Before You Open a Business…
I’VE MET MANY business founders in my life and they vary on almost every possible measure: race, gender, background, temperament, schooling, and intelligence (in all its forms). I certainly observe patterns among them, but they all share one and only one thing in common: they decided to get on the bucking bronco and actually do it.
I won’t try to talk you in or out of starting a business. It eventually worked out nicely for us, even with all the sacrifices and tough times along the way. But I’ve seen the pursuit of business opportunities cause irreparable harm to marriages, families, health—and those are some of the successful businesses! A business failure can cause all those problems and many more. For every “American dream” out there, there are more than a few American nightmares. Just because you do the work doesn’t mean the business will work. Some things in business and life are simply out of our control. Bad things happen to good people just as bad things happen to good businesses. There are many ways that even a good business with good leadership can be damaged or bankrupted.
Because business is fraught with many risks and challenges, and because this journey isn’t right for everyone, I’ve developed some questions that will help you get more clarity so you can make better decisions for yourself when it comes to starting a business. I resisted the temptation to make it a “quiz” where a certain number of yeses totaled up to give you a red, yellow, or green light. A single “no” to some of these questions might steer you away from entrepreneurship. For example, if your partner isn’t on board, many people might choose to avoid conflicts between “your-wife-or-your-life” or “your-man-or-your-plan.” Others might find that the successful resolution of these conflicts opens them up to new ways of relating to their families and careers.
Note that the scale and nature of your business will inform your answers to the following questions. For example, starting a lawn service with a mower and a truck will demand far less investment and risk than borrowing a lot of money to buy an existing landscaping company. Many successful businesses start with a small financial investment and low risk, while others may start with enormous capital, investors that have to be placated, and lots of risk.
As you consider these questions, remember the best indicator of how you’ll behave in a future situation is the way you’ve behaved in the past (especially your more recent actions and inactions). For additional insight on the tough ones, ask a close family member or friend who knows you well.
- If you’re in a relationship, is your spouse fully on board?
- Is your spouse willing to make significant career or personal sacrifices that might be required to support you and the business? When my then fiancé, Julie, and I moved to Boston to buy the dealership, she had to leave a job she really enjoyed. It would take her many years before she felt like she had risen again to the professional and personal heights she had departed in Virginia.
- Is your spouse comfortable with living on a very tight budget during the time that you’re growing the business?
- Does your spouse think it’s a good idea to go into the business you’ve selected?
- If your spouse is going to work with you and make decisions, have you discussed how will you navigate the inevitable personal and professional disagreements?
- Even if you’re not working together, do you communicate with your spouse in a way that would allow you to work through the challenges that will arise? If you’re currently unable to resolve differences about money and spending, these situations usually get worse rather than better under the stresses of building a business.
- Do you have children or family members you need to support financially? How prepared are you all to survive the financial setbacks that many business owners experience?
- How does owning a business fit into your overall life plan? What are your motivations for wanting to own your business? Business ownership consumes large quantities of time and mental energy, even after it’s running well and succeeding. Do you really prefer those stresses over the challenges of working a regular job?
- Does your “personal board of directors”(PBOD) think it’s a good idea? (More on the PBOD in the book.)
- Are you prepared to ride a serious emotional roller coaster, especially when things aren’t going so well? We tend to think that gladness and sadness sit on two ends of a see-saw—that the two vary in opposition to each other. But psychologists have found that positive emotions and negative emotions instead fit into two separate buckets and can move up and down independently. I have experienced large quantities of pleasure and pain throughout my business career, often simultaneously. In 2009, for example, we were having our then-most profitable year ever in the middle of the “Great Recession.” Opportunities were abundant, especially with used cars, since so many dealers were panicking and slashing their inventories even as demand for affordable transportation increased. But Chrysler was in bankruptcy, and we didn’t know whether our Chrysler Jeep Dodge dealership that we opened in 2004 would survive the ax of the bankruptcy court. (Ours did; over 700 did not.) We were thriving, but just one overnight letter away from losing that whole business.
- Do you like solving problems, and are you good at it? Operating a small business is not unlike owning a really old house: things break a lot, and you need to fix them, over and over and over. And because you can’t see the future, it seems like you never have as much information as you would like, so you have to take continuous calculated risks.
