Could you succeed in small business? - quiz to help assess chances of becoming a successful entrepreneur

Business Horizons, Sept-Oct, 1989 by Henry H. Beam, Thomas A. Carey

It takes more than money to make a small business go. A five-question quiz will help you assess your chances of becoming a successful entrepreneur.

Thinking about starting or buying a business? if so, you have probably heard many times that most new business ventures fail within five years, and that the two most common causes of failure are lack of financing and poor management. If you think this assessment sounds unduly pessimistic, we have good news for you. Most of what you have heard about the chances of succeeding in small business is more myth than reality, painting a far more dismal picture than actually exists.

For the past 15 years we have had a unique opportunity to work with more than 250 current and prospective small business owners through teaching in the undergraduate program at Western Michigan University and our consulting activities. During these years none of the present or prospective business owners we worked with indicated that lack of financing kept them from starting a business. Only a handful indicated at the start of the consulting assignment that they wanted assistance with finding financing. (The most frequent request was for help with marketing, especially market research.) One way or another, all were able to find enough money to get started in business, often from a source other than a bank. This conclusion was reinforced by a survey we conducted of all business owners with whom we had worked for the past five years. Slightly less than half of the respondents to our survey thought that financing would be a major problem before they started their business, and an even smaller number, about 25 percent, said financing was a major problem after they had started their business.

We realize that the traditional concerns about financing immediately come to the fore when a business does not do well. Lack of money is then quickly seen as the most important problem to be overcome. In our experience, however, lack of money is usually a symptom of poor performance in other critical aspects of the business, not the cause.

Consider the local bakery we worked with that makes outstanding products at a reasonable price. Even though both owners have Ph.D degrees and could hold academic positions, they decided they would rather operate their own bakery. Today their business is still struggling along, and the owners naturally see lack of money as their main problem. In fact, lack of money is a symptom of deeper problems, such as their refusal to purchase new equipment or move to a better location, thus keeping their costs high and limiting their distribution.

What about poor management, the second most frequently given reason for small business failure? To answer this question, we looked to insights we had gained during the past 15 years. We reflected on individuals we knew who had been successful and unsuccessful.

We started out by following the traditional approach of trying to identify specific characteristics that would predict who would be successful as a small business owner, but we made little progress. For example, when we looked at educational level attained, we found that people who want to start a small business run the gamut from Ph.D degree holders to high school dropouts. We found examples of success and failure at all levels of education. We have already mentioned the Ph.D holders who are struggling to make ends meet with their bakery. Now consider Ken Watts, one of the few true entrepreneurs we have worked with. Instead of going to college, he started his own business making hand-held wooden back massagers shaped like animals with rotating balls as feet. His firm, Creative Wonders, sold $1 0,000,000 of this fad item in Hallmark and other card and gift shops over a three-year period! So much for needing a college degree to be a success in business.

Reflecting back on American business history, we should not have been surprised by this result. Alfred P. Sloan, the guiding genius behind General Motors, graduated at the top of his class from Massachusetts Institute of Technology. On the other hand, Ray Kroc, the founder of McDonald's, did not graduate from high school. We had similar difficulties predicting success using such other descriptive characteristics as age, sex, and prior work experience.

We felt a new approach was in order, since after talking with a small business owner for a half-hour or so, both of us could predict with a high degree of accuracy whether that person would be successful or not. This new approach quickly yielded positive results. As we worked through the survey results and compared notes on individuals whom we judged to be successful or unsuccessful, a profile of the successful small business owner emerged. What came through loud and clear was that the successful small business owners had a very different orientation toward their business than did the unsuccessful ones. We were able to distill our observations down to a set of five fundamental questions, which are discussed below and repeated in the form of a quiz in the Figure. We felt that if a person could honestly answer yes to all five questions, his or her chances of success were excellent (over 90 percent, in our judgment), where success meant having a profitable business after five years. However, if a person had to answer no to just one of the questions, the chances of success fell to 50-50. And if a person had to answer no to two or more of the questions, the chances of success were poor at best. Do You Really Like Your Product? Henry Ford tinkered with cars all his life. Ray Kroc had a passionate dedication to hamburgers and french fries. Liz Claiborne loves fashion. For such people, their work is their life. Do you have a similar dedication to the product or service you want to provide? Very often successful new businesses grow out of a hobby or are an extension of a product or service a person has used at work. How do you know if you really like your product or service? A simple but reliable test is to ask yourself, "If I had some extra time to spend, would I spend it doing something related to my (proposed) business?" If you didn't immediately answer yes to this question, you probably don't have a genuine dedication to your product or service.