Even with a great product idea that has gained traction with customers, founders face stunning and daunting challenges. Entrepreneurs who are successful have taken significant personal risks to start and grow their businesses. Prior to moving forward, they should have considered, assessed, weighed and evaluated each major risk and recognized the potential consequences of their decisions.
Entrepreneurs might encounter several perilous situations.
Why do businesses fail?
Consider the odds of success. Based upon research data from hundreds of thousands of startup firms from a dozen different industries, more than half will fail within the first three years of existence. Of those that remain, about one-third will make a profit, another third will breakeven and the balance will continue to lose money. After ten years, only a handful of companies will be in business.
Why do businesses fail? There are numerous possible causes that can end the dream of a business builder. The most devastating are not enough customers, insufficient revenues, formidable competitors, a shortage of cash, poor execution of a business plan, uncontrolled expenses and minimal gross margins. In short, any combination of these difficulties will adversely affect a company’s ability to generate a sustainable profit.
More trials. The other risks are very personal and perhaps even more painful. A failing business can impact the owner’s personal assets including property and money. A bankruptcy will damage credit and a person’s reputation. Investors, suppliers and other creditors might litigate to recover assets.
While launching and growing a company, there are other significant risks that impact a founder. Consider for a moment, the long hours spent at work. Most entrepreneurs will spend twelve-hour days managing the organization with little time off for personal or family activities. Such a commitment can be damaging to family relationships and hazardous to one’s physical and mental health. Stress can also be a constant and an unwelcomed companion resulting from the strains of managing relationships and financial matters.
Considering such devastating possibilities, I would suggest that any aspiring entrepreneur carefully ponder and evaluate each situation measured against their values, priorities and personal standards. A spouse, and in some cases a founder’s children, should be engaged in this life altering discussion. The questions should be “Can we be happy with these challenges or will this be too risky and disruptive?” The answers will vary among entrepreneurs and their family members.
Can the risks be mitigated?
Yes. I watch entrepreneurs who have found ways to lessen the impact of running a business in their personal lives and in the lives of their families. I should also note that for single adults, without family obligations, the severity can be far less. Please consider the mitigating plans that have value. Until a business builder is ready to purse his or her dream on a full time basis, I recommend remaining an employee at a current position and working evenings and on weekends to build your company. As a budding entrepreneur, I used this technique on four different occasions. Another approach is to leave your current assignment and give yourself one year, let’s say, to either succeed or, if not, seek new employment.
Why do entrepreneurs proceed? Even with these remarkable risks, people still take the plunge. Those who do so want to lead; to be their own boss. They seek independence and have a desire to be in charge. They envision wealth and profound fulfillment. They anticipate fame, glory, praise and recognition. They have a vision and a strategy and want to achieve them. They want to ignite their bold dream; create jobs and enhance the lives of their fellowmen. They have a fire in their bellies and they won’t rest until they have given it their best shot.
My personal story. Nearly 24 years ago, knowing the described risks, and after consulting with my supportive wife, I began the journey of starting and building a new business. To mitigate destructive factors, I had a balanced life plan. To protect my relationships with Jeanne and my six children I would work no more than ten hour days. I would enjoy dinner and the evening with the family. I would not work Sundays. As you can appreciate, there were many days when this did not happen.
For emotional and physical well being, I would try my best to work out, jog, listen to music or enjoy some form of entertainment. To protect and grow the business, Jeanne and I secured a personal bank loan using the home we owned as collateral, to obtain the cash I needed for working capital. Fortunately, we were also free of all debts, including credit cards and car payments. Through Jeanne’s modest employment, we had adequate health insurance.
I watched expenses carefully. I agonized for days over the purchase of a $200 fax machine. To engage customers and generate revenues I spent several hours every day contacting potential clients. My goal was to close a sale with everyone I contacted. I sought the wise counsel of mentors who gave timely and valuable advice. They kept me focused on generating cash to survive and prosper
As the years passed, I continued to manage and overcome barriers; several of which were monumental. I view myself as a survivor. I am still alive and continue to be engaged in entrepreneurship. I am still married to the same wonderful woman who supported my obsession. She is also a survivor. During the early years of the business, my take home pay was a meager $5,000 a year. She managed to provide the sustenance of life while living with an income below the poverty line. In time, the personal loan was retired and subsequent business loans were secured by corporate assets. Today, I am happy to report, MarketStar is a global business with several thousand employees working with multiple Fortune 100 clients.
As a concluding note, I should mention that the wounds from business battles have healed and as a result I am much wiser and smarter. The rewards I sought have all been achieved. Was it worth it? Would I do it again? Absolutely!
Please share your personal stories about risk with me. Or, if you would you like to ask me a question you can find my new Twitter feed at @AskAlanEHall. Or, as always, send me a message via www.AlanEHall.com. You’ll find my newest ebooks at that location as well.
Alan E. Hall is a co-founding managing director of Mercato Partners, a regionally focused growth capital investment firm. He founded Grow Utah Ventures, is the founder of MarketStar Corp. and is the Chairman of the Utah Technology Council.