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August 31, 2010, 7:00 am

Top 10 Reasons for Entrepreneurial Success

I really have only one indulgence. I bought an expensive convertible a few years ago. It is not a midlife crisis car; I would call it a midlife celebration car. It is not red. It was a prerecession purchase.

In any case, I was driving to work one recent morning, sitting at a stoplight when a car pulled up next to me and the young man behind the wheel rolled down his window. He shouted over, “How can I be successful like you?”

I sensed he was serious. I appreciated his moxie, and I wanted to give him a great answer. I also knew that I had between five and 10 seconds for the pearls of wisdom to be hatched and delivered. I didn’t panic. I went with my two favorite standbys: make sure your customers are happy and make sure your employees are with the program. The light changed. He seemed pleased with his stoplight counseling. He thanked me, and we both drove off.

But I started thinking: Is that the best I could do? Did I give him enough to get him on his way? Should I have mentioned the “work hard and follow your passion” mantra? No. He certainly has heard that before. Still, I wished I’d had another chance. I feared this would haunt me forever — or at least until lunch. And then, voila! We were at the next stoplight, and he was again next to me, again with his window and mind open. Rebound. I get another shot!

He told me he was graduating from DePaul University, and he wanted to know what else I had for him. By this point, I’d realized that I couldn’t give him the secret to business success in 10 seconds. That would take at least a minute, but I was not prepared. It is an excellent question that requires some thought. I told him I’d post an answer on this blog. So, to you DePaul graduate with moxie, here is what I believe are the most important success factors in business:

1. Look for opportunities to do something better than just about everyone else.
2. Accept risk as a necessary evil. It makes for much less competition.
3. Act responsibly to customers, employees and vendors.
4. Goals aren’t enough. You need a plan. You need to execute the plan.
5. You need to fix the plan as you go. Learn from your mistakes. Most people don’t.
6. Do not reinvent the wheel. Learn from others — join a business group.
7. Make sure the math works. I know plenty of people who work hard and follow their passion but the math doesn’t work. If the math doesn’t work, neither does the business.
8. Make sure that every employee understands and works toward the mission.
9. There are going to be difficult times and you need to be resilient; whining is a waste of time.
10. There will be sacrifices. Work to find a balance so that you don’t become a financially successful loser. It’s not about the income, it’s about the outcome.

That’s my Top 10 list. I’m sure there are more. What do you think is missing?

Updated: You can now read a follow-up to this post.

Jay Goltz owns five small businesses in Chicago.

September 9, 2010, 1:00 pm

It Takes More Than Passion

Thanks for the great comments to my last post. Several of the comments made me stop and think about my own situation and experiences. While some very important lessons were passed along, I feel the need to offer a little context on some important subjects.

HHilborn (No. 12) wrote: “Stay out of debt.”

That’s usually good advice. I certainly agree that many, many business people have taken out too much debt, especially early in their business lives when they may have thought they were operating on vision and talent but it was really a wing and a prayer. But debt isn’t always a bad thing. There are good reasons and bad reasons to go into debt. There is a huge difference, for example, between borrowing money that will have an immediate return on investment (a new machine that will reduce labor costs) and borrowing money to fund losses or to expand (especially if you don’t really know if the sales will be there).

Yes, lots of companies fail because they take on too much debt. And there are some people who will just do better when they don’t have debt, both operationally and emotionally. And if I had to take a black-and-white stance on debt or no debt, I would go with no debt. But business is not black and white. Lots of successful companies do take on debt.

Erica (No. 64) wrote, “The ‘follow your passion’ mantra only works if your passion happens to be in high demand and low supply.“

She makes an important point. While passion is critical in becoming successful, I have to report that I have met many business owners who were passionate but still went broke. It takes more than passion; it takes a business model that works. Do you think it would be a good idea to open a book store today because you are passionate about books? Or a music store? How about a video store?

JS17 (No. 67) commented, “Positive cash flow solves almost every problem.” It certainly is true that positive cash flow is a good thing. But there’s a related point that a lot of people are unclear about: you can have positive cash flow and still be losing money. For instance, a business could be living off of customer deposits or credit card debt and show good cash flow — until the whole thing falls apart. Eventually the lack of profit will destroy the cash flow (unless you own an airline!). It’s almost a business Ponzi scheme. Cash flow is always critical; profit is critical eventually.

Liz (No. 78) wrote, “IGNORE THE NAYSAYERS… or at least beware of them.” When I graduated from college and told people that I was going to start a custom picture-framing business, almost everyone gave me grief. “You’re going to waste your degree?” was the most common response (my mother eventually came around). This was 1978 — before entrepreneurship became hot. Those naysayers were wrong, but the naysayers are not always wrong. I have ignored warnings from experienced business people, and they turned out to be right. Let me assure you that the yeasayers can be just as wrong — and just as damaging. Hey, if this were easy, every business would be successful!

Photoman (No. 7) wrote, “Practice empathy.” I don’t know that I would have understood that comment 20 years ago. Now I do. People are different. They have different perspectives. Not everyone is going to react the way I would. It is easy to forget this when you are frantically trying to build a business. Good advice.

