THE DIFFERENCE WITH THE 5%

If 95% of businesses fail within 5 years, what are the other 5% doing differently?

Part of the answer to this is the concept introduced by Michael Gerber (*) of the entrepreneurial seizure. By this, he suggests, perhaps rightly, that many people get into business by virtue of a sudden flash of an idea on which they take action with little planning or forethought. The idea may be birthed out of frustration, pressure, or just a pleasant dream. However, given the limited planning undertaken, before action is taken to start the business, the dream often ends up becoming a nightmare.

(*) See his book E-Myth Revisited, for example.

The newbie may know nothing about marketing — so struggles to find good clients or even any clients. Similarly, they may have little (if any) understanding of bookkeeping, and consequently, have problems completing the various forms for the InfernalRevenue (typo deliberate). They will likely, also, not feel like they can talk to their accountant, or even appreciate the need for a good one, who can offer business advice.

(~) Making the product, or delivering the service.

Even the newbie who has some idea of what they want the business to look like may have no idea how to get there, and probably will not have prepared a business plan. Along with having no business plan, the newbie will likely not have prepared a budget — vetted for business reality by their accountant. This means they will have no:

1. Idea how long it will take to get the business going;
2. Idea how much it will cost to develop the business;
3. Idea where they will get new clients from;
4. Idea what level of expenses they can expect to have;
5. Idea what level of sales they will need to provide sufficient profit to both match their previous earnings, and provide a return on their investment, plus sufficient surplus to provide for the future of the business;
6. Chance of borrowing any money from a bank.

Their business plan, should they have one, must go beyond just marketing (& sales), past finances to also cover:

• Human Resources:
• What roles are needed?
• Who will fill the roles?
• What kind of people will they be?
• When will they be needed?
• How will they be remunerated?
• Technology:
• What technology will be used in each part of the business?
• Sales,
• Operations,
• With outside parties.
• Website?
• All online?
• Innovation:
• How will they constantly keep the business refreshed:
• Products & services?
• Market processes?
• Operations processes?
• Operations (last, but not least):
• How will they do what they do?
• What resources will be needed?
• When will they be needed?
• How much will they cost?

One further thing that is often far from the newbie’s mind is systems. As Michael Gerber also points out, these are quite simply essential. They are necessary so that:

1. The product or service is delivered to the same standard (and on time) every time,
2. ‘Anyone’ can follow the procedure and do it the same way as a skilled expert.
3. The business is more than just the entrepreneur, will even perform without them.

Rick Harshaw puts it this way:

“In order for any business to succeed, it must first become a system so that the business functions exactly the same way every time down to the last detail.”

In other words, the business is not the owner and the owner is not the business. As Michael Gerber puts it:

Regardless of how a person gets into business, the reality is that they all want to achieve:

• More time for the things they like to do — i.e. not work — for example with loved ones, on holiday.
• More control over how their lives are lived — i.e. no driven by the boss, by deadlines.
• More money– to afford those holidays, or do whatever it is they want to do.

Without (good) systems and, yes, good people this is unlikely to happen. Ever.

Instead, they end up working weekends doing the things they are not good at (e.g. those forms for Infernal Revenue), feel completely out of control, and find they make less money than they used to earn.

Robert Kiyosaki also offers some wisdom on this topic:

“For a business to survive and thrive, 100 percent of all systems must be functioning and accountable. For example, an airplane is a system of systems. If an airplane takes off and the fuel system fails, there is often a crash. The same things happen in a business. It’s not the systems you know about that are the problem — it’s the systems you are not aware of that cause you to crash.”

Some survive, learn quickly, and even thrive.

Whether the statistic is 95% or 70% is not really material. You see, what is also not apparent — in fact rarely, if ever mentioned — is that, even beyond the five year period, a significant percentage of businesses fail (that word again) to achieve their full potential. Some by only a little, and some by a considerable margin.

This, like the statistic under discussion, also comes back to a lack of knowledge by the entrepreneur (and their employees) of how numbers come together, what the financial statements mean, how the business should operate, what can be done to grow it. The majority also don’t know how to exit the business with their hard-earned nest-egg.

As W. Edwards Deming puts it:

“94% of all failure is a result of the system… not people.”

Finally, Ron Carroll sums it up as follows:

It is such a shame that this information is not part of everyone’s knowledge base! And the cost to so many is so high when it just doesn’t have to happen that way.

I’m doing my best, with my course, to change this.