Our society loves plucky entrepreneurs and their amazing success stories. Many small business owners start with visions of creating the next Apple, Uber or Nike—and some do just that. But what it takes to get there isn’t always as well known.
You’ve probably heard the statistics on just how difficult it is to start your own business. The Small Business Association says that 30 percent of small businesses fail in their first two years, and over 60 percent fail in the first 10. Hopefully, you don’t expect it to be easy—but you might be unprepared for some of the ways in which it’s difficult.
Owning a business is an exercise in joys, frustrations, hard work and, most of all, patience. You’ll have to take them all together as you experiment, grow, succeed, fail and everything in between. Before you quit your day job, before you recruit a partner or investor, before you even start making your plan—consider these five common misconceptions and make sure they’re not coloring your thinking.
1. Sole proprietorship is the way to go when you’re just starting out.
Starting your business as a sole proprietor can be extremely tempting. You won’t have to pay the registration or reporting fees for an LLC, the paperwork is considerably simpler and it allows you to test the market before making a more substantial investment.
However, the disadvantages of sole proprietorship can be considerable. It’s often harder to raise money, you won’t necessarily have the structure that an LLC provides and, most importantly, you’ll be personally liable for debts to creditors or partners. An LLC protects your personal assets should your business fail, and it can be extremely helpful in organizing your business and attracting investors.
In other words, sole proprietorship might be the right choice for you, but it shouldn’t simply be your default option. Do your research, weigh your choices and make sure it won’t leave you too vulnerable. Also, no matter how your business is organized, note that you may still need to carry certain types of surety bonds, such as a state licensed contractor bond for an electrician or mortgage broker bonds.
2. You can get started with just enough money.
This one can be painful to hear, but if you have any doubts about whether you have enough capital to start your business, you probably don’t. 71% of firms fail because of poor financial planning and management. No matter how airtight you think your business plan is, it only takes a few unexpected expenses to start poking holes in it. If you don’t have a comfortable financial cushion and emergency fund, your business can find itself underwater very quickly.
If you’ve done the math and your financials aren’t as steady as you need them to be, take some more time to assemble your financing options. Whether it’s recruiting investors or setting up a Kickstarter fund, there are many options available to secure small business funding–and you should make sure you’re taking advantage of them.
3. Your business plan doesn’t need to be detailed.
Do you have a general idea of how you want your business to run? Great—now, take the next step and make a detailed plan because a general idea is far from enough.
You can find plenty of business plan checklists online, but at a minimum, a good plan should include:
- Customer analysis of your target demographic, its needs and why you’re well-positioned to fulfill them
- Competitive analysis of businesses you’ll compete with, both directly and indirectly
- A detailed operations plan, including how your business will grow and the milestones and benchmarks you need to hit
- The financial structure of your company, including a detailed revenue model, and a balance sheet and cash flow statements in your appendix
- Your plan for getting the right surety bond for your business
- The labor and management structure of your company, including your current management team
Your business plan will likely undergo significant changes as you grow, but it’s important to start with a strong, detailed plan. This should be the foundation that your operation rests on, so it’s important to think it through and not rush it.
4. Being your own boss will give you more leisure time.
If you want to start your own business because you want to make your own hours and get in more leisure time, you’re probably in for a big disappointment. One Gallup survey found that 39 percent of small business owners reported working over 60 hours per week.
The struggle goes beyond hours, as well. In the same poll, researchers found that uncertainty, work-life balance, burnout and the always-on-the-job mentality were all serious challenges for small business owners. If you’re thinking about going down the entrepreneur’s path, do some soul-searching and figure out whether you’re really ready for the demands of the lifestyle. There are plenty of great reasons to start a small business, but leisure definitely isn’t one of them.
5. Good ideas plus good products equal a successful business.
It’s every entrepreneur’s fantasy to offer a service or product so good that its irresistible draw brings customers running in droves. The hard truth is that even good ideas often fail—the history of business is littered with them.
The list of reasons why is almost as long as the list of failed businesses. A few of the most common ones include:
- Marketing that doesn’t adequately reach the target demographic
- Rigidity and unwillingness to adjust the business plan and make necessary pivots
- Expanding before the business is fully ready
- Choosing a location that’s too hard to get to or doesn’t draw enough traffic
- Lack of differentiation from competitors
Most of these can be avoided through smart business management and planning, but there’s also the chance that your business can be wrecked by pure bad luck. Maybe the world just isn’t ready for your idea, and you’re too far ahead of your time or you’re the victim of macroeconomic factors like a market crash. These are some of the hardest pills to swallow—but they’re also essential for accepting the realities of business ownership. Risk is built into the DNA of entrepreneurship, and every business owner has to accept that some things are out of their control.
Successful business leadership is the dream of many entrepreneurs, and it’s certainly no cake walk. But with some smart planning, risk analysis and perhaps, most importantly, acceptance of hard truths, it’s possible—as those legendary titans of self-made business have demonstrated.
Enjoyed reading the blog? Sign up for our bi-monthly newsletter to receive marketing news and advice.