Starting A Small Business

So you are thinking of going into business. This can have advantages and disadvantages. Running a business of your own will bring a sense of independence, and a sense of accomplishment. You will be the boss, and you can't be fired, though there may be days when you would welcome it. Because you can pay yourself a salary and the profit or return on your investment will also be yours, you anticipate a good income once your business is established. You will experience a pride in ownership - such as you experience if you own your own home or your own automobile. You can derive great satisfaction from offering a product or service which is valued in the market place.

By being boss you can adopt new ideas quickly. Since your enterprise undoubtedly will be a small business - at least in the beginning - you will have no large, unwieldy organization to retrain, no board to get permission from, each time you wish to try something new. If the idea doesn't work you can drop it just as quickly. This opportunity for flexibility is one of small businesses greatest assets.

These are some of the advantages and pleasures of operating your own business. Now take a look at the other side. If you have employees, you must meet a payroll week after week. You must always have money to pay creditors - the man who sells you goods or materials, the dealer who furnishes fixtures and equipment, the landlord if you rent, the mortgage holder if you are buying your place of business, the publisher running your advertisements, the tax collector, and many others. All of these must be paid before you can consider the "profits" yours.

You must accept sole responsibility for all final decisions. A wrong judgment on your part can result in losses not only to yourself but, possibly, to your employees, creditors, and customers as well. Moreover, you must withstand, alone, adverse situations caused by circumstances frequently beyond your control, To overcome these business setbacks and keep your business profitable means long hours of hard work. It could very well not be the work you want to do. As someone else's employee you developed a skill. Now, starting a business of your own, you may expect to use that skill 40 or more hours a week. Instead, you must perform the management tasks as well. You must keep the books, analyze accounting records, sit back and do long range planning, jump and handle the expediting and, when everyone has gone home and you finally have caught up with the paper work, you may even have to sweep the floor.

As your business grows and you become more successful, you may not do some of these activities. As an owner-manager, however, you must - at least at first - give up the technical aspects you know and enjoy doing, and focus on the management aspects. To get your business off to a successful start, you must be a manager not an operator.

You will never be entirely your own boss.

No matter what you choose - manufacturing, wholesaling, retailing or service business - you must always satisfy your customers. If you don't give the customers what they want, they'll go somewhere else and you'll be out of business. So every customer, or even potential customer, is your boss. Your creditors will also dictate to you, and your competitors' actions may force you to make decisions you don't want to make. National and local government agencies will insist that you meet certain standards and follow certain regulations. The one thing you can decide yourself is how you will satisfy all of these bosses.

Are You the Type?

The first question you should answer after recognizing that there are two sides to the prospect of establishing your own business is "Am I the type?"

You will be your most important employee. It is more important that you rate yourself objectively than how you rate any prospective employee. Appraise your strengths and your weaknesses. As a prospective operator of your own business, acknowledge that you are weak in certain areas and cover the deficiency by either retraining yourself or hiring someone with the necessary skill.

Numerous studies have been made of small business managers over the years. Many look at traits and characteristics that appear common to most people who start their own businesses. Other studies focus on characteristics that seem to appear frequently in successful owner-managers.

First, consider those characteristics that seem to distinguish the person who opens a business from the person who works for someone else. These studies investigated successful and unsuccessful owners, some of whom went bankrupt several times. Some were successful only after the second or third try. The characteristics they share might almost be said to predispose a person into trying to start a business. Of course, not all of these characteristics appear in every small business owner-manager, but the following seem to be most predominate.

Strong Opinions and Attitudes

People who start their own business may be members of different political parties, feel differently about religion, economics and other issues. They are like everyone else. The difference is they usually feel and express themselves more strongly. This is consistent. If you are going to risk your money and time in your own business you must have a strong feeling that you will be successful. As you will see later, these strong feelings may also cause problems.


If you want to start your own business you probably have mixed feelings about authority. You know the manager must have authority to get things done, but you're not comfortable working under someone. This may also have been your attitude in a scholastic, family or other authority structure.

If you want to open you own business you are likely to have a strong "Need for Achievement". This "Need for Achievement" is a psychologist's term for motivation and is usually measured by tests. It can be an important factor in success.

The person who wouldn't think of starting a business, might call you a plunger, a gambler, a high risk taker. Yet you probably don't feel that about yourself. Studies have shown that very often the small business owner doesn't differ from anyone else in risk avoidance or aversion when measured on tests. At first thought this seems unreasonable since logic tells us that it is risky to open your own business. An Ohio State professor once explained this apparent contradiction very simply. "When a person starts and manages his own business he doesn't see risks; he sees only factors that he can control to his advantage."

If you possess these traits to some degree or other it doesn't mean you will be successful, only that you will very likely start your own business. Some of these characteristics in excess may actually hamper you if you are not careful.

The characteristics that appear most frequently among "successful" small business managers include drive, thinking ability, competence in human relations, communications skills and technical knowledge.