- How do you deal with routine failure? I don’t mean bankruptcy or catastrophic setbacks, but rather the heartbreak associated with hires who quit after lots of training, or money wasted on advertising that didn’t attract customers, or time forever lost on projects that couldn’t be implemented for one reason or another. I was humbled over and over again, day in and day out, when things just didn’t work. Paradoxically, most people would say I succeeded by any conventional notions of that word, but my everyday experience was dominated by constant setbacks. Writer George Orwell captured the feeling with the observation that “any life when viewed from the inside is simply a series of defeats.” It helps if you can look at failures as feedback and appreciate them for their educational value instead of taking them as body blows. Looking back on my journey, I feel buoyed by this quote from investor Charlie Munger: “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.” Success is about failing well: minimizing the harmful impacts of the failure (financial, emotional, and otherwise), learning something useful from the experience, and moving forward with renewed enthusiasm and increased knowledge and wisdom.
- Are you good at supervising others, and do you enjoy that? To this day, my greatest professional pleasure comes from the pride I associate with the recruitment and retention of the extraordinary Planet Subaru team, but gathering our current roster came with the frequent disappointment of people failing to live up to my expectations. We’ve had to fire a few people for doing really bad stuff, and I’m still affected by those memories all these years later.
- Do you enjoy working enough that you’re willing to put in crazy hours? Virgin founder Richard Branson said, “Entrepreneurs are the crazy people who work 100 hours a week so they don’t have to work 40 hours for someone else.” You can expect to work pretty long hours during the first few years of opening a business. Hard things don’t come easy. A life of leisure may follow a successful business, but rarely does a life of pleasure lead to the creation of a successful business. Poet William Butler Yeats wrote that we are “forced to choose perfection of the life or of the work.” I experienced this conflict often, so consumed with the car business that I neglected the business of living well. It consumed so much time and energy that I didn’t have much left for anything else. I was even reluctant to take vacations because I knew how much work would pile up on my desk while I was gone.
- Imagine yourself as an old person. How do you think you would look back on your life if you started a business, but it just didn’t work out? This technique, called prospective hindsight, allows you to imagine the consequences of an event that has yet to occur. Researchers asking elderly people to reflect on their lives learned that people regret the things they didn’t try more than the things they did try but didn’t work out. Which regret would you rather have: starting your business and failing or not starting your business and wondering what could have happened if you had?
- Are you naturally interested in the business you’re going into? I always loved cars, from my earliest days collecting Matchbox cars as a kid and using the pattern on our kitchen’s linoleum floor to lay out imaginary streets and interstates. To this day, I get excited about seeing Subaru’s new products and learning about the engineering that went into making them. If you want to open a bakery, it helps if you have a passion for baking. (Just note, however, that once you own a bakery you’ll be doing very little actual baking. And just because you’re a good baker doesn’t guarantee that you’ll be a good bakery owner.) Perhaps your passion dates back to childhood, as mine did. Author John McPhee reviewed his lifetime of writing and observed that 90% of the topics he had explored as an adult were things he was curious about before he went to college.
- Are you good at resolving conflicts with people, or are you willing to work really hard to learn this skill? Owning a business means you’ll spend a lot of time reconciling people’s conflicting needs, such as the age-old challenge of resolving a customer’s desire to pay less and a business’s desire to earn more. You don’t have to enjoy conflict, but you’ll see a lot of it, so be prepared.
- Do you have the personality type that can create a plan, execute that plan, and get things done? The world needs people who like to smell the roses and go with the flow, but starting and running a business requires lots of decisions and problem-solving. You will enjoy yourself more and find more success if that comes naturally to you.
