It is too good to be true. It's not easy to start and run a business, and it is important for would-be entrepreneurs to separate hopes from reality. Despite all the ballyhoo about starting a business and being financially independent, the entrepreneurial road can be a treacherous one for persons of any age who don't know how to avoid its many potholes.
Though there are advantages, operating a business requires knowledge, dedication, time, effort, skill, and good planning and management. Many people who do plunge into the entrepreneurial pool do not have the managerial know-how, nor the perseverance necessary to succeed. If you are considering this road, look before you take the risky leap to what could be financial ruin. This is especially true for the 50-plus professional.
Yet small business is one of the foundations of the U.S. economy. Small business generated the majority of new jobs in the United States between 1980 and 1986. In 1989, the United States had a total of 5 million business companies. Of this number, all were small businesses except for 12,000. In addition, the United States also had 15.9 million non-farm, self-employed proprietors in 1989. Proprietorship, or small business income, increased from $287.5 billion in 1986 to $316 billion in 1987, a 9.9 percent increase.
According to Department of Commerce data, in 1982 there were 2.6 million women-owned businesses and 843,000 minority-owned businesses. By 1987, the number of women-owned sole proprietorships had risen to 4.1 million, a 57 per cent increase since 1982. Of the 10.6 million jobs created in the United States between 1980 and 1986, 6.6 million were in small business, a job contribution share of 63.5 percent.
The fastest growing segment of entrepreneurs is women. According to the Small Business Administration, women comprise more than 50 percent of the U.S. population and currently own about 30 percent of the nation's businesses. Many women and minorities go into business for themselves when they realize they have little or no chance of moving into senior corporate management.
The number of black-owned companies in the United States increased from 308,000 in 1982 to 424,000 in 1987, a 38 percent rise, according to a survey by the Commerce Department's Census Bureau. About 3 percent of the nation's businesses were black-owned in 1987.
The major cause of most small business failures is poor management; according to SBA statistics; therefore proper preparation and knowledge are important. If you are determined to start and operate a small business, the best advice is to choose a field you know. Then, if you're still determined to pursue the entrepreneurial road, here are some cold facts you need to consider.
Statistics to Ponder
Let's look at these facts and some startling statistics on the subject from Donald Sexton, professor of management and human resources at Ohio State University and the William H. Davis chair holder, at the American Free Enterprise System. According to Sexton:
- Sixty percent of all U.S. businesses bring in a gross revenue of $25,000 a year or less.
- Ninety percent of all U.S. businesses have gross sales of $100,000 a year or less and employ fewer than five people.
- The vast majority of businesses that start with $25,000 their first year don't grow. Five to six years later, their sales are still $25,000 a year.
- Usually, if the owner has a plan and a vision at the start, he or she will see growth.
- Fewer than 10 percent become big businesses.
- About 94 to 96 percent of U.S. businesses have less than a million dollars in sales.
- Fewer than 650,000 U.S. businesses are actually growing and creating new jobs. And the top 10 percent of those businesses are generating about 93 percent of all new jobs.
- The future of most businesses, depending on where they're positioned, is determined at the time they start.
These facts and figures dramatically demonstrate that starting a business does not automatically put you on the road to riches. In fact, according to Dun & Bradstreet, in the first five years or less, 51.8 percent of all new businesses fail. Getting started in business requires an enormous amount of know-how and hard work by the entrepreneur. The more a person knows about the market and the business he or she plans to enter, the better the chances of success.
It's one thing to talk about being an entrepreneur, it's something else to take the plunge and face reality. Bud Clarke did when he started his communications and design company, now called Clarke-Thompson. The company designs promotional material for magazines and also designs and produces magazines. It also does corporate image work and prepares posters and in-store (point-of-purchase) promotions in bookstores.
Even though he had prepared well for his launch and had experience and contacts in his chosen business when he started, Clarke says, "There was tremendous apprehension, even though I had a number of jobs lined up."
Past Experience Invaluable
Clarke, an art director and graphic designer at a major publishing company in New York City, had been responsible for the graphics of three magazines. After 12 successful years with the company, and a well-earned reputation for creativity, he felt his career was "not going the way I wanted it.
"The time spent at the publishing company was invaluable, especially the contacts I made," says Clarke. "I worked with three publishers who are now with different magazines-and all three are now Clarke-Thompson accounts." Clarke's initial apprehension made him so aggressive about getting clients that within six months of starting the business he had to take on a full-time assistant, Pat Thompson, who became his partner.
Clarke's advice to would-be entrepreneurs: "Keep your staff and company as lean as possible, and use freelancers to help over the rough spots. Hire competent people. This is especially important for a small company." He and Thompson worked hard to develop a relaxed office atmosphere in which staffers are congenial and work well together. "Every Tuesday," says Clarke, "our staff meets to review new ideas and discuss every account, where we are and where we're going.
Then we have 'show and tell,' where everyone brings in samples of outstanding work done by other firms. We keep our people as informed as possible. It's good business."
You Must Be Involved
Careful, hands-on management is essential, says Clarke. He tells how he had to dismiss a book keeper who didn't keep accurate records and gave inaccurate financial reports, which resulted in the company's spending too much money. Clarke says he and Thompson had to learn when and how to do the selling, and not to oversell. They had to estimate the work flow and the size of the business operation to minimize having to hire extra help. A partner makes it a lot easier to share the burdens and the difficult problems, he says.
But it was a tough struggle financially, for Clarke, who has been in business nine years and did not show a profit until the fifth year. During the first five years, Clarke-Thompson kept reinvesting in the business, especially in computers. "You are going to work harder than you ever worked before," says Clarke, "It's ongoing. You can never let up, but the rewards are absolutely worth it in terms of self-satisfaction."
