Study reasons for failure
Starting a business and becoming successful is often part of the American Dream. But there is a difference between starting a business and building a successful business. Many businesses fail within the first few years of existence due to the lack of planning for the long-term, in many cases because there is not enough vision and there is not enough done to properly strengthen the business from the ground up.
If you want to start a business there is an easy way to get a better understanding of why some businesses fail and others don’t. When starting a business try to think about it in terms of building a house. If done right, the house will protect you against any kind of storm or other dangerous elements from the outside world, and it will last for a long time.
Develop and follow a plan
Following the same line of reasoning for your business, as the house offer shelter and protection because it was constructed properly, your business will offer economical well-being when It is built properly. For you and your business the translation is, you want to have a business that is able to weather economical ups and downs (a la the storm in our house example) and that will provide income to pay the bills (a la shelter and protection in our house example).
When building a house there are several different steps you must take in order to have that house built properly. You know you want a house, but first you have to pick a location and get an architect to draw up a plan and a set of specifications. In the business world that would translate to: You know you want to start a business, but you have to come up with a business idea and develop a business plan.
Lay a solid foundation
The next step for the house would be to build a foundation (and eventually the basement) for the house. In the business scenario, you have to build the initial infrastructure (example: connecting with vendors, finding a manufacturer for your product, creating a sales team, renting office space, getting a delivery truck, etc.). Once that is in place you’ll be able to actually do business and earn some money.
However, you are not completely done yet, because you still need to build a frame, put in windows and install a roof on the house. Similarly for your business, you’d have to pay off debt, improve business processes and get professional help when needed (example: find a tax accountant, select a payroll service, etc.).
Once the house is built you probably want to furnish it and make sure the interior is suitable for your family’s comfort and safety for present time as well as years in the future. Obviously nobody wants to sleep on the floor, if a bed and other furniture is available.
Reinvest in your business!
This stage of the house construction, which is close to completion, is translated to building the business in the sense that you are investing money you earned back into your business. Business owners reinvesting in their businesses is something that is done routinely. One example of that is buying machinery instead of leasing it.
Eventually the business buys a building, hire more staff, develop more products, move into new markets, build up a high cash reserve, and buy other businesses and so forth. This is often the step where winners and losers separate. Re-investing money into the business is a key factor for success. If you go and spend all the money on your own salary to buy personal things, you have nothing to go back to when the economy slips into a recession or some kind of disaster.
Build up a cash reserve
The successful business owner has built up a cash reserve or can borrow money from a bank – securing loans with the assets of the business. Going back to building a house this pretty much matches the same efforts.
You pay off your mortgage and have equity available to eventually borrow against when emergency arises. Emergencies do not include paying off credit cards to use them again or to buy a car. Financially responsible owners (home or business) should be looking at the long term and not finance short-term goods with long-term debt.
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