- Are you patient and resilient enough to stick through years of building a business? During one long stretch, lasting several years, we were barely surviving in business. We had doubts about whether it would ever be worth it. I call these years “the lonely middle.” After the adrenaline of the start-up and long before enjoying any breakthrough success, we had to grind it out every day. During this time, we struggled to muster the energy and enthusiasm needed to get through long days and maintain our emotional strength in the face of routine difficulties. I remember a twelve-hour day during a tough month filled with headaches. When I left the dealership that night there were fewer cars on the sales board than when I came in (because two people had canceled orders). I put in all that work, and the dealership still lost money that month! Sometimes it felt like a big accomplishment for me to simply climb out of bed on a dark winter morning and go back to work again. Many nights I came home and told Julie that I would have given my two-week notice that day if I didn’t own the business. Day in, day out, month in, month out, year in, year out, we had to sustain the motivation to push through repeated failures, constant personnel challenges, and chronic psychological fatigue. Looking back, I can see that these years were crucial to our eventual success because we were building a customer base, establishing our name in the community, developing our team, and paying down debt. We were actually slowly growing rich, but we felt pretty poor.
- Do you have good instincts about people? In other words, do you generally make accurate predictions about people’s behavior, or do they frequently disappoint or surprise you? We tend to project onto others our way of seeing the world. It’s hard to see the world the way it is rather than the way we are. Early on in my business life, I was naïve about the motives of some people. I don’t try to mislead others or deliberately cause injury to someone for my gain, so I simply assumed everyone else would operate that way in business. Shortly after we opened, I remember contracting with an out-of-state direct-mail company. They “guaranteed” that if a certain number of folks didn’t appear at the dealership with the ad, they would send additional mail until that number was reached. Not surprisingly, given the low response rates of direct mail back then and now, the promised stampede in the showroom did not occur. That slow weekend, if I squinted a little bit, I thought I might even be able to see tumbleweeds rolling through. (Turns out these were dust bunnies under the cars that had accumulated under the cars. During this time, we cleaned the facility by ourselves—not very well—to save money.) When I notified the company owner about the disappointing results, the guarantee crumbled, and he wanted more money to send a different kind of mailer the following month. It was not the first time, and it wouldn’t be the last time I ran into people like this, and I learned again a vital lesson: be very careful when choosing your business associates. The best contracts are little protection from the worst people because an agreement is just a piece of paper unless you’re willing and able to bear the significant financial, emotional, and opportunity costs of enforcing the terms in court. There’s no 911 to dial for white-collar crime.
- Do you like attending to details, or will you need someone who can do this for you? You need to do a lot of things well: keep the bathrooms clean with plenty of toilet paper, maintain the right inventory, have a pleasant voice answering the phone, etc. Actor Cary Grant said it this way: “A thousand details add up to one impression.”
- How adaptable are you as a person? Can you roll with things when they don’t go as planned? Can you comfortably make course corrections when your decisions don’t work out? Professor Leon Megginson wrote the following, with a nod to Darwinian theory: “It is not the most intellectual of the species that survives; it is not the strongest that survives; but the species that survives is the one that is able best to adapt and adjust to the changing environment in which it finds itself.” It seems like just about the time we felt like we had things dialed in, something would come along to throw our system out of whack. Perhaps we would lose a key team member, or a recession would pinch sales. But in a constantly changing environment, opportunities will appear to the nimble and observant. In the mid-2000s, when the Subaru Tribeca failed to meet sales expectations, most dealers were overstuffed with new inventory and didn’t want any more of them. They avoided the used ones, too, but we discovered that many customers who wouldn’t pay $35,000 for a new one would pay $28,000 for a slightly used one. We stocked up, and it helped us sell more new ones, too, because some customers would visit to see our selection of used models and end up going for a new one anyway. While some dealers saw only failure and risk, we saw opportunities.
- Are you enough of a perfectionist that you aspire to excellence, but not so much of a perfectionist that you’ll drive all your people crazy and give yourself a heart attack? When asked about why he was so particular about everything at his little clam shack, my grandfather would say, “in a hundred years, no one will care, but I care now.” His attention to detail was noble, but he died of a heart attack at 72.
Entrepreneurs reputedly enjoy taking risks. Some do thrive on the adrenaline of working without a net. When I hear about the people who have won and lost multiple fortunes, I think they must enjoy the thrill of rolling the dice. But the majority of the business owners I know prefer to manage risks by minimizing them or bypassing them entirely. Army combat veteran Colonel David Hackworth said, “If you find yourself in a fair fight, you didn’t plan your mission properly.” Most successful entrepreneurs seek the deals where the odds of success significantly outweigh the potential for failure.
