GOOD IDEAS THAT WENT BAD : In Entrepreneur’s Paradise, Even Best Business Plans Can Sink, Along With Dreams
Cliff Williamson had a gambler’s guts and a banker’s brains. With a combo like that, he figured, what could go wrong?
On paper, the thing looked like a lock: He would open a deli at the corner of heavily traveled Westminster and Beach boulevards in Westminster. From there, he could see at least three banks, as well as city and county office buildings. Those people had to eat, didn’t they? To the budding deli owner, that added up to lots of lunchtime customers. Besides, his own recollection had been that whenever he spent any time in City Hall, all he heard people talk about was how there was no place around there to eat.
Even so, Williamson did not want to get overconfident. As a former partner in a successful company, he knew about the dangers of opening a new business with too much confidence and not enough capital. So, just to cover that bet, Williamson took out a second mortgage on his house so he’d have $40,000 for start-up expenses.
By December, 1986, Williamson was ready to open his doors and stand back as people elbowed their way into his deli.
Or so he thought. Within 6 months, Williamson was out of money and out of business. In the interim, he had undergone open-heart surgery for a condition worsened by the tension of what had become a full-blown business disaster. He is still suffering financially, he said, and has filed for bankruptcy in an effort to keep from losing his home to foreclosure.
For Williamson, the American Dream went poof--just as it does for thousands of businesses every year, even in Orange County, with its reputation as an entrepreneur’s paradise.
Although statistics are not available for the mortality rate of new Orange County businesses, the consensus of several business leaders queried is that the success of an infant business is at best a 50-50 proposition. In a county that spawned more than 20,000 new businesses in 1988, that is a lot of belly-up businesses.
It isn’t that Cliff Williamson, now 52, was unaware of the risks. “I’m an entrepreneur by heart,” he said. “I had that desire to succeed. An entrepreneur is a breed of people different than any other breed in the world. They’re as distinct as the Budweiser horses, the Clydesdales. It’s that determination, something in your heart, you want to succeed, you’re not afraid to take that chance.”
Early on in his venture, however, Williamson said, he got blind-sided by several forces that stripped him of capital. Even then, he forged ahead.
“You see the problems, but a problem is a negative thing,” Williamson said. “It’s beating you down, but you refuse to accept it. You say, ‘You’re a negative, I’m not going to pay attention to you. I’m going forward. You’re not going to beat me.’ ”
Eventually, Williamson said, he realized that was a hopeless course. “I had reached capital exhaustion and had nothing to deal with. I only had one other chip to play, and that was time. Time can be an enemy or a friend. It was my enemy, but it was also the only thing I had left. The longer I went, there was always the possibility of the glimmer of light at the end of the tunnel, that some way, somehow you can pull it out. You believe that till the day you walk out the door.”
Barbara Taylor, president of the private, nonprofit Orange County Business Development Center, said entrepreneurs are lured by what many believe to be certain success in affluent Orange County. “I’ve heard one speaker say that if you can’t make it in Orange County, you can’t make it,” Taylor said.
That attitude can cause entrepreneurs to make the fatal blunders of not drawing up a business plan or of starting without sufficient capital, said Taylor, whose center tries to help fledgling businesses. “They think that they have this great idea that is so persuasive to them and so completely clear to them that they don’t feel the need to explain it to anyone else,” she said. “They’re so sure it’s so great that they think everybody else will see it too.”
Self-confidence, while an admirable trait in an entrepreneur, must be tempered with reality, business leaders said. “Anyone who goes into business and thinks they’re going to be an immediate success without the background and experience is extremely naive,” according to Frank M. Reid, executive vice president of the Fullerton Chamber of Commerce.
Reid estimated that 75% of new businesses do not survive. The problems usually are traceable to under-financing, an entrepreneur’s lack of knowledge about his business or a failure to research the market to determine if a product or service is needed, he said.
Asked how people can make such fundamental errors, Reid replied, “It’s the American dream. They all want to be their own boss, and they all feel they have entrepreneurial skill to pull it off. Unfortunately, most of them don’t.”
Marcus McNamara had already had his share of business ups and downs when a friend told him of a Chinese manufacturer who had the “golden touch.” The man was looking for markets for a plastic child’s toy table that collapsed into a carrying case. McNamara liked the product and was impressed by the fact the Chinese maker was the world’s only manufacturer.
Eighteen months ago, McNamara was ready to open a business that would import and distribute the product to what he was confident would be a receptive American market. He was buoyed by the knowledge that no one else in the world was making the tables and that small import companies like the one he had in mind were known to turn huge profits.
