Getting a Business Off on Right Foot

Every year hundreds of thousands of Americans decide to chuck their 9-to-5 jobs and strike out on their own with a new business. And this year, there is reason to believe that business starts will soar thanks to corporate layoffs and early retirement programs, which have left millions of Americans out of work.

Statistics on 1992 business starts won’t be available for at least a year, but industry experts say there is ample anecdotal evidence indicating that out-of-work executives are turning themselves into entrepreneurs.

Still, as anyone who has tried it knows, starting a business is difficult and risky. Nearly two-thirds of new businesses fail within the first six years, the Small Business Administration says. Dun & Bradstreet, the information services firm, reports that business failures hit a new high in 1991 of 87,266. That’s up sharply from 60,747 in 1990 and 50,361 in 1989.

What does it take to buck the statistics and make a success of a new venture? The answer depends on who you talk to.

“There have been an almost unlimited number of studies done over the years to answer that question,” said Jon P. Goodman, director of USC’s entrepreneur program. However, few have produced similar results.

Northwestern Mutual Life, which has studied the issue because the Milwaukee-based insurer’s agents are independent business owners, maintains that scoring personal characteristics can help determine whether you’ll succeed or fail in business.

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Northwestern developed a 22-question quiz designed to rate your “EQ”--entrepreneurial quotient. You get points for being adventuresome, stubborn and a loner, as well as for having immigrant parents. But points are deducted if you were a top student in school or if you participate in group activities.

The National Federation of Independent Business, meanwhile, says a study it commissioned two years ago indicates that you’re more likely to succeed if you start a business later in life; if your parents owned their own business; if you are optimistic, and if you have at least $50,000 to pour into the enterprise.

However, Goodman maintains that business success is more a function of what you do than of who you are.

Those who concentrate on industries with which they’re familiar have a better chance of succeeding than those who get into unfamiliar enterprises, she says.

Research is also a key to success. “The ad-hoc brilliant idea doesn’t work,” Goodman says.

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Before starting a venture, you need to determine whether people are willing to buy what you’re selling. That means doing research commensurate with the sum you’re planning to invest. If you’re starting a $5-million enterprise, you should be hiring professionals and doing exhaustive study. But if you’re investing a tiny amount, your market research might involve mainly asking people.

Business owners also must be able to clearly articulate--both verbally and in writing--what makes their business concept unique and viable, Goodman says. If you’re unable to tell people why you will succeed where others have failed, you probably won’t.

Owning a business often requires you to take on any job at the company, from receptionist to technician to salesman to janitor. You increase your chances of failure with every necessary chore you are unwilling or unable to do.

It is also important to hire skilled advisers before starting a company, Goodman says. Too many people buy or start businesses without first consulting attorneys and accountants who could help devise business plans and set up the appropriate legal structures for their firms. Often that’s a disastrous mistake. Hiring advisers is expensive, but it’s usually more expensive not to.

Certain kinds of businesses are also riskier than others, Goodman notes. Where the failure rate for restaurants is staggeringly high, the failure rate for manufacturing concerns is relatively low. Again, those who spend time on research should have a good idea of their chances of survival.

Finally, while many believe that a lack of sufficient capital is what kills many start-ups, Goodman says cash-flow problems are only a symptom. Savvy entrepreneurs should know in advance how much money they’ll need to operate their business and whether financing will be available.