are in the thick of the day to day of running a business they are then too busy to ask for help?
Recently I caught up with John and asked him how the business was going. He was busy working 6 days and sometimes 7 days a week. Then the usual story of trying to do the books at night, chasing debtors, his employees were all hopeless, not enough “good” clients, not making enough money etc. etc.
I reminded him about the conversation from 12 months earlier and he remembered the comment about “not having suffered enough”. He says he is suffering from the long hours, stress and uncertainty and wishes he had taken acted on the advice. Unfortunately he was now too busy and would like to chat again about how to improve his business “when he wasn’t so busy”.
I think that means that he still has some more suffering to go.
What John has to realise is that the difference between success and failure for him is some basic business knowledge. He just doesn’t know what he doesn’t know.
As Albert Einstein said, “We can’t solve problems by using the same kind of thinking that we used when we created them.”
[Next: why are business owners in particular so hard to help?]
But why are business owners in particular so hard to help?
Is it because people that go into business are born optimists and they think if they just work hard it will all happen for them? They dream of the big house, lots of money, spare time to play golf, being the boss and driving around the BMW company car. These dreams provide the motivation to go into business but from my experience they don’t provide any motivation for people to listen and take advice from those that have already been there and done that.
So what will motivate John to start learning and doing things differently?
Is it the cold hard facts of business failure in Australia?
I have often heard that 80% of small businesses fail in the first 5 years so I went searching for some supporting statistics. I found a research paper from the Australian Bureau of Statistics (8165.0 – Counts of Australian Businesses, including Entries and Exits, Jun 2003 to Jun 2007) which said that things were nowhere near the 80% failure rate; it was only 42%.
Wow, I was so relieved to read that. Then I looked at some of the actual numbers. Over a four year period 777,106 businesses ‘exited’ (i.e. quit, went broke, some sold). This is an average of 3,736 businesses per week. That is a lot of shattered dreams.
What about the lack of financial success of many business owners?
The good news was that 58% of businesses survived the first four years. But are these businesses making money? I couldn’t find any research on this topic so I rang some accountants with small business clients (<20 employees).
I asked what percentage of business owners were earning more money than they could as an employee. The answer was around 40%.
One accountant tells his clients that they should be earning what they could as an employee plus a premium of 50% for the risk and effort of running their own business – very few take on this advice.
[Next: What about making money when the business is sold?]
What about making money when the business is sold?
When you tell people that 60% of business owners would make more money if they had jobs, many say this is OK because they will make their money when they sell the business.
I rang a number of business brokers and asked what percentage of people, sell their business for the type of premium that would make up for the years of working at reduced wages.
On average I was told up to 70% would get much less than expected. This is shattering for those approaching retirement who have invested very little in superannuation or anything else except the business.
One very experienced broker told me that 90% of the businesses he sees aren’t even saleable. He often gives advice on what people should do to improve the value of their business but by the time they have decided to sell, they don’t have the interest, desire or energy to reinvent the business.
So what is the greatest motivator for a business owner to change?
From this anecdotal research, only 7% of business owners earn more that they could as an employee AND sell their business at a premium. But for some reason this is not enough to make people change how they are running their business.
I am afraid from my experience that in the majority of cases it is only a good old dose of pain and suffering that will work. You can’t help anyone until they get to this point. The greater the suffering, the more willing people are to ask for help, learn from their mistakes and eventually make the changes needed.
I just hope that John does something before it is too late and he becomes another statistic.
Andrew Vincent is an experienced business coach and was the creator of the Channel 9 television series Your Business Success. Over 80 of the best episodes have been re-edited into business improvement program supported by a set of easy to follow workbooks and FREE business coaching. Go to www.yourbusinesssuccess.com.au to find out more.