That, at least, was the vision. Around Christmas of last year, McNamara, 36, cut his losses on the business and walked away from it. Investors lost about $180,000, he said. He estimated his own losses at about $50,000.
“Starting a business is like conception,” McNamara said in an interview in his Huntington Beach condominium. “Then, when it gets into the middle stages, it’s like growing pains of a teen-ager. Then when things start to go bad, it’s like having a teen-ager who turns to drugs. It’s your baby that’s not growing up.”
McNamara smiled as he extended the metaphor. “Then, (you find the teen-ager) has just sold your car, run off with all your credit cards and everything else and you get a call from the principal’s office and he’s in jail.”
But if McNamara can laugh now about the business failure, it was not always so. “One of the things that happens with the entrepreneur is that they begin to believe, for lack of a better word, their own hype,” McNamara said. “They sell the story so many times that after awhile, they begin to believe their own story.”
McNamara’s company was hurt early on when a South Korean manufacturer began making the same table that McNamara thought his Chinese partner was making exclusively. Didn’t he see that coming? “It happened quicker than I thought. I thought we’d have 2 good years before they jumped in. But the big stores, once they found that big source, they go to that source.”
With the South Korean competition severely cutting into his retail market, McNamara compounded his miscalculation by diverting the company’s focus. “We started going too many directions at one time,” he said. “It became more important to drum up money to go forward than to sell the product.”
That translates to getting away from the original business plan, something business consultants urge infant businesses not to do. “Another fatal blunder is that even if you write a good business plan and work the numbers, most people don’t follow them,” McNamara said. “I didn’t follow the plan.”
Within 5 or 6 months, McNamara realized he was in trouble. On the advice of friends and others, he decided to walk away from the business.
Yet, McNamara said, he is not discouraged about future business ventures. Already he is forming another import company that will merchandise, among other things, camping and fishing products, he said. “My father was a Colorado cowboy,” McNamara said. “He always told me that it was not how many times you get thrown off the horse; it’s how many times you get back on. You learn from your mistakes and go forward.”
Because mistakes are so common with new businesses, seminars, workshops and self-help books abound on the subject. The city of Santa Ana sponsors the Business Enterprise Center, a “small business incubator” to help new businesses survive the critical early months of life.
“When you look at the characteristics of an entrepreneur, they’re self-starters and they have drive and confidence and self-reliance,” said Dan Mejia, who manages the center. “It’s the wise entrepreneur who realizes the skills he needed when he started are not the same ones needed when you reach a plateau and you’re ready to expand to the next phase, and he has to decide whether to go out and develop those skills or do what he likes to do and get somebody else to do it.”
Sandy Sutton is the Small Business Administration’s acting assistant director of business development. “We have a lot of people who have never been in business and they’re interested in going into it,” she said. “They hear a lot of positive input on how easy it is to be successful and how much money an entrepreneur makes. Unfortunately, they don’t realize that a lot of planning goes into it. Like a lot of things, people think it just happens, that customers automatically walk in and sales are automatically made.”
Joan Warner, manager of the Westminster Chamber of Commerce, said the naivete of some first-time entrepreneurs is “very frightening. Some don’t have the basic knowledge of how to do a checkbook,” she said. “I think it’s because most of them have a terrific idea . . . but they don’t have the money or the know-how.”
Business observers acknowledged that the Orange County economy can survive new business failures, in part because every start-up business pumps business into the system. In addition, Warner said, “there are two new ones waiting for every one that goes out.”
Taylor said she was startled to see that although more than 22,000 new businesses were formed in Orange County last year, the county’s overall increase in businesses was only 3,000 greater than it had been 2 years earlier. That suggests that many businesses are failing, she said.
But even if, as Taylor believes, the county can withstand new business failures, she said she is concerned over the personal tales of woe.
With some people, the memory of business failure lingers for years.
Bill Ervin closed the doors on his own advertising art business in Anaheim about 15 years ago, and the memory is still painful. “It rips every fiber out of you and takes you to the depths,” he said. “I was as low as a person can get and still have self-respect.”
Ervin said his problem was that he never hired a business manager he could trust and that once his business began to recede, he did not know how to revive it. But that possibility of failure had never occurred to him when he began the business about 4 years earlier.
“I was in my mid-30s, late 30s, fired up, going for it,” Ervin said. “There was no tomorrow. The risk factor was there, but it was not a deterrent. It was a situation almost where I said, ‘Hey, shoot at me. Try, you can’t hit me.’ ”
When the bottom finally fell out, leaving Ervin with nothing, it was like a death, he said. “It’s because you’re sinking your life, love, energy, your psyche . . . you’re dumping everything you are into it to make it go. You’re so involved in making this thing happen and when it falls, the one word I come up with is devastating.”
