Perfect Phrases for Managing Your Small Business

Canada.

Chapter 1

Introduction

Some people gush glowingly about the joys of owning or running a small business. The sense of freedom, the joys of succeeding on your own, the financial returns, and the no more idiot bosses are often the things that both attract and reward successful business owners—or at least that's the dream. There's a dark flip side, though.

For every happy, successful small business owner, there is someone else who has encountered grief, financial ruin, family conflict, and even divorce. Not everyone is cut out to start or run a small business, because it's hard. It's really hard. It's challenging, and it requires behavioral skills (what you do), linguistic skills (how you communicate), and cognitive skills (how you think) that not everyone possesses.

This book is intended to help you plan, think about, and develop your business—and succeed. At minimum, you will find out whether you are suited for the small business life. There's more value here than that, though. You will learn what you need to know to succeed, both financially and personally. The book is relevant not only to new business owners, though. The skills, thinking, and behaviors needed to start a business are pretty much the same ones as needed to manage a small business, even an old established one. So if you are thinking about starting a small business or buying into one, if you already own one, or if you are responsible for running a small business for someone else, this book is for you.

Good News About Small Business Failures

Let's start with some encouraging news about small business.

If you've researched the small business world, you've probably come across some rather disturbing numbers about the failure rates of small business, particularly during the first year or two. There are numbers that indicate the failure rate is as high as 90 percent of new businesses. Others indicate the number is somewhere between 60 and 70 percent. There are also some figures that are at least a little more optimistic. That doesn't sound promising, does it?

There are several things you need to know about these numbers before you let them depress or discourage you.

First, it is probably accurate to say that we don't really know, with certainty, what the small business failure rate actually is. The studies use so many different criteria for failure that the results are hard to interpret. For example, some studies classify as failures small businesses that have been sold. However, in this era, starting a business with a clear exit strategy is a common and lucrative practice. Ask the Web entrepreneurs who were bought out by giants for millions. Failures? Hardly! So, number one—the statistics, best called estimates, regarding business failures are all over the block.

Second, the rates of failure are quite different for different industries and types of business and from region to region. Overall failure rates simply do not help you determine the chances of success for your business in your field and in your geographic location.

The bottom line about small business failures is this: A fair number of small businesses fail. We don't know exactly what that number is. Even if we did know the overall number, it wouldn't be useful, because it wouldn't tell us what your chances are. Your ability to succeed has little to do with the odds, but almost everything to do with your skills, resources, and, above all, the decisions you make, even before you open your doors.

More Small Business Good News for the 2000s

It's arguably the best time in the history of humanity to start or run a small business. Why? The answer is simple. Technology has increased your options exponentially and has magnified the capabilities of any businessperson, in terms of business functions. Take a look at the following smattering of business tasks and activities:

Answering telephone calls

Designing sales brochures

Reproducing paperwork

Sending paperwork to clients

Collaborating with clients or partners/employees

Renting and managing office space

Reaching large numbers of potential clients or customers

Tracking business functions (accounting, sales, employees)

Publishing a book

In 1967 these business activities took time, personnel, or a level of expertise that most small business owners might lack. Everything happened more slowly, too.

Now we have faxes and e-mails. We have the capability to run a business without the expenses of operating a physical office or store, if we choose. We can reach a large number of potential clients without spending millions on advertising, at least theoretically. We no longer need to be tied to our office phones or employ someone to answer the phone. Small business owners can use out-of-the-box accounting packages to do the basics of managing their businesses. Do you want to market to England, but your business is in Hoboken, New Jersey? Not a problem. Use the Internet. Selling globally has never been easier or cheaper.

We can even hold meetings with people located all over the world, using computer video and audio, without boarding an airplane—or even changing out of our pajamas. And on and on. Many small businesses simply couldn't have existed even a few decades ago.

More options exist now, not only for business functions, but also for the kind of business you might develop. New technologies have created new industries where small business structures can excel. For example, you can be a Web site developer, a search engine consultant, a writer for the Internet—work that did not exist 20 years ago.

There's simply more freedom and more possibilities. It's also, in an odd way, more complicated than ever before. Which brings us to the bad news, or perhaps we should call it the reality of small business.

The Bad News? Heavy Dose of Reality

As with many things in life, the good news about small business needs to be tempered by the other side of the double-edged sword. While it's true that small business owners can leverage technology to do things impossible 20 years ago and that technology has provided more options and lowered barriers to entry into small business, it brings new challenges.

That same technology that lowers the entry barriers for you has also lowered the entrance barriers for everyone else. That means, at least generally, more competition in many sectors. It's true that not all the competition will be a threat to well-run businesses, since many of the competitors are not serious or competent, but it's still a consideration. For example, if you started an Internet-based business in 1998, your chances of success would have been higher than in 2008, simply because there was generally less competition in 1998. As another example, with the advent of Internet-based retailers like Amazon.com, the competition for consumer dollars has shifted, making it much more difficult to run certain types of business that would compete in Amazon's marketplace. Now if you want to own a small bookstore, not only must you compete in price and selection with the local brick-and-mortar giants, but you must also compete with online companies that seem to have infinite resources.

The bottom line: competition arises out of the ease associated with starting a business, but different sectors and types of businesses are impacted differentially. There are a huge number of small businesses that are run terribly, though, so the increased competition may not be as critical as one would think. Once again, the decisions you make about your small business are going to determine the degree to which you are affected by increased competition.

