By Eric Tyson, author of “Investing For Dummies“
Many people dream about running their own companies — and for good reason. If you start your own business, you can pursue something that you’re passionate about, and you have more control over how you do things. Plus, successful business owners can reap major economic bounties.
But tales of entrepreneurs becoming multimillionaires focus attention on the financial rewards without revealing the business and personal challenges and costs associated with being in charge. Consider what your company has to do well to survive and succeed in the competitive business world:
✓ Develop products and services that customers will purchase
✓ Price your offerings properly and promote them
✓ Deal with the competition
✓ Manage the accounting
✓ Interpret lease contracts and evaluate office space
✓ Stay current with changes in your field
✓ Hire, train, and retain good employees
Business owners also face personal and emotional challenges, which rarely get airtime among all the glory of the rags-to-riches tales of multimillionaire entrepreneurs. Major health problems, divorces, fights and lawsuits among family members who are in business together, the loss of friends, and even suicides have been attributed to the passions of business owners who are consumed with winning or become overwhelmed by their failures. I’m not trying to scare you, but I do want you to be realistic about starting your own business.
The keys to success and enjoyment as an entrepreneur vary as much as the businesses do. But if you can answer yes to most of the following questions, you probably have the qualities and perspective needed to succeed as a small-business owner:
- Are you a self-starter? Do you like challenges? Are you persistent?
Are you willing to do research to solve problems? Most of the time, running your own business isn’t glamorous, especially in the early years. You have many details to remember and many things to do. Success in business is the result of doing lots of little things well. If you’re accustomed to working for large organizations where much of the day is spent attending meetings and keeping up on office politics and gossip, with little accountability, running your own business may come as a bit of a shock at first.
- Do you value independence and self-control?
Particularly in the early days of your business, you need to enjoy working on your own. When you leave a company environment and work on your own, you give up a lot of socializing. Of course, if you work in an unpleasant environment or with people you don’t really enjoy socializing with, venturing out on your own may be a plus.
If you’re a people person, many businesses offer lots of contact. But you must recognize the difference between socializing for fun with co-workers versus the often more demanding and goal-oriented networking with business contacts and customers.
- Can you develop a commitment to an idea, a product, or a principle?
If you work about 50 hours per week over 50 or so weeks per year, you’ll work around 2,500 hours per year. If the product, service, or cause you’re pursuing doesn’t excite you and you can’t motivate others to work hard for you, you’re going to have a long year!
One of the worst reasons to start your own business is solely for the pursuit of great financial riches. Don’t get me wrong — if you’re good at what you do and you know how to market your services or products, you may make more money working for yourself. But for most people, money isn’t enough of a motivation, and many people make the same or less money on their own than they did working for a company.
- Are you willing to make financial sacrifices and live a reduced lifestyle before and during your early entrepreneurial years?
“Live like a student before and during the startup of your small business” was the advice that my best business school professor, James Collins, gave me before I started my business. With most businesses, you expend money during the startup years and likely have a reduced income compared to the income you receive while working for a company. You also have to buy your own benefits.
To make your entrepreneurial dream a reality, you need to live within your means both before and after you start your business. But if running your own business really makes you happy, sacrificing expensive vacations, overpriced luxury cars, the latest designer clothing, and $4 lattes at the corner cafe shouldn’t be too painful.
- Do you recognize that when you run your own business, you must still report to bosses?
Besides the allure of huge profits, the other reason some people mistakenly go into business for themselves is that they’re tired of working for other people. Obnoxious, evil bosses can make anyone want to become an entrepreneur.
When you run your own business, you may have customers and other people to please who are miserable to deal with. Fortunately, even the worst customers usually can’t make your life anywhere near as miserable as the worst bosses. (And if you have enough customers, you can simply decide not to do business with such misfits.)
- Can you withstand rejection, naysayers, and negative feedback?
“I thought every no that I got when trying to raise my funding brought me one step closer to a yes,” says an entrepreneur I know. Unless you come from an entrepreneurial family, don’t expect your parents to endorse your “risky, crazy” behavior. Even other entrepreneurs can ridicule your good ideas. Two of my entrepreneurial friends were critical of each other’s ideas, yet both have succeeded!
Some people (especially parents) simply think that working for a giant company makes you safer and more secure (which, of course, is a myth, because corporations can lay you off in a snap). It’s also easier for them to say to their friends and neighbors that you’re a big manager at a well-known corporation (such as IBM, GE, Enron, Lehman Brothers, or WorldCom) than to explain that you’re working on some kooky business idea out of a spare bedroom. How secure do you think those former employees of Enron, Lehman Brothers, and WorldCom feel now about having lost their jobs at their former large company?
- Are you able to identify your shortcomings and hire or align yourself with people and organizations that complement your skills and expertise?
To be a successful entrepreneur, you need to be a bit of a jack-of-all-trades: marketer, accountant, customer service representative, administrative assistant, and so on. Unless you get lots of investor capital, which is rare for a true startup, you can’t afford to hire help in the early months, or perhaps even years, of your business
Partnering with or buying certain services or products rather than trying to do everything yourself may make sense for you. And over time, if your business grows and succeeds, you should be able to afford to hire more help. If you can be honest with yourself and surround and partner yourself with people whose skills and expertise complement yours, you can build a winning team!
- Do you deal well with ambiguity? Do you believe in yourself?
When you’re on your own, determining whether you’re on the right track is difficult. Some days, things don’t go well — and such days are much harder to take flying solo. Therefore, being confident, optimistic, and able to work around obstacles are necessary skills.
- Do you understand why you started the business or organization and how you personally define success?
Many business entrepreneurs define success by such measures as sales revenue, profits, number of branch offices and employees, and so on. These are fine measures, but other organizations, particularly nonprofits, have other measures. For example, the Jacksonville, Florida–based nonpartisan Wounded Warrior Project was founded by a “group of veterans and friends who took action to help the injured service men and women of this generation.” Money is necessary for the Wounded Warrior Project to accomplish its purpose, but such a cause-focused organization has a “bottom line” that’s very different from that of a for-profit organization.
- Can you accept lack of success in the early years of building your business?
A few rare businesses are instant hits, but most businesses take time to build momentum — it may take years, perhaps even decades. Some successful corporate people suffer from anxiety when they go out on their own and encounter the inevitable struggles and lack of tangible success as they build their companies.
Don’t be deterred by the questions that you can’t answer in the affirmative. A perfect entrepreneur doesn’t exist. Part of succeeding in business is knowing what you can and can’t do and then finding creative ways (or people) to help you achieve your goals.
Excerpted with permission from the publisher, Wiley, from “Investing For Dummies” by Eric Tyson. Copyright © 2014.
Eric Tyson, MBA, is an internationally acclaimed, bestselling personal finance author, lecturer, and advisor. He is dedicated to teaching people to manage their money better, and to successfully direct their own investments. Eric’s most recent title, “Investing For Dummies“, is a resource on all aspects of the topic, including how to develop and manage a portfolio, invest in stocks, bonds, mutual funds, and real estate, open a small business, and understand the critical tax implications of investing decisions.