“Doomed from the start.” Entrepreneurs and entrepreneur-hopefuls may find it difficult to keep those four words from causing them to second guess their every move as they plan and run their business — especially considering that fewer than 30 percent of businesses last more than 10 years and most failures happen within the first few years of operation. The truth is, many things could go wrong: an ill-conceived business idea, poor planning, lack of capital, ineffective leadership and more. In the high-stakes world of running a business, those are the facts.
But there are other important facts about business ownership that could help entrepreneurs avoid the mistakes and pitfalls that trip up so many others and go on to achieve success. These are the “facts of business life.”
Of course, there are a variety of skills owners need to know in order to make a business work. But decades of running my own successful businesses and learning how other successful owners have created success has shown me that these facts are the seven essential concepts needed to create a successful business life. There are no guarantees for entrepreneurs — and, to add to the challenge, each business is one of a kind, in terms of how it competes, its constraints and how it operates — but what entrepreneurs can do is tilt the odds in their favor.
Fact 1: If you don’t lead, no one will follow. At first, this statement seems mind-numbingly obvious. But often, “leadership” is one of those words thrown around by people who haven’t given much thought to what it looks like in action. Good business leadership begins with defining the destination and direction of the company and deciding how the business should look and operate when it arrives. But it doesn’t stop there. It also involves developing and continuously improving on a set of skills in order to move the business from where it is today to where the entrepreneur wants it to be tomorrow.
Without effective leadership, managers and employees have no idea what is important to the owner, what to manage or what success and failure look like. In order to have effective employees, a business first has to have effective leadership, which has to include defining success and failure based on the eventual destination. Another important aspect of being a good leader is developing a company culture that’s expectations-based, and rewards those who meet and exceed those expectations. The good news about leadership is, the most important aspects can be learned. It’s essential that owners do so.
Fact 2: If you don’t control it, you don’t own it. Control is the owner’s management reality. If the owner doesn’t control the company by defining key tasks and dictating how they must be handled, and “inspect what he expects,” then he doesn’t truly “own” the business because all he is, is a spectator watching others play with his money.
There are two overriding or macro concepts successful owners understand over their unsuccessful competitors. First, great procedures and processes need controls, and these in turn create great employees. Procedures and processes operate the business, and employees operate the processes.
Secondly, the owner should not stop at pointing out what should be done and how. He should also clearly state and emphasize that there will be consequences when standard operating procedures and processes aren’t followed. Business owners who don’t do this will be “leading” a group of individuals who follow their own rules and judgment, rather than a cohesive company working toward a common goal.
Fact 3: Protecting your company’s assets should be the first priority. Readers may be surprised the instruction isn’t to first protect their company’s sales, profits and growth. But assets — tangible and intangible — are what power sales, profits and growth.
Usually, owners and soon-to-be owners understand the need for insurance on assets like their buildings and equipment. In fact, bankers insist on insuring specific assets they lend money on, like facilities, equipment and, sometimes, even an owner’s life. However, successful owners don’t stop at protecting obvious assets. They understand the importance of every asset because assets represent invested cash, which should be managed to produce exceptional and maximized profits.
Companies whose owners ignore this business fact will underperform — if they can even survive the continual asset write-offs and write-downs, customer abandonment and employee indifference. The key is to understand what all of the company’s assets are, both tangible and intangible, and then guard them closely and work to maximize the profits they represent.
Fact 4: Planning is about preparing for the future, not predicting it. Nobody knows what tomorrow, next week or next year will bring for a business. But business owners can make educated guesses based on the most current, accurate information available as well as their own past. experience, and this should be an ongoing process. Effective planning is a mix of science (gathering pertinent information) and art (taking that information and turning it into a plan that will move a business from “here” to “there” over a specific time period).
Being able to plan better than competitors can provide a significant competitive edge in the market. Ford Motor Company is a great example. In 2008 and 2009, its competitors GM and Chrysler ran out of cash and needed taxpayer bailouts to avoid bankruptcy. But not Ford. Years prior to the credit crunch, Ford began to restructure its debt and raised billions as it continually added to cash reserves. Was this luck or good planning? Industry insiders will say good planning. Ford knew, as all business owners should, that planning is valuable because it focuses owners on what’s important and prepares them for what lies ahead.
Fact 5: If you don’t market your business, you won’t have one. Maybe working to market and advertise the company’s product isn’t the owner’s cup of tea. Or maybe the owner believes the product is so great it should speak for itself. Forget the excuses; the bottom line is, if people don’t know about its product, a company won’t be successful.
New business owners, especially, are nervous about marketing because money is already so tight at this stage. But entrepreneurs have to make the necessary effort to connect consumers to their company. When they do, they’ll begin to see marketing as the investment it actually is rather than the expense less successful competitors think it is.
Fact 6: The marketplace is a war zone. Every company has competitors, and if it doesn’t and it’s successful, it soon will.
Successful owners know they have to fight not only to win market
share but to retain it as well. That’s why entrepreneurs must develop a warrior mentality and maintain it for as long as they’re at the head of their business.
Selling and sales in any industry is serious business. It’s “take or be taken from.” If that isn’t a business war zone, then I don’t know what is. In order to be successful and remain that way, entrepreneurs have to continually focus on the market, react to it and fight for what they believe should be theirs. If they don’t, their competition will win the war. Great marketing has to be followed up by a company being “on its game” in order to capture every customer the marketing attracts.
Fact 7: You don’t have to know just the business you’re in; you have to know business. Yes, of course entrepreneurs need to know the inner workings and nuances of their particular industry if they want to be successful. But they also need to understand the various aspects of business as it is more broadly defined, such as accounting, finance, business law, personnel issues and more, and how all of these impact each other and the decisions the entrepreneurs make.
Having tunnel or limited vision as far as business knowledge is concerned is akin to dropping out of high school, limiting the possibilities for success and how great that success could be. But what is most important for entrepreneurs is not how much they know but what they know and what they do with that knowledge. For example, it’s important an entrepreneur know not only what’s going on in his or her market but what to do with that information and how to translate it into more sales and gross and net profits — something that can’t be done with limited business knowledge. And it’s an owner’s responsibility to make sure what he or she is learning is correct and relevant.
As important as it is to know, understand and apply these seven “facts of business life,” it’s equally important to understand how these facts are interrelated. Being able to develop strategic plans or market a product will mean little if the company’s owner doesn’t have a good grasp of business in general. Entrepreneurs should also be prepared for implementation of these facts to change as their business goes through its inevitable life cycle.
Bill McBean authored The Facts of Business Life: What Every Successful Business Owner Knows That You Don’t based on decades of experience in a variety of industries. He is currently general partner of McBean Partners, a family-owned investment company, as well as partner and chairman of Our-Mentors, a company that works with owners to improve their businesses for long-term success.