For many years, I personally bought our used cars at the auctions. By specializing exclusively on Subarus and obsessively immersing myself in that world, I gained a modest competitive advantage over most of the other buyers in the country. I thoroughly understood all the factors that influenced the value of the cars, and I was on the showroom floor every day interacting with the customers who were buying them. Every time I bought a car, I took a bet. Each bet was small enough that even a big mistake would hardly put us out of business, but I piled up the small winnings from all these bets every month until we were buying 100 used cars a month at auctions. I developed a strategy that generated a lot of revenue with minimal risk, although it took a lot of time and effort. You could say I liked to roll the dice, but only when they were loaded in my favor. Imagine you’re the player in an imaginary casino where you can bet on red or black, and you’re right consistently more often than you’re wrong. If you never bet too much to go bust, and you play long enough, you’ll do really well. (This just happens to be the way a real casino makes money from the players.)
- Would betting on yourself reasonably be considered a wise investment? For example, my brother John and I both had appropriate experience in the car business. We had a track record of completing complex tasks. A sensible investor would have looked at us and handicapped our odds favorably. However, that confidence would have shrunk considerably had we chosen a much bigger business or an industry where we had little or no experience.
- Have you saved any of your own money to invest in your business? While losing savings can be devastating, it’s generally easier to handle than losing borrowed money where creditors pursue your remaining assets.
- Do you have a reasonable backup plan if you lose everything? For example, if your spouse has a good job and your business doesn’t work out, it’s reasonable to think you could survive such a failure by going back to work for somebody else and relying on your partner’s income to cover the bills during the transition period. However, if you mortgaged your house and lost all your money, that would cause much bigger problems that you would need to be able to address.
- Can you survive losing whatever you invested in the business, or would such a failure trigger a spiral of financial ruin for your family? John and I were young enough that a total failure would have hurt quite a bit, but it wouldn’t have wiped us out forever. We would have needed to repay the few hundred thousand dollars in loans, but that sum wasn’t so big for us that we couldn’t have paid it back, over time, after we went back to work for somebody else.
- Are you young enough to lose everything and regain your footing before retirement? I knew a couple who closed a business after several years and hundreds of thousands of dollars in losses right before they retired—the worst time in your life to fail because you have no more working years left to recover. Their “golden years” are now the “social security check” years. The older and less wealthy you are, the more pressure you will face to succeed financially in business.
- What kind of psychological relationship do you have with money? Are you a disciplined saver and responsible investor? If you aren’t already savvy with small sums of money, do you have a realistic expectation that you’ll do better when the stakes are higher? My brother and I were raised in a home with frugal values, so we were accustomed to postponing our immediate desires in pursuit of future rewards. We saw money primarily as a way to give us freedom to help others and do the things we wanted as opposed to a way to buy lots of stuff. (Ironically, we didn’t consider how long we would be confined inside the four walls of a dealership before we would begin to enjoy some of that freedom!)
- Is your personal financial house in order that you can weather the lean times without causing serious strife/difficulty? Are you currently living below your means such that you could survive a reduction in income?
- Considering the overall costs and benefits of owning a business, is starting a business the best way to accomplish your goals? You can achieve financial independence by working really hard to build a successful business over several years or decades. I chose that adventure, but I have the scars to show for it. You can also find a lot of freedom by significantly scaling back your lifestyle and living very modestly on a smaller income. Learn more about this by researching the F.I.R.E. (Financial Independence, Retire Early) movement. The Mr. Money Mustache blog is a good place to start.
- Because there are few shortcuts to wealth, you will make a lot of sacrifices—is it really worth it to you? In an interview, music producer Russell Simmons marveled at the abundance that he found all around him. It dawned on him that he had scores of chairs in his lavish residence but could never sit in more than one at a time. How many moments of your life are you willing to trade for money?
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Jeff Morrill is the author of Profit Wise: How to Make More Money in Business by Doing the Right Thing. Starting from scratch and using the principles and techniques shared in this book, Morrill co-founded businesses in automotive retail, real estate, telecommunications, and insurance that generate over $100,000,000 in annual revenue. His achievements in building profitable and ethical companies have been featured in a variety of national media including USA Today, Automotive News, Entrepreneur Magazine, and Globe. You can find out more about at JeffMorrill.com
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Posted by Michael McKinney at 08:29 AM
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