Why building resilience for small business owners matters
January 27, 2015
By Matthew Tukaki
There is a simple truth when starting a small business in so far as it can be a very lonely journey. Data in the United States and other developed economies show that nearly 50% of small business start-ups will fail in the first two years with many more not making the five year mark. In other words, of the many that start, only a few will reach the intended goal.
When embarking on a small business journey many people do in fact start off with a team or a duo that is made up of a husband and a wife (or partner and partner). Out of the 1,000 EntreHub members we surveyed during December (2014) 41% of small business owners and start-ups were in fact a husband and wife team while 32% of respondents were a pair who were known to each-other either as friends from work, family members or students who were in college / school together. The remaining 27% were the pure definition of a sole trader – those who had gone into business alone.
When asked what start-up capital they had to get the business off the ground the majority (78%) indicated they had sourced it from their own savings or loans from friends while only 9% indicated they had bank or financial institution support. A further 2% indicated that they had started the business using redundancy payments while the remaining 9% indicated they began with nothing more than the balance of a bank account or credit card.
The reality is that financial pressure on the majority of small business during the start-up phase (or lack of capital) is usually the catalyst for what is to come. In this article we are going to focus on outlining some of the things that you need to do to build resilience into your small business or start-up plan to ensure that your passion goes the distance. But, before we do, we need to start with that reality check in a different context. With 41% of small business owners being a husband and wife / partner and partner type relationship it is wise to understand that often the first strains can appear very early on in the life of the business. As Dan, an EntreHub member and small business owner from New York told us recently:
“My wife knew that I was really unhappy in my job and I’d been struggling for a few years to try and crawl up the ladder but I was going no-where. So, I went home one day and said why don’t we try this ourselves having seen an advertisement for a franchise. At the time my wife I think kind of wanted to just give me the chance to get out of the hole I was in and she pretty much was going to back anything at that stage. So, we went to the franchise meeting and put our savings on the table ($40,000) and went for it. The problem was we hadn’t factored in how long it would take before we got a paycheck and so we went from a single income paying the household bills while my wife was at home bringing up the kids to me now working for myself. It took three months before the first paycheck came in but the household bills had started to stack up and we were in much more debt than we thought we would be. This created enormous pressure on our marriage and so far from focussing on getting the business up and running and providing for my family I ended up trying to save my marriage but only after I would come home and get into fights with my wife not because she had done anything wrong but because I was really struggling and took that anger and fear of failure out on her. The very woman who was their backing me into the business from the beginning”
Dan is not alone in not fully comprehending the pressure a small business start-up can create especially when you don’t have a good idea of exactly what all of the financial problems could be and how these could unfold in terms of both the running of the business and the impact on your personal relationships.
Mark, an EntreHub member from Queensland, Australia had a similar story but in different circumstances:
“A mate and I kicked a business off in 2012 because we thought we were both going no-where at the same company and we figured we could do a much a better job at lower margin. We actually thought we would be rolling in it after week two of starting up. Man we were gung ho and so naïve. What actually happened is we had no start-up capital at all and just figured that we would convince a few of our existing customers to come over and we’d be able to get an income fairly much straight away. We used our final payout from the job to buy a small delivery truck (the business was in transportation) and that’s when we realised we had both made a mistake. We hadn’t understood that even if we had have had a paying customer that they don’t always pay invoices on time and we sure as hell didn’t think we would get caught up in all this paperwork. Then potential customers were demanding everything from appropriate insurances to making sure we were certified in occupational health and safety. We hadn’t factored any of this. The deeper we got into it the more money we would be lending from friends and family and sure we were both single but we still had to keep a roof over our heads. In the end we were both broke and I had to move back into my parent’s house. I haven’t spoken to my former business partner now for a year and doubt I ever will. I was so depressed and angry and hit the bottle and I’m only now just getting back on my feet.”
The economic downturn in the United States and other developing economies hasn’t helped with many established small businesses closing or going to the wall and an increase in the rapidity of small business start-ups hitting the wall a lot sooner than in the decade before 2008. Some observers believe that the economic downturn has had an impact on rates of suicide and depression although no specific research has ever been undertaken as to the actual state of suicide and depression amongst small business owners.
