This articles come from The Five Steps to Building a Successful Business course. This course is the product of working with small businesses for twenty-plus years and asking a simple question: Why do certain businesses succeed while so many struggle and ultimately fail? The Five Steps to Building a Successful Business will teach you how to successfully start and grow a business, or turn a struggling enterprise around. Check out more articles from the Five Steps series.
After graduating from college, my first full-time business endeavor was an accounting service that did more than keep books and prepare tax returns. Its real purpose – its special sauce – was teaching small business owners to use their financial statements – their scorecards – to make effective management decisions. Unfortunately, in the years that followed, my special sauce soured and evolved into a business that helped owners minimize tax problems and keep their doors open. I went from assisting owners in maximizing their potential to reducing the consequences of their poor decisions.
And so my post-college education began - hands-on training with hundreds of real-world small businesses and their owners. The Five Steps to Business Success is the culmination of this two-decade experience - working with small businesses and asking these three simple questions:
These were critical questions for someone like myself. I started a business to help other small businesses. Why were they so important? Three reasons:
First: Growing a business designed to help other owners succeed is difficult, especially when you lose a substantial portion of your customers each year. They were gone – poof, out of business before I could help. Small business failures occur at a staggering rate. Within three years of opening, approximately 40% of small businesses fail. Within ten years, 70% are gone. And once they go into a tailspin (the time most owners realize they need help), they are nearly impossible to save.
Second: When an owner starts a small business and expects it to pay their household bills, things can get crazy fast. Time and money quickly evaporate as survival becomes the top priority. Auxiliary services, even those that help them achieve their goal, are rapidly pushed off the grid.
Most businesses that survive beyond three-years are far from what one might objectively call successful. Sure, the owners love being self-employed, but they often earn less than they would make working for someone else. They also work more hours – a lot more hours.
Third: It became apparent that the business knowledge I absorbed in college and grad school did not translate well to small businesses. The know-how that builds a successful small business seemed very different from what universities produce – mid-level corporate talent. If I were to help these owners, I needed to find additional answers – non-academic solutions they could immediately apply to operations.
The Search for Answers
My extensive business education didn’t explain why some small business owners – about 10% - defy the odds and achieve significant success. They don’t necessarily become multi-millionaires, but they are financially secure. They are upstanding community members whose businesses provide gainful employment to others. By outward appearance, they are no different from the owners of struggling or failed businesses. Many share similar backgrounds, possess and same work ethic, and started with the same resources. They even work in the same industries. Why do some builders, landscapers, beauticians, accountants, restauranteurs, and mechanics succeed when the majority struggle and fail?
Sure, luck plays a role, as with many aspects of life, but it does not explain sustained business success. Chance might create a short-term windfall, but it doesn’t supply long-term prosperity through numerous business cycles. These business owners must share some traits others lack. What do they have in common?
To answer this question, I started to observe the characteristics of owners who grew their businesses to the point where: 1) They were self-sustaining, and 2) They provided the owner financial security. What does “self-sustaining” and “financial security” mean? Let’s take a look.
Self-sustaining does not mean the company grew to a specific size regarding market share, employees, or revenue. It means the owner could leave for a few weeks or a month, and things didn’t fall apart. Either the business continued serving customers and producing its product in the owner’s absence, or the nature of the work allowed the owner to leave without losing customers or sacrificing their livelihood.
Financial security does not mean “riches” – becoming a millionaire, complete financial independence, or even earning a six-figure annual income. Financial security means the business consistently generates enough profit to 1) Save for downturns in the business cycle, 2) Pay all of the owner’s bills without sacrificing their lifestyle, and 3) Provide the owner with savings for emergencies and retirement.
What makes 10% who achieve success different from the 90% who struggle or fail? I found the answer in five shared traits successful owners possess that others lack. I call these traits steps or pillars interchangeably.
Here are the Five Steps to Building a Successful Business:
Step I: The Business of Business: Successful owners realize there’s a world of difference between the product or service they sell and transforming that product or service into a successful business. Successful business construction is a vocation in and of itself. We call this vocation the Business of Business. Like any vocation, the Business of Business requires a particular set of skills to be successful. In the Five Steps to Building a Successful Business, we define business success. We also encourage you to make the Business of Business more than a vocation. Those truly successful make it their career!
Step II: The Customer Experience: Customers have many options to satisfy the same need or want as your product or service. Why should they choose your business to the exclusion of all of these options? Successful owners realize that customers do not just buy their product or service. Customers purchase the EXPERIENCE of buying that product or service from the successful owner’s business. These owners find THEIR customers and learn what they want. Then, they construct an experience for THEIR customers.
Step III: Make a Profit: Successful owners know that cash is king. Long-term success requires a business to consistently generate more CASH than it spends after paying its bills. AND (this is very important) the cash generated must not only pay business costs. It must also cover the household expenses of the owner.
Step IV: Manage Systems, Lead People: Systems are the way a business gets things done. Most small-business systems are unconscious habits. Successful systems, however, are formalized habits: Intentionally designed steps and procedures that consistently achieve the desired result. Successful owners know that systems do more than leverage your most valuable resource - TIME. Systems construct and deliver your product or service and create your customer experience. Systems generate profit and scalable growth. They also form the foundation of your business culture, brand, and marketplace identity. Most importantly, systems allow owners to become leaders of people (not herders of cats)
Step V: Own a Business (Not a JOB): Successful owners understand this fact - only a business can grow beyond them, a JOB cannot. If the enterprise suffers or things fall apart in the owner’s absence, they do not own a business. They have a JOB.
Success owners also work ON your business, not just IN it. They think strategically about their business and make time to form key win-win relationships. They commit to learning the skills demanded by each stage of growth and developing their employees’ skills. These are just a few responsibilities of a successful business owner.
Conclusion: Learn the Five Steps to Building a Successful Business
These five traits differentiate owners of self-sustaining, financially secure entities. Owners whose businesses fail or struggle lack one or more of these traits. But lacking these characteristics does not doom a business. Far from it! Successful owners are not born knowing how to create entrepreneurial success. Each attribute is a skill that you can learn for yourself. That’s why we developed the Five Steps to Building a Successful Business - to help owners like you create a self-sustaining, financially prosperous future. You need to check it out for yourself.
All courses and articles are for informational purposes only and do not constitute tax advice. Taxes are complicated - do not act on course information without consulting a professional. Always refer to treasury regulation before making any tax decision. Read the full disclaimer.
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The course was excruciatingly detailed, which I appreciate. I definitely recommend this course to anyone who even thinks they may need it.- Greg, Brookfield, IL, 1099-MISC Basics Course