The growth of social media, the internet and the freelance economy has created a wave of excitement around entrepreneurship. More people are becoming entrepreneurs due to the unpredictable job market and the fact that technology has made it easier and more accessible to a larger group of people.
There are a countless number of books, online courses and training programs on various aspects of entrepreneurship, as it has become one of the highest trending topics of our time. Yet, despite all the hype, the road to financial success as an entrepreneur is not always paved in gold.
According to the U.S. Bureau of Labor Statistics (BLS), approximately 20% of new businesses fail during the first two years of being open, 45% within the first five years, and 65% by the 10 year mark. These are some challenging odds that should be taken into careful consideration.
For those who want to be their own boss, here are seven important questions you should ask yourself before taking the leap into entrepreneurship:
Do I have the emotional and physical stamina?
I consider business to be as mentally and physically draining as any competitive sport. You must be prepared for the stress it will place on your mind, body and relationships. Leaving a 9-to-5 job to take on a business that requires your attention 24 hours a day, seven days a week can be a life-altering event.
Therefore, it’s important you have a consistent regimen of exercise, meditation and a healthy diet. Like with all great athletes, taking care of your body and mind is one of your highest priorities. The same holds true when it comes to business. You certainly cannot build a successful business if you are sick or don’t have the mental capacity to deal with the challenges that lie ahead.
What’s my risk tolerance?
If you aren’t willing to embrace risk, you may want to rethink being an entrepreneur. Risk is an inherent part of business ownership that carries steep consequences with regularity.
You will often have to make decisions that will impact not only your business, but also the families who are supported by the business. These decisions can be tough and uncomfortable at times. It’s important that you assess the risk tolerance not only for yourself but for your family, employees and partners, as well. Having the support and understanding of those around you will help make things easier when tough times arise.
Also, make sure you learn from the risks and failures you encounter in business. Your willingness to experiment with new ideas is key to business growth, even if you fail at times. You will not reduce the number of failures you make unless you learn how to gain something valuable from each one. Most people shy away from risk, but those who embrace risk will always have a competitive advantage.
How comfortable am I with selling?
As an entrepreneur, you are the primary salesperson of the company. The responsibility of generating revenue will fall on you. Business or commerce does not happen unless something is sold. Your ability to sell to your customers, vendors and partners is the most important skill you will need as an entrepreneur.
So, if you lack the ability to sell, make every effort possible to learn it. The internet is filled with resources and strategies on how to sell. Identify the sales strategy that best fits your personality. I learned, for example, how to be more of a consultative salesperson. That approach requires actively listening for the customer’s needs and pain points so I’m able to offer a solution to their problems. The better you are at selling, the more successful you will become in business.
Is my product or service in demand?
You must quickly determine how marketable your offering is to your target market. Is there even a market for what you’re selling? I have learned over the years that it’s not the wisest thing to enter a market with an unknown product or service.
There’s an old saying, “You can tell who’s first to market because they are usually the ones with the arrows in their back.” You don’t want to be the one trying to create the market. It’s easier to ride the wave of demand that has already been established.
Focus on areas where you can solve a problem and improve the experience of your customers. Your unique talents and skills can be the differentiator between you and your competitors. A small percentage of a large market can be more profitable than a large percentage of a small one.
Do I have enough funding set aside?
They say in business that it “takes money to make money,” which is true. If you are walking away from a cushy 9-to-5 job to start a business, make sure you have enough capital to not only fund the business but to also take care of yourself. Expect to take a huge reduction in pay as you go from your day job to business ownership. I recommend having enough money set aside to take care of at least one year of personal expenses while you are building the business.
Keep in mind that the income generated by the business is not for personal use and you’ll need other means, such as personal savings, to support your everyday living. You must also determine how much funding is needed for working capital and operational costs. It’s very difficult to get startup financing, so you’ll probably have to bootstrap your way through for the first few years. Borrowing money from family or friends and using personal credit are typical funding strategies that entrepreneurs use. Not having a solid financial plan in place can and will be detrimental to your business.
Should I build or buy?
Starting a business from scratch and growing it organically can be one of the most challenging things you will ever do. It takes time to develop a product or service, build a customer base, hire staff and manage the financial aspects of a business.
If you don’t want to spend the next 10 years of your life with the uncertainty and stress of building a business, you may decide that buying an existing business is a better alternative. When buying an existing business, you have a built-in customer base, reputation, resources and, most importantly, cash flow. There’s a proven formula for success that you can build upon while being able to realize profits from day one.
The obvious challenge of buying versus building a business is the capital needed up front. The good news is that it’s easier to get financing to buy an existing business than it is to start a new one. Banks and lenders feel that an existing business has less risk and the past performance is a good indicator of future projections. This is probably the most important question on the list because it could save you years of stress, heartache and pain.
What’s my end game or exit strategy?
Always start a business with the end in mind. Think about where you’d like to see yourself in the next 10 years. Would you like to be running the business or have someone else take over the day-to-day operations? Will you be building the business to sell or to be retained by family and/or employees?
The choices you make can influence important business development decisions. Your business exit strategy should be included in your initial business plan. You should evaluate your business exit strategy at least once per year. You may not realize it now, but there will come a time when your work is finished and you’ll need to move on. Don’t be afraid to seize that moment. Otherwise, you could miss your best opportunity and hurt your company in the end.