Another reality of our society has an impact on the small business environment. The world is a very complex place, and it's more complex in a number of ways. For example, in starting a retail business or a restaurant, the requirements and issues involved—such as government regulations, inspections, legalities, supplier relationships—were much simpler going back three or four decades. There are more things to consider and more rules and regulations now. That means things go more slowly; and often in business, particularly at the start-up stage, delay means money.

Complexity also means the decisions you make are more critical and important and they require expert, specialized, and readily available knowledge and skills. The knowledge and skills necessary for doing business now are much greater than ever. You need to know more. You need to have people to help you who have expertise in areas in which you do not have enough.

What does all of this mean for you? Starting or running a small business can bring a great deal of joy and a sense of accomplishment. However, to get the rewards, whether financial or personal, you need to face a multitude of challenges, in terms of managing both the business and yourself. You need to know a lot. You need to have a lot of skills. You need to manage yourself and your personal life so that part of your world is in balance with the requirements of running your business, or you burn yourself out and you burn out your family and social relationships.

Effective Decision Making, Effective Small Businesses

What makes a small business successful? If you look at the research, you'll find what you'd expect. Successful small businesses tend to be well managed, provide a good product or service, maintain a reliable and predictable cash flow, be well planned, be marketed well, and so on.

When you take a closer look and talk with successful business owners, you can find out more. First and foremost, there isn't one way to succeed in small business. One owner does well because she's a great marketer. Another succeeds because he's a genius in creating services and products with high profit margins. Another is simply phenomenal at customer service. Yet another achieves success primarily because he hires great, motivated employees.

You'll find that most successful business owners have a variety of strengths, but they always have weaknesses too, since it's impossible to be expert and effective at all aspects of business. That's all pretty good news, because it means you don't have to be perfect to succeed. It also means that, ultimately, you have to use your strengths effectively and minimize your weaknesses.

How do you do that? You make good decisions. In fact, it may be that the single most important determinant of small business success is effective decision making. Make the right decisions, and you prosper. Make bad ones, and your business suffers. Make really, really bad ones, and you file for bankruptcy!

Mind you, it's much easier to say Make good decisions than it is to actually make good decisions. Here's why. Most of the decisions made in business, or at least the really important ones, are made in a very ambiguous, complex world, where the proper path is unclear. For almost every decision you make in business, you'll be able to imagine or foresee positives and negatives. Each decision is going to come with some unknown consequences that you cannot necessarily anticipate because you can't see into the future.

You can only do your best in making decisions. Pay attention to all the factors and the possible consequences, think them through, and ask the right questions. Then you act on your decisions.

That brings us to this book. You'd think that, from the title, the book is about what you say to people—Perfect Phrases. Well, yes and no. What you say to people is important in determining your successes and failures. Say the wrong thing to the bank's loan officer, and you may lose financing. Negotiate badly with a supplier, and you might lose an important deal. Phrase things badly with customers, and you can watch their backs as they walk out the door.

In this book, though, we look at phrases as the stuff of thought and the stuff of effective decision making. What you say to yourself (how you think) and the questions you ask and the answers you give will determine how effective your business decisions will be. If you ask the wrong questions, you'll simply make wrong decisions. Make the wrong decisions, and you're done; your business is gone.

Using This Book

We've tried to structure this book in a way that roughly follows the chronology of choosing and starting a business; so, for example, we've put early on in the book topics like planning and assessing whether small business is for you.

If you're rather new to small business, we suggest you actually start at the beginning and at least glance at each chapter. Doing so will familiarize you with the issues and challenges of creating and managing a small business. If you're a new business owner or manager, you can consult this book.

If you're more experienced in small business, you may want to use this book just as needed, once you've familiarized yourself with the content. If you encounter an issue, you'll probably find it addressed in this book; check the contents to quickly find what you need. However, if you use this book only as needed, you may miss out on learning about things you haven't considered. And one way in which this book can contribute to helping your small business succeed is by alerting you to issues, challenges, and solutions that you simply hadn't thought about. Each chapter concludes with a few brief guiding principles to which you should pay special attention.

Consider using this book and its content as a basis for talking with other people. Nobody can think of everything. Nobody can make perfect decisions every time. It's almost always wise to get input from other people, and you can use this book as a basis to do so. For example, have your spouse or other family members look at the chapters on work-life balance with you and talk about how your family can help to make it work. Or use the book to identify some key questions you'd like to ask another business owner and then go ask.

We also invite you to visit our small business support Web site at smallbusiness411.org, where you will find an extensive library of helpful small business articles, advice, and an opportunity to interact with us.

Chapter 2

Beginning—Entrepreneurs, Start Your Thinking

So much of the fate of a small business has to do with how well the people making the decisions plan their strategy and tactics and how good their decisions are. The decisions to be made when starting out are critical. Make the right decisions, and you lay a foundation for long-term success. Make the wrong ones, and you will end up with a small business that is nasty, brutish, and short, as philosopher Thomas Hobbes characterized the natural state of human beings.

To make the right decisions, you have to ask the right questions of yourself and of others. That's what we'll look at in this chapter.

Deciding if Business Ownership/Management Is for You