In 2011 the US Centers for Disease Control and Prevention found that the suicide rate rises and falls with the state of the economy – research that has gone back right to the Great Depression of the 1920’s and early 1930’s. The report, published in the American Journal for Public Health, found that suicide rates had increased during times of economic crisis including the Great Depression of 1929-1933, The final years of the New Deal (a series of economic reforms in the United States intended to reform and stimulate the economy) in 1937-38, the so called Double-Dip recession of 1980- 1982 and then the first years of what many know to be either the Recession of the Global Financial Crisis that began in 2007 / 2008.
“The economic downturn that has shaken Europe for the last three years has also swept away the foundations of once-sturdy lives, leading to an alarming spike in suicide rates. Especially in the most fragile nations like Greece, Ireland and Italy, small-business owners and entrepreneurs are increasingly taking their own lives in a phenomenon some European newspapers have started calling “suicide by economic crisis.” And;
“In Greece, the suicide rate among men increased more than 24 percent from 2007 to 2009, government statistics show. In Ireland during the same period, suicides among men rose more than 16 percent. In Italy, suicides motivated by economic difficulties have increased 52 percent, to 187 in 2010 — the most recent year for which statistics were available — from 123 in 2005.)”
So, the scene is set for what is the biggest question we need to ask: “how do you solve a problem as big as this, where there is both a cycle of boom and bust and the impacts that economic downturn and financial decline can have on our home fronts and relationships?”
The simple answer is that there are no simple answers but we can see solutions in terms of how we both plan the start-up of a business and why it is so important to build resilience. What does resilience mean? Well, let’s look at the definition:
“The power or ability to return to the original form, position, etc., after being bent, compressed, ort stretched; elasticity; Ability to recover readily from illness, depression, adversity or the like; elasticity”
So, what three things can you do to build resilience as you grow and develop your business?
Phone a friend: Because small business ownership is often a lonely journey one of the things you need is an outlet – not necessarily someone within your business or family circle but a friend or someone you trust. The outlet you need the ability to talk about your struggles and successes with someone prepared to listen and offer support more so than advice. Remember the old saying “better out than in” well, it applies here. By talking with someone about what is happening we are able to get it off our chest and, in doing so, it’s not welling up inside having the potential to cause anger and stress.
Maintain your social network: yes, it is true that small business owners work incredible hours and the downside can be that our social networks get ever smaller. When we used to catch up with mates or take the kids to the football we are not increasingly at work trying to make an income to pay the bills. It is imperative that you try and structure your week or month to include your own time out. If you have family and children always ensure that you set aside time in your week or weekend and keep to it. If it’s just you, then don’t miss that coffee on a weekend with your friends or a cold beer on a Friday night – maintain your relationships and social network because they will be an additional support mechanism for you. But, don’t think that your social network is all about Facebook – it’s not. We still need physical contact and it is important for you to maintain a foothold in the real world, no the online one.
Keep yourself healthy and fit: Lack of sleep and a bad diet are the enemy of small business success. I will never forget when myself and my former business partners started Dattatech back in 2002 we literally pulled all night work session for weeks on end – the space under my desk became my bed! As time went on the lack of sleep and poor diet caused fights. The truth is we were tired and that tiredness bought on anger. Make sure you get into a regular sleep pattern – never kid yourself that you’re banking it for the weekend and you’ll catch-up on Saturday or Sunday with a sleep in. Also make sure you getting into a regular eating pattern and always have breakfast and dinner as a minimum.
Building resilience is one thing but making sure you have a plan going into a small business is another. These are things that you need to do to ensure you have the wherewithall to sustain a start-up:
Research the market: Always know what the market is doing today and where it may move tomorrow. Going into a small business start-up without knowing if you even have customers wanting to buy whatever it is you have to sell is sure to lead to failure. Research what your competitors are already doing and why, who are they trying to attract in terms of customers, what does their marketing look like and how are they pricing their products? – know as much as you can before you hit the button
Make sure you understand cash flow: Always know how your start-up budget will impact the home budget. If you are going from a single wage or a double income wage down to either zero or one then you need to ensure you have your personal living expenses covered just in case that first pay check doesn’t come in. Be under no illusion: small business owners always get paid last! Take a look here at what you need to know about managing cash flow
Build a business plan: The real secret of a business plan is that it provides you with the ability to think and test your thinking. Business plans don’t need to be complicated or complex – they just need to force you to document what it is you want to achieve, why and by when. Take a look at how you can build a better business plan.
At the end of the day building resilience is key to being successful but so too is knowing when it seek support and help. You are never truly alone on your entrepreneurial journey unless you think you are. There are always people ready and willing to help.
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