Jim Gilchrist B.E.S.
If you are thinking about starting your own business at least you are starting off on the right foot – by thinking.
Over the years I have actively advised small business owners on everything from start-up procedures, to hiring best practices to perfomance improvement. Being a small business owner myself, when I am contacted by people who are considering starting their own business, I do like to take the time to listen to their ideas and discuss their plans. But all too often, when I get off the phone, I think to myself … “Wow, are they ever in for an awakening”. While people with prior small business operational experience know EXACTLY what they are getting into, by comparison one truly wonders if these callers have really taken the time to explore the implications of their decision.
Typically the caller is excited about progressing in their new career direction and enthusiastic about the prospects ahead. Often they understandably try to reduce their self-doubt and they attempt to mask their nervousness by assuming a confident “I have this all figured out” posture. But the reality is that they most often do not “have this all figured out”. And while many will have specific skills, industry experience, exposure to some of the administrative and operational activities and management experience (albeit not small business management experience) that are required in small business, the vast majority are totally naive about how small business really works better yet what it takes to be successful.
What almost all of these people fail to understand is that business success is only partially dependant on technical skills. Business success is HUGELY dependant on relevant personality characteristics being present in the business owner. Since these people often fail to understand the significant impact of personality on small business success, we can assume that they have also not performed a realistic and honest self-analysis as to whether they possess the necessary personality traits for their particular enterprise.
The Statistics
Nobody goes into business planning to fail. But those who are thinking about a new business start-up should be aware of the significant probability that failure will happen. Understanding why businesses typically fail is the first step. The second step is to learn how to address these issues in order to avoid having your new business become yet another negative statistic. If you do not understand the importance of this, you would be wise to immediately stop reading and to go and buy your boss a gift.
* (1997) 23% of Canadian small businesses fail in their first year and 22% fail in their second year, which means that 45% of the small businesses started in this country don't survive more than two years, and
* (1998) less than 33% of Canadian companies with less than five employees were in business after five years.
Now, in 2010, we also need to factor in that our economy has changed due to the recession. Those new business owners that understand how the economy has changed, and the positive and negative implications that this change will have on their new ventures, will be better positioned to cope. Those who ignore the potential impact of the “new economy” will struggle. So we should update that last statistic above to … a lot less than 33% will survive….
As well, due to the ongoing tighter labour market, there will be many more people than usual who will start their own business because they cannot find suitable employment. Fair enough. But, as discussed, just because they have technical skills does not mean that they have the ability to run a business. So the typical lack of self-awareness, combined with this increase in business start ups, will influence these statistics even more. In other words, we should further update that last statistic to SIGNIFICANTLY less than 33% of new businesses will survive.
The Primary Cause of Small Business Failures
As a recruiter, I am paid a premium by my hiring company clients to find people who will perform at a superior level in a specific role in their specific environment. At the initial evaluative stage of the recruitment process it is essential to identify people who have appropriate educational background, the necessary technical skills and the required practical industry experience that would be necessary to perform to my client’s specific requirements. The next evaluative stage requires the identification of candidates who will perform at a superior level. This involves more intensive assessment in which we evaluate a relative match between the candidates’ work personality characteristics and those characteristics that would be necessary to achieve the desired performance results.
The key determinant of superior performance is work personality.
Whether employed by someone else or self-employed, the relative match of work personality characteristics to the task requirements is critical to success. While we can identify some common personality traits of successful performers, successful managers and successful business owners in general, it is when we understand the specific success traits that will be required in a specific business environment that we will increase our predictive accuracy. From a small business perspective, there are many people who have failed in business despite seeming to have “entrepreneurial personality traits”, as well as the appropriate education, technical skills and industry experience required to be successful. Why? There was a mismatch between their personality characteristics and what was required to be successful in their particular new business circumstance.
This evaluation process goes far beyond having completed a rudimentary analysis of whether starting a small business is right for an individual. In that initial step a person has to realistically evaluate whether they are willing to assume the risk and put in the hard work, commitment and sacrifice that are necessary to achieve business success. The next, more relevant, step requires a realistic assessment as to whether the person has the necessary personality characteristics that will enable them to suitably perform the variety of tasks that are relevant to their specific business circumstance. Not all businesses are the same, nor are all business owners. Simply applying generalizations can lead to both poor predictive accuracy and the misapplication of performance improvement initiatives.
