By: Jayson Schwarz LLM
As a lawyer of 33 years I have seen many small businesses flourish and many fail. The big question is why some succeed and others fall. Here are just a few comments that may not really be legal comments but certainly reflect my observations. In addition some businesses succeed despite themselves and later no one can figure out what went wrong. Here are some insights that may prove of value.
Underfinanced. Whether it is a start up or purchase of an existing business, most new entrepreneurs spend far too much of their funds on sizzle not steak. What does that mean? As an example too much money is spent on oversupply of inventory, leasehold improvements or other capital investments that leaves the business short of the money it needs for marketing or cash flow until receivables turn over. Maintaining a cash reserve to carry the business through to success is critical.
Lack of knowledge. Many people get into a business for which they have lack of training or knowledge. They think they can learn on the job. Wrong. Go intern. Work for a successful company and put in the time until you learn how it should work; what to look out for; and how to run the business.
The amazing idea. The one thing I have seen over and over is a client coming in with the idea that will change the world. He has the next pet rock, hoola hoop, slinky, ipod etc. There is a huge distance between an idea and fulfillment. Remember a great idea does not make money the execution and delivery does. In order to make the idea work we need to develop a cohesive, coherent and practical business plan in writing. The business plan will allow you to express the detail and direction necessary to make the idea work and by the way before an idea can be worked on extensive market research is a critical factor.
The lone ranger, John Donne in the early 1600’s said “No man is an island, entire of itself every man is a piece of the continent, a part of the main”. In other words you need to recognize that every successful small business succeeds as a result of a team put together by the entrepreneur. If we try to do it alone what is quickly discovered is not the leader’s strength but his weakness. Many failures come to roost when sales are exploding, market share growing and suddenly it falls apart because the back room is missing. The entrepreneur brilliantly develops his business but loses because of faulty accounting or controls. We all need to recognize our strengths and find the right partner or staff to supplement our weakness.
Bad Partners. Everything is always good when it starts but when it becomes too successful or too tough it usually breaks down. Trust is huge so be careful and choose wisely. Make sure you have the relationship IN WRITING. Also never do a deal where the risk is lopsided. Everyone must be in the same place.
Penny wise and pound foolish. Ok so we can’t afford to hire a lawyer to incorporate or advise. We pass on an accountant. Hmmm we’ll get one later. This attitude is deadly. Get your professionals at the beginning to ensure that your business is properly constituted; that your personal liability is not on the table and that the structure is in place form the beginning to allow for growth and proper process.
Ok that’s enough of this sort of thing. I hope this helps to make you think, explore and consider. Good luck, start your business and success.