It’s a pretty consistent fact around the world that approximately 50% of small businesses fail within the first two years of operation and only about 8% of them make it to 10 years. Michael Gerber discusses the reasons for this at length in “The E-Myth Revisited”, but I’d like to discuss it briefly here and tell you a story to illustrate it.
Are You A Technician?
A lot of small businesses are started by ‘technicians’ who are very good at what they do, and angered when they think that their employer doesn’t value them enough. The accountant who leaves a big firm to start his own practice because he knows he’s being charged at $180 per hour, but only receiving $90, the chiropractor or physiotherapist who knows what each patient is being charged, but only receives a percentage of that fee, or my friend Josie, who is a hairdresser.
Josie worked in Angie’s Salon and she was paid $15 an hour. At the end of every week Josie saw that her income is far less than the total takings that Angie has in revenue. She worked out what each client paid for her services and compared that with her weekly wage and said to herself, “How come Angie gets paid this much and I’m only getting $15 an hour and I work much harder than her. I’m a much better hairdresser than she is and I see more clients!”
After a while Josie decided to start her own Salon. She knew that she is a really great hairdresser, in fact, she loves hairdressing so much she told herself that this would not be work! She worked really hard, put in long hours (all that administration as well as hairdressing!) and to encourage people to come in she started discounting her services. Josie was now working much harder now than when she was employed by Angie. When we sat down together and looked at Josie’s numbers in a Business Coaching session, we worked out that her new pay rate as a business owner was $1.20 an hour.
You see, what Josie didn’t understand were all the other tasks that Angie did behind the scenes. Things like rent, utility bills, doing the payroll, looking at how she’s actually going to get business walking in through the door, (Angie’s clients didn’t just show up with their money on the day she opened the Salon!), and managing stock levels. Josie only saw the big picture with all the zeros at the end of the week’s takings, she didn’t even consider the rest of the picture.
In this classic example of the standard Small Business Owner Josie went from scoffing over $15 per hour as an employee to buying herself a very stressful job for the bargain price of $1.20 per hour! Wasn’t that a great move?
Josie was down – but she was not out! She had signed up for a 2-day Confident Closing workshop that I ran because she was determined not to go back to being an employee. She was going to make this work!
We started by laying out all the bad news … the tasks she had to do, the bills she had to pay, etc – and then the good news … the clients she already had, the staff she had working for her and so on. The picture was pretty ugly, but with all the facts in front of her, Josie could see clearly why she was feeling so stressed and she could make a plan to get out of it.
Find out what happened next … Part 2
Meta Description: What many small businesses owners don’t consider before they start their business and how this leads to despair and failure.