Ask yourself this; how many people have you met who honestly admit that they are not very good at what they do? Not many, right? Some of the time this is due to self-protection, but a lot of the time this is because people simply are not self-aware. They cannot, or choose not to, identify their true strengths and weaknesses. Sometimes this is not a big issue, but for those who are considering going into their own business, misunderstanding your relative “fit” and ignoring your true strengths and weaknesses is a sure way to become a negative business statistic.
Some people will read books, articles, or take non-specific personality “quizzes”, to help them to determine if they “have the right stuff” to be in their own business (Are you entrepreneurial?). While it is essential to go through this investigative process, very often they will mislead themselves by non-objectively interpreting that supportive material that will justify their already made up minds, often “hearing what they want to hear”. In the same way they will, with all good intentions, attempt to improve their odds of success by reading “how to be successful in small business” material that unfortunately is too generalized and does not offer the specific personal solutions that are necessary to have a real impact on performance.
The primary reason for small business failure is the inability of the business owner to identify their strengths and weaknesses, and then to maximize the former and minimize the latter within their specific business ownership context. Unfortunately most people will opt for their own self-serving self-assessment, not realizing that only an objective, independent third party assessment will accurately identify relative strengths and weaknesses. Only when a person identifies, understands and takes effective steps to address these strengths and weaknesses will they be positioned to avoid, or cope with, the secondary reasons that are common causes of business failure.
The Secondary Causes of Most Business Failures
Once we understand the overall impact of work personality traits on performance, we can then understand the influence that these traits have on the commonly perceived functional reasons for business failure. While you can find a wealth of information as to why most small businesses fail, I have attempted to identify the most common perceptions.
According to a Statistics Canada report, "Failing Concerns: Business Bankruptcy in Canada", published in November 1997, most businesses fail because of:
* poor management,
* financial management problems and / or
* poor marketing.
Another small business study in 1998 listed the most common causes of small business bankruptcy as:
* poor management,
* poor financing,
* failure to account for taxes,
* external business conditions,
* business disputes, and
* owner personal calamities and other similar reasons.
We can combine and expand these lists in order to identify the key functional reasons for small business failure:
* Lack of business management skills
o No prior small business operations experience
o Lack of industry understanding
o Poor planning and the lack of a strategic business plans
o Failure to monitor progression towards original organizational vision, goals and performance objectives
o Poor hiring practices
o Acceptability of mediocre performance at managerial and sub levels
o Poor customer service
o Lack of commitment to suitable long-term client retention policies
o Poor quality of products or services and lack of quality standardization
o Failure to develop a continuous improvement culture
o Poor people management skills
o Poor personal time management skills
o Lack of prioritization, discipline and commitment to completing tasks on deadline
o Poor administration and organizational skills
o Poor delegation skills and the ineffective development of support staff
* Lack of Marketing Skills
o No marketing plan or the lack of adherence to existing marketing planning
o Poor understanding of the industry and subsequent ineffective marketing
o Lack of marketing skills and formal knowledge
o Poor understanding of effective sales techniques
o Lack of ability to differentiate the company, products or services
o Falling prey to opportunistic marketing, and getting off-track by pursuing a new opportunity without adhering to the original company vision, and strategic business plan
o Failure to diversify products and services
o Big client reliance and dependency
* Lack of Financial Management Skills
o Poor long-term financial planning and lack of coordination with other plans
o Poor risk management practices and failure to factor in changing business cycles and unforeseen events
o Poor cash flow management and short-term financial planning
o Poor record keeping and financial controls and an absence of current well documented financial and business records
o Inadequate startup capital
o Poor personal financial planning
o Failure to include sufficient money to live on (1-2 years) when getting the business started
* External or uncontrollable factors
o Failure to develop business and financial contingency plans to help reduce the impact of unforeseen events
o Lack of SWOT analysis
o Failure to prepare for competitor activity, a lack of understanding of who the competition is, their strengths and weaknesses and how they may affect your business
o Failure to account poor health, and to make sort and long term personnel contingency plans
Again, all of the above items can be minimized by a combination of appropriate education, technical skills, industry experience and appropriate work personality characteristics that are significant in the specific business being developed and then operated over time.
