There are far more nonemployer businesses in the U.S. than employer businesses (in fact, well over 20 million of the 30 million businesses in the U.S. are nonemployer and 52% of those are home based), which means thousands of people are choosing to start a small business every day (some 18,000 actually). But why? Why start a small business with the risk of losing it within the first five years (there’s a 50% chance of that with startups). Wouldn’t it be easier to stay within the employee revenue model until retirement, then go sit on a porch and drink lemonade in a rocking chair? Because that’s the way it’s supposed to work, right?
There are four types of scenarios that drive people to start a small business. I call these the four Ds behind SMBs:
Desperation they lost their job
Dissatisfaction they hate their job
DIY they don’t want a job (they have an entrepreneurial spirit)
Disability they require more flexibility than traditional employment allows
Starting a Business Out of Desperation
Not every business owner starts a business because they want to. They may have been working for a small-to-midsized-business (SMB) which did not survive its first five years and suddenly found themselves without a job. Sometimes the Job market it strong but they are not able to find one that pays enough per hour. Sometimes jobs are scarce. Sometimes, if they had a unique niche, finding another SMB to hire them is difficult. Bottom line for the newly unemployed – they need to make money now because they have groceries to buy and the rent is due. So, they take something they know how to do and start finding those who will pay for it. Typically they undercharge, are overworked, get work from “low hanging fruit” (people who already know them), and then struggle to create a business they love because they are so busy making enough to live on they simply don’t have time or even know that a business is something you create. If you asked this person why they started their business, they would tell you it was “because they had to.” They can still have a business and life they love, but it requires taking a step pack and looking at the business as a whole and establishing the fundamental elements that support the success of any business. However, unless they realize this option exists for them, they will continue to run their business by working from task to task.
Starting a Business from Dissatisfaction
While this group might feel desperate if they are deeply dissatisfied, they make a conscious choice to leave a job and the employee model to start a small business. They typically hate who they work for (people quit managers not businesses), they hate the work they do (is not fulfilling), the demands on their time doesn’t give them the flexibility to do things they enjoy, they feel underpaid, they feel undervalued (management again), and the list here can go on and on about employee dissatisfaction, but you get the idea. A quick word of caution though, if your answer to “why start a small business” is “to show them I can do a better job than they can,” you would be well advised to stop and create a business plan at this stage. Having some income that is predictable can give you the time you need to do some research and get a good jump start on some of the fundamentals for business start-ups. Just don’t take too long – 2 or 3 months can be quite effective.
Starting a Businesses from the DIY Spirit
The third group of business owners are more of the DIY personality. They may have been born with an entrepreneurial heart and they don’t want a “job.” People in this group start a small business because they want to do things that make a difference, do something better than what they see already out there, or they may see the traditional employee revenue model and think “I can do that myself.” A common pitfall for people in this group is taking things too lightly. If you were to ask them “Why did you start a small business?” their answer might be a light hearted “Why not?” without missing a beat. Just how much can you (or should you) DIY for your own business without any training?
Starting a Business Due to a Disability
A sudden health crisis leading to a disability can lead to the loss of a steady job, all savings, and a spiral of debt, which can cause someone to start their own business out of desperation. But what I have seen working as a business consultant (who is, by the way, also disabled) is the need many disabled individuals have for the greater flexibility which can be obtained by owning your own business. Physicians and medical treatment centers are only open from 9-5, and many disabled individuals need more rest, more empathy, and more appreciation for the skills they do have that make them shine. It can be so empowering to create your own business when you have impediments to having a “job” that does not meet your needs.
Starting Your Business the Right Way
Each of these groups knows their craft and understands how to perform a service or create a product which holds value to a target audience. But there is a reason why so many small businesses fail in their first 18 months and half will close within the first 5 years. When you start a business out of desperation, dissatisfaction, because you want to do-it-(better)-yourself, or have a disability, you likely haven’t had any business training. Starting a business without any training on how to operate a self-owned business is risky, takes an enormous amount of trial and error and (for many) keeps you from being able to produce enough income to live on. Would you attempt to build a house without any training? That could be a financial disaster and waste so much money! Think about how much money is at stake with having a business of your own.
No really, think about it.
All business owners want a life they love with time to enjoy what they love most, and they don’t want to have to worry about the financial risks behind their business. In order to have a business you love and the life you love with it, every business has four components that need consistent attention from its owner:
This is all about customer acquisition. Do people know you? Do they know what you do or sell?
This is all about keeping the customers you have. Customers take time and can be expensive to acquire. Why would you want to lose them because you did not make sure you were meeting their wants, needs, and desires?
This is what got you started in the first place. You knew how but ‘overwhelm’ and ‘uncertainty’ are the enemies of effectiveness and JOY.
This is being taught by only a handful of people. Typically, not your CPA and certainly not from a financial planner – they want to meet you after you HAVE money. A business consultant can help teach you to know your financial floor and learn about your financial health while you grow.
Why Start a Small Business?
I want you to remember this: it takes just as much work to start a business that you love as it takes to start one that you hate. When someone asks you why you started your small business, the answer should be: “To have a life I love!”