Successful entrepreneurs make it look so easy. In truth however, starting a business comes with high risk and opportunity costs. What can we learn from those who have made it?

By Ruth Wong

Starting a business seems to be as fashionable as podcasting or getting a botox jab these days. In fact, according to a Straits Times report, Singapore is placed amongst the top 10 in an international entrepreneurship ranking in terms of overall entrepreneurial activities.

With the lure of financial freedom, and sometimes even fame for those who make it, entrepreneurship is an attractive option. Yet according to a US finding, 50% of small businesses fail in the first year and 95% fail within the first five years. With such high failure rates, how do you know if you have what it takes and how can you minimise the risk of failure?

Knowing yourself
The first step is in taking a critical look at yourself. Can you imagine sacrificing your social life, having little or no personal time and working even during weekends? Do you thrive in challenging circumstances? Are you a good decision-maker? Are you prepared to lose all your money in the event the business fails?

Successful entrepreneurs share these traits: passionate, self-reliance, willingness to shoulder responsibilities, leadership, great perseverance and self-discipline. Most importantly, they are not afraid to fail.

Nanz Chong-Komo, founder of the former One.99 retail stores and now author of national bestseller One Business 99 Lessons, adds good interpersonal, communication and relationship-building skills to the list. “No business person can carry on a successful business and life without these,” she says.

Armed with these skills, she was able to gain trust and make many friends through her business. The goodwill that she built up through these relationships made a crucial difference in times of difficulty. When one of her business ventures failed, she recalls how “a few creditors came rushing to tell me they forgave my debts, and two of them I owed between five to six figure sums.”

Common reasons for business failure
The most common reasons that cause business failure can be broadly attributed to bad management, weak financial practices, cash flow problems and poor marketing.

Management encompasses a spectrum of activities that include planning, organising, leading, communicating.

Planning is essentially about drawing up a business plan and this is an important first step. A good plan enables you to examine all aspects of the business, helps you set goals and work out operational details. It also allows you to objectively analyse the business strengths and where you are lacking compared to competitors.

Nanz, who is now a business coach and speaker (www.NanzChongKomo.com), observes, “Many business people are too absorbed in the details of day-to-day operations and firefighting that they cannot go back to the big picture of their original vision.” In this instance, a business plan acts like a compass, navigating you back to your initial vision just when you start getting bogged down by the nitty-gritty.

Nancy Lim, an entrepreneur in her 30s who owns a management consultancy business, feels that a common mistake made is in not anticipating certain business downturns. Thus good planning ought to take into consideration potential downturns and what to do if it occurs. She believes that having a contingency plan is also important.

Next, if you are raising capital from investors or applying for loans, having a detailed, well-written business plan is imperative.

Staff management is also one major challenge that entrepreneurs have to contend with. Hiring, guiding, motivating, communicating and leading put the skills of most business owners to the test. Of these, hiring is one aspect where executed ineffectively, could cost the business dearly. Nanz learnt this lesson the hard way. Recounting her experience, she says, “I spent too much time hiring cheap, and then having to rehire. Much time was spent in the process and if I were to quantify the cost, it would be substantial!” Justin, an ex-entrepreneur in food business, echoes her sentiment, “You can have the best of everything but without good workers, it will result in a lot of frustration.”

The lack of a good team can cripple a fledgling business, but weak fi nancial practices and cashfl ow problems are far more fatal. One mistake budding entrepreneurs commonly commit is in underestimating the amount of money required to run the business, and overestimating when profits will roll in. For a start, differentiate between the sum required to set up the business and that of operating it. Business takes time to pick up, some longer than others. So you need patience and the finances to wait it out. Experts advise putting aside cash for at least 12 months of business and personal expenses.

In addition, unreceived accounts, poor collection methods and unrestrained business expenditure could all lead to cashflow problems. In her book, Nanz dedicated one chapter on cashflow management, and has this piece of advice to give: “when you start your business, keep your eyes on your cashflow and cash projections – it absolutely does matter.”

Justin summarises his own experience in managing cashflow with this remark, “Cashflow is very important. Without proper tight control of cashflow, any business can fail.”

Lastly, examine the marketing plan. Good marketing plan helps you create customers, increase sales and gain a larger pie of the market share. To do this, Justin says, “Study the market and conduct surveys if you need to. Paying the money upfront for surveys will help you avoid surprises later.”

In your research, gather background information about your customers (age, gender, income etc.), what they like best about your products or services, who are your competitors and what do customers like about them. Think carefully about what makes your product or service unique, and use that as your selling point. Also think about how you could use that in promotional campaigns to appeal to the customers and pump up the sales figures.

What else?
Asked about advice for people who are married and want to start their business, Nanz replies, “Ask their spouse! A happy family makes a successful entrepreneur. If the spouse is not supportive, the couple ought to work through the cost and benefits together. I suggest a compromise. Start the type of business that could potentially meet the needs of the family as well as time commitment, funding etc.”

In business, not everyone ventures alone. Justin said, “For partnership, one should take time in knowing the person in great depth before making him/her a partner. If you’re the prime investor, ensure you’ve the greatest share and the legal rights to make decisions. Also, businesses can fail. Having the foresight and knowing when to cut losses is very important.”

That’s good insight from one young man who plans to start his business again. In true entrepreneurial spirit, he will never say die.