Drive, as defined in the study, is composed of responsibility, vigor, initiative, persistence and health. Thinking ability consists of original, creative, critical, and analytical thinking. Competency in human relations means emotional stability, sociability, good personal relations, consideration, cheerfulness, cooperation. and tactfulness. Important communications skills include verbal comprehension, and oral and written communications. Technical knowledge is the manager's comprehension of the physical process of producing goods or services, and the ability to use the information purposefully.

Motivation or drive has long been considered as having an important effect on performance. Psychologists now claim you can increase the motivation and the personal capacities that will improve your effectiveness and increase your chances for success. Much of the development of such achievement motivation depends on setting the right kind of goals for yourself.

What Business Should You Choose?

Many of you have already decided what business to choose. Others may still be seeking answers from counselors. Whether you have decided or not, you will find it helpful to continue your self-evaluation.

Begin by summarizing your background and experience. Include jobs. schooling, and hobbies. Then write down what you think you would like to do. Does what you would like to do match up with what you have done? It is helpful if your experience and training can be put to direct use in your new enterprise.

What are your prospective needs? What are your prospective customers' needs? You may make money doing something you don't like if people will pay for it. On the other hand, you will never make money if people don t need your product or service no matter how happy you are doing it. Experts have said more companies fail because they are in the wrong business than because they are "doing business wrong".


Read, listen to the experts, talk to business people, try to determine where growth will occur. Most new businesses can only get customers by taking them away from someone else, or by attracting new people entering the area. In other words, don't start a contracting business in a community where the population is decreasing even if you are a good contractor.

At this point, try to match your background and interests with what you see the needs to be. If they match, wonderful. Now all you have to do is discover how to offer the customers more for their money than do your competitors.

If the needs and your background don't match, don't despair. Get training by working in a company that provides a product or service that is needed. Find a job in a well managed, successful company of the kind you are contemplating. Then absorb as much management know-how as you can while learning the technical skills.

Education can help too. While there may be no educational requirements for starting your own business, the more schooling you have along the right lines the better equipped you should be.

(Some fields require licenses, certificates, even degrees in specific educational areas.) Certainly it is helpful if you have had courses in record keeping, sales and communication. These needn't be college or even high school courses. They can come from adult education programs and the like.

Is there a need for what you want to sell or do? Are you prepared to fill that need? Are you interested in the area? Can you learn what you need to? Will there be a continuing and growing need for your product or service?

Your Chances of Success

What are your chances of success if you go into business? New businesses are always being started. Almost as many are failing or being discontinued. A year of poor business conditions is likely to be followed by a greater than average number of failures or closings. A year of good business conditions tends to be followed by large increases in the total number of businesses. In general, the number of firms increases with increases in human population, total personal income and per capita income and since these factors have increased regularly, the total number of small businesses usually rises every year.

This growth is not free of growing pains, however. At the same time new businesses are being born other businesses are being discontinued. Some of these discontinuances are legally business failures; other owners give up to avoid or minimize losses and are not failures in the strict sense. Still others discontinue for reasons such as the death or retirement of the proprietor, the dissolution of a partnership, or the sale of the business to a new owner.

Younger businesses tend to discontinue first. Many do not make it through the first year. The discontinuation rate of those that survive this first year "burn-in" declines steadily until at the end of several years the rate has dropped dramatically. So, your chances of success improve the longer you stay in business.

Poor management is the largest single cause of business failure. Year after year, the lack of managerial experience and aptitude has accounted for around 90 percent of all failures analyzed by Dun & Bradstreet, Inc.

Many factors may adversely affect individual firms over which owners have little control. In such cases, the astute manager can often soften the blow or, sometimes, change adversity into an asset. Examples of factors over which the owner has little control are overall poor business conditions, relocations of highways, sudden style changes, the replacement of existing products by new ones, and local labor situations. While these factors may cause some businesses to close, they may represent opportunities for others. A local market place may decline in importance at the same time new shopping centers are developing. Sudden changes in style or the replacement of existing products may bring trouble to certain businesses but open doors for new ones. Adverse employment situations in some areas may be offset by favorable situations in others. Ingenuity in taking advantage of changing consumer desires and technological improvements will always be rewarded.

In the final analysis, it is up to you. Will your management be competent? Will you be able to judge, and then satisfy, your customers' wants? Can you do this accurately and quickly enough to more than compensate for risks due to factors beyond your control? Such accomplishment requires expert management.

Your Return on Investment

Will the rate of return on the money you invest in your business be greater than the rate you could receive if you invested your money elsewhere? While your decision to go into business for yourself may not depend entirely upon this, it is a factor which should interest you. Too frequently people invest money in their own businesses under the misapprehension that the financial return will be far greater than the return from other investments. Investigation of the average annual returns in the line of business in which you are interested may be worthy of your time.

Your decision to go into business may not depend entirely on financial rewards. The size of the potential return on your investment may be overshadowed by your desire for independence, the chance to do the type of work you would like to do, the opportunity to live in the part of the country or city you prefer, or the feeling that you can be more useful to the community than you would be if you continued working for someone else. Do not overlook such intangible considerations. But remember, you cannot keep your own business open unless you receive an adequate financial return on your investment.