So What Personality Characteristics Should We Generally Look For?
Remembering that the significance and impact of personality traits is dependent on the specific task requirements, in general we can say that the following characteristics are typically found in successful people in general, and specifically in small business owners:
* Vision - and the ability to realistically plan to certain pre-determined dates,
* Problem-solving skills (technical, people oriented and judgmental),
* Situational motivation - understood for sustainability,
* Perseverance,
* Strong conceptual and analytical skills,
* Environmental awareness,
* Strong concentration and low distractibility,
* Multi-tasking capability,
* Cognitive information processing ability,
* Willingness to assume logical risks,
* Desire and willingness to take the initiative,
* Flexibility,
* Need for an appropriate level of control,
* Appropriate competitiveness,
* Self-reliance,
* Strong achievement motivation,
* Self-confidence,
* Need to take on challenges,
* Suitable stress response,
* High energy,
* Self-discipline,
* Ability to maintain focus over time,
* Logical decision making abilities within appropriate time frames,
* Strong communication skills, expressiveness, conflict resolution skills,
* Strong interpersonal skills and relationship building ability,
* Sense of responsibility,
* Ethics and integrity, and the
* Ability to recognize, minimize and learn from mistakes,
Now - the tricky part.
It is crucial to realize that the items above are not simply a “checklist” for us to identify who will or will not be successful in small business. In most cases, there is no “right and wrong” to these items – their impact and significance all depends on the circumstance. Further, these traits do not operate independently of each other – they act in combination as a persons’ total personality make up. Again, the relative impact of these “combinations” will have significance and effect depending on specific requirements under specific circumstances. So we need to be cautious about considering the relevance of these items in isolation.
It is also important to realize that there needs to be appropriate “levels” of these traits, or trait combinations, for the situation at hand. For example, in instances where moderate competition levels are suitable to superior performance, extreme competitiveness or no competitiveness will be anti-productive. Or a tendency toward high risk taking may be inappropriate in certain circumstances; just as not taking any risks can have a negative effect. It all depends.
It is also important to understand, from a performance perspective, that there will be situations where a person’s strength can actually become a weakness causing them to make mistakes. An overly analytical person will be unproductive when they are analyzing at a time when taking action is more important. Or a detail-oriented person will make mistakes when they over-focus on the task at hand missing things going on around them that could influence their work.
So I cannot stress enough the importance of a small business owner being accurately self-aware. The key to business performance, and success, is based in this. Performance occurs when a task is completed within a certain time frame with minimal errors, and superior performance occurs when these task are completed faster with no errors. The key to performance success begins with a self-awareness of one’s strengths and weaknesses, knowing when and how to minimize one and maximize the other and thus avoiding or reducing performance errors. There is a significant difference in the number challenges and demands, and subsequent variety of tasks, which face a typical small business owner as compared to that faced by a typical employee. Those who are self-aware, and understand their personality strengths and weaknesses, will be best positioned to handle them and to succeed.
Summary
For superior performance to occur, resulting in small business success, we need to go beyond educational qualifications, technical skills and industry experience. We need to identify the situational personality traits that are required to complete the relevant tasks, and then we need to identify gaps between what is required and what is present in the individual. From this we can create an understanding in the business owner of the nature and relevance of these gaps, and then we can develop appropriate performance improvement programs to reduce their negative impact and to facilitate suitable performance.
Hopefully, the owners of the over 67% of small business failures would agree.
Jim Gilchrist B.E.S.
President
CAES Career Advancement Employment Services Inc.
Search and Recruitment Specialists
Established in 1997, CAES Career Advancement Employment Services Inc. is a privately owned Canadian corporation. We have built our reputation by successfully satisfying the requirements of a wide range of clientele, with demonstrated expertise in recruiting management, engineering, environmental, and technical personnel. By utilizing a consultative, research-oriented approach that ensures the identification and attraction of managers and staff who truly ‘fit’ with our clients, we have not only met their expectations, we have exceeded them. CAES truly helps to build organizations.