Jay Goltz owns five small businesses in Chicago.

Thinking Entrepreneur, Entrepreneurship, success

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January 5, 2011, 2:05 pm

Top 10 Reasons Small Businesses Fail

One of the least understood aspects of entrepreneurship is why small businesses fail, and there’s a simple reason for the confusion: Most of the evidence comes from the entrepreneurs themselves.

I have had a close-up view of numerous business failures —
including a few start-ups of my own. And from my observation, the reasons for failure cited by the owners are frequently off point, which kind of makes sense when you think about it. If the owners really knew what they were doing wrong, they might have been able to fix the problem. Often, it’s simply a matter of denial or of not knowing what you don’t know.

In many cases, the customers — or, I should say, ex-customers — have a better understanding than the owners of what wasn’t working. The usual suspects that the owners tend to blame are the bank, the government or the idiot partner. Rarely does the owner’s finger point at the owner. Of course, there are cases where something out of the owner’s control has gone terribly wrong, but I have found those instances to be in the minority. What follows, based on my own experiences and observations, are the top 10 reasons small businesses fail. The list is not pretty, it is not simple, and it does not contain any of those usual suspects (although they might come in at Nos. 11, 12 and 13).

1. The math just doesn’t work. There is not enough demand for the product or service at a price that will produce a profit for the company. This, for example, would include a start-up trying to compete against Best Buy and its economies of scale.

2. Owners who cannot get out of their own way. They may be stubborn, risk averse, conflict averse — meaning they need to be liked by everyone (even employees and vendors who can’t do their jobs). They may be perfectionist, greedy, self-righteous, paranoid, indignant or insecure. You get the idea. Sometimes, you can even tell these owners the problem, and they will recognize that you are right — but continue to make the same mistakes over and over.

3. Out-of-control growth. This one might be the saddest of all reasons for failure — a successful business that is ruined by over-expansion. This would include moving into markets that are not as profitable, experiencing growing pains that damage the business, or borrowing too much money in an attempt to keep growth at a particular rate. Sometimes less is more.

4. Poor accounting. You cannot be in control of a business if you don’t know what is going on. With bad numbers, or no numbers, a company is flying blind, and it happens all of the time. Why? For one thing, it is a common — and disastrous — misconception that an outside accounting firm hired primarily to do the taxes will keep watch over the business. In reality, that is the job of the chief financial officer, one of the many hats an entrepreneur has to wear until a real one is hired.

5. Lack of a cash cushion. If we have learned anything from this recession (I know it’s “over” but my customers don’t seem to have gotten the memo), it’s that business is cyclical and that bad things can and will happen over time — the loss of an important customer or critical employee, the arrival of a new competitor, the filing of a lawsuit. These things can all stress the finances of a company. If that company is already out of cash (and borrowing potential), it may not be able to recover.

6. Operational mediocrity. I have never met a business owner who described his or her operation as mediocre. But we can’t all be above average. Repeat and referral business is critical for most businesses, as is some degree of marketing (depending on the business).

7. Operational inefficiencies. Paying too much for rent, labor, and materials. Now more than ever, the lean companies are at an advantage. Not having the tenacity or stomach to negotiate terms that are reflective of today’s economy may leave a company uncompetitive.

8. Dysfunctional management. Lack of focus, vision, planning, standards and everything else that goes into good management. Throw fighting partners or unhappy relatives into the mix and you have a disaster.

9. The lack of a succession plan. We’re talking nepotism, power struggles, significant players being replaced by people who are in over their heads — all reasons many family businesses do not make it to the next generation.

10. A declining market. Book stores, music stores, printing businesses and many others are dealing with changes in technology, consumer demand, and competition from huge companies with more buying power and advertising dollars.

In life, you may have forgiving friends and relatives, but entrepreneurship is rarely forgiving. Eventually, everything shows up in the soup. If people don’t like the soup, employees stop working for you, and customers stop doing business with you. And that is why businesses fail.

Jay Goltz owns five small businesses in Chicago.

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March 9, 2010, 3:53 pm

The Secret to Having Happy Employees

About 10 years ago I was having my annual holiday party, and my niece had come with her newly minted M.B.A. boyfriend. As he looked around the room, he noted that my employees seemed happy. I told him that I thought they were.

Then, figuring I would take his new degree for a test drive, I asked him how he thought I did that. “I’m sure you treat them well,” he replied.

“That’s half of it,” I said. “Do you know what the other half is?”

He didn’t have the answer, and neither have the many other people that I have told this story. So what is the answer? I fired the unhappy people. People usually laugh at this point. I wish I were kidding.

I’m not. I have learned the long, hard and frustrating way that as a manager you cannot make everyone happy. You can try, you can listen, you can solve some problems, you can try some more. Good management requires training, counseling and patience, but there comes a point when you are robbing the business of precious time and energy.

Don’t get me wrong. This doesn’t happen a lot. There’s no joy in the act of firing someone. And it’s not always the employee’s fault — there are many bad bosses out there. Bad management can make a good employee dysfunctional. On the other hand, good management will not always make a dysfunctional employee good. And sometimes people who would be great employees somewhere else just don’t fit your company, whether it is the type of business or the company culture.

In the worst cases, the problem of a bad fit can have a bigger impact than just one employee’s performance. Being in charge does not necessarily mean you are in control, and being in control does not necessarily mean being in charge. Have you ever seen a company or department paralyzed by someone who is unhappy and wants to take hostages? It is remarkable how much damage one person can do. If you haven’t seen it, I suggest you watch “The Caine Mutiny.” Basically, one guy takes apart the ship. He was unhappy. It only takes one.

This is only my opinion. I don’t have a Ph.D., an M.B.A., or even an economics degree. What I do have is a happy company. And that makes me happy. Now I know some people argue that business is about making money, and not everyone has to be happy. That is also an opinion. Everyone has a right to his or her opinion. When you own a company, you also have the right to surround yourself with the people you choose.

I have spent the last year and a half focusing on cutting costs, figuring out how the market has changed, and worrying about the economy. Things seem to be getting better, or perhaps I am just getting used to it.

Either way, I had a good day today. Not because I got a big order, great financial reports or even an employee stopping by to tell me what an awesome boss I am. (That generally doesn’t happen. You have to tell yourself. It’s a boss thing.) I had a great day because I spent most of it walking around the company and appreciating the fact that even after a year and a half of soft sales and cutbacks and furloughs, I have wonderful people working for me. They care. They are committed. They understand the whole customer-staff-company triangle, where all of the legs support each other.

If you read books on great companies, they usually leave out a dirty little secret. It doesn’t make for good public relations — like talking about how you “empower people” or how your “greatest assets” are your people. Both of these well-worn clichés are true. What is also true is that it’s hard to build a great company with the wrong people.

When you have the right people, business is much easier. I know because I have tried it both ways.

9:25 p.m. | Updated You can find a follow-up post here.

Jay Goltz owns five small businesses in Chicago.

March 11, 2010, 3:54 pm

More on Happy Employees

In my last post, I wrote about my desire to have happy people working for me. Perhaps I could have been clearer when I said that I fire unhappy people. Instead of unhappy, I probably should have said disrespectful (to others, not me), incompetent, unreasonable, undependable, irresponsible, unproductive, dysfunctional (I did say that one), angry, whiny or mean — and beyond a manager’s ability to repair (actually, I said that, too). I think most people understood the context of my post, but there were a few comments or questions that required a response.

First of all, more than one commenter substituted the word “cheerful” for happy. I don’t care about cheerful. I care about the list above. Am I sure that my employees are not just acting happy? No! I lost my happy meter. But if they are just acting, that’s O.K., too. Not preferred, but O.K.

When you are in the middle of a recession, the true character of an organization comes out. How is the communication? Are cutbacks handled in a fair and reasonable way? What is being done to react to the new economics? At my company, I appreciate the fact that everyone is working together to get back on track and that my managers can spend all of their time and energy improving operations instead of dealing with issues that cannot be fixed.

I also appreciate that I have good, hard-working people with good attitudes who appear to like working for me. Am I delusional? Maybe. Perception is my reality. They have been here an average of nine years, many more than 20. My first business, Artists Frame Service, is now 20 times the size of the average picture-framing company, making it the largest in the industry. The fact that I have happy employees is not unrelated.

In response to some of the commenters, let me emphasize that I do understand, as I said in the post, that there are many bad bosses. I get it. And firing is certainly not a cure for bad management. It was suggested that we “first try direct communication with the offending party.” I am sorry if anyone got the impression that my managers and I are running around firing people on a whim. As I wrote, we counsel, we listen, and we listen some more when employees raise problems and issues. I encourage and appreciate complaints. If I fired everyone who had complained at some point, there would be very few people here. I would have had to fire myself.

We get complaints of all kinds, and we deal with them — whether it is that the toilet paper is too rough, the lighting is bad or that a manager is not doing a good job. Some complaints are legitimate, some are not, some are about issues that can’t be fixed. If there is a problem with something that someone is doing, we sit down, in private, and discuss the problem. We will do this three or four times. But I have learned that there is a point of no return. No return on your time and energy, and no return on the damage done to customers and employees.

Some people need to work somewhere else, usually to the relief of everyone else. We document. We have a witness. We don’t yell. We also don’t try to win the argument when the employee says it isn’t his fault.

Keep in mind, this blog is written for small businesses. I understand that big business has many different issues when it comes to firing people. Many corporations have legal departments that have no responsibility for productivity, corporate culture, customer service or profits, for that matter. That’s their problem.

Small companies usually don’t have legal departments. They probably should have a labor lawyer, one who counsels on how to manage and fire people legally. Don’t ever want to get sued? Don’t ever fire anyone — and live with the problems. I might add, I have never been sued for firing someone. And I’m tired of hearing people use the desire to avoid lawsuits as an excuse for not taking responsibility for running a company in a productive manner.

It isn’t always fun or easy being the boss. Me? I’m happy. My employees appear to be happy. Then again, maybe I am delusional. Works for me.

Jay Goltz owns five small businesses in Chicago.