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Entrepreneurial Journeys

Entrepreneurial Journeys

The bulk of job creation in the US comes from small businesses contributing to approximately 60 percent of the net new jobs. Small firms in the 20-499, employee category typically lead job creation. There are approximately 30 million small businesses in the UnitedStates. Establishing a business and realizing a dream is obviously a rewarding and liberating experience, but unfortunately, not sustained for most.

The Odds of Business Success

According to the SBA’s Office ofAdvocacy: “About half of all new establishments survive five years or more and about one-third survive 10 years or more.” Five years of sweat, money, and hope vanishes for at least 1 out of 2 business start-ups and thereafter a similar amount fails in the following years. Accountants will tell you the actual figure is much higher. Most start-up businesses never make it to the stage where they register with local authorities, so their statistics aren’t recorded. The odds are stacked against entrepreneurs. It’s the journey and not the destination that counts - Trying and failing is part of the journey to success, right?

The goal is to be in the ranks of business owners that make it on the first attempt, but not many do. The good news is their chances do improve on the following attempts. Founders of previously successful businesses have a 30 percent chance of success with their next venture, founders who have failed at a prior business have a 20 percent chance of succeeding versus an 18 percent chance of success for first-time entrepreneurs. Don’t give up, just be smarter, use your experiences as fuel.

Why Business Owners Fail?

Obviously, each business failure may happen for a specific reason, but often multiple. It’s possible the entrepreneur was doomed to fail, without the talent for the job. They run out of money with no access to working capital, the market changes, supply chains fail, lack of leadership or unforeseen regulation changes impact profitability. Every venture is not the same, each business has its own unique set of variables-the skills, knowledge, and experience of the founding entrepreneurs, how established the product and market is. When starting, there are so many unknowns to deal with from name, logo, website, marketing, supply chain the list seems endless

The reality is there are only two questions to be focused on answering and directing energy towards solving.

-       Are there enough people out there who will buy the product or service at a profit?

-       Does the business have enough cash (capital) to cover costs until they are found?

Challenged- Capital Structure - Beginnings

Most new startup operations are initially funded through the founders’ personal finances. Capital from the owners’ personal savings, credit cards and other personal debt, retirement rollovers, and investment accounts are used. Founders, feverishly pursue sales revenue, pressing to win enough clients to support their venture before funds run out.

On average it takes a business 2, to 3 years to reach viability. Significantly undercapitalized from inception, starting with only a 3rd of the runway capital most likely needed leads to failures, and there are lots of ways to fail, lurking around every corner.

Start-up Business Statistics:

Business Statistics Financing (SmallBusiness Trends, SBA)

-       The vast majority of startup funds (82 percent) come from the entrepreneur themselves, or family and friends.

-       77 percent of small businesses rely on personal savings for their initial funds.

-       40 percent of small businesses are profitable, 30 percent break even and 30 percent are continually losing money.

-       Having two founders, rather than one, significantly increases your odds of success as you’ll raise 30 percent more money, have almost 3X the user growth, and

are 19 percent less likely to scale prematurely

-       82 percent of businesses that fail do so because of cash flow problems

Regardless of how much capital you begin with, its the effective use of whatever capital you have that drives results and ultimately, success or failure. Within 5 years of starting, 50% of small businesses are gone. When a business fails it often takes the owners' personal savings, credit, assets, and many valued relationships with it - not to mention the jobs.

Business Owners, Long Hours - Low Pay

Most of the small businesses that survive past year 5 have created a long hour low paying job for themselves where their business has less than $100,000 in annual owner’s discretionary cash flow, and if sold not worth a great deal. 

Only a small %, of business owners, create a business value of $500,000 or more and have at least $125,000 in owners’ discretionary cash flow.

Exit Planning - Not

Most successful entrepreneurs become lifestyle business owners meaning they live off their discretionary income and wide company benefits. To some degree complacency is pervasive, as too many do not prepare for transitioning, or a thoughtful exit strategy to support a lifestyle into the next phase of life after business ownership. Ultimately, they fail to plan to accelerate the company value and "sellability" to support their future desires.

40% of business owners unplanned exit strategy leads to  liquidation !  There is a systemic business ownership problem when considering many owners are heavily relying on a sale to support a retirement lifestyle. A personal value gap exists being the difference between what the owner’s business is worth and what their personal goals require it to be worth.

At Lavan we have a complete set of simple concepts and practical tools that have helped thousands of entrepreneurs get what they want from their businesses. By mastering this simple way of operating, leadership teams of growth-oriented companies systematically and permanently improve – Grow revenue, enterprise value and operationally strengthen.

Business Building Blocks

We believe the basic precepts for building a successful business are tried and true. There's a plethora of business guru materials out there offering sage advice. However, even with the best preparation, planning, strategy, and performance systems success boils down to execution.

Too often business owners' get stuck,  get sucked into minutia, which prevents them working on their business. Building and growing a business requires leadership, a driving purpose, great people and access to the right support. Effective execution comes with great support and deliberate strategic management. It encompasses;

-       Diagnostics to enable you to know where you are.

-       Strategy to tells you where you are going.

-       Business models to assure you have a validated way to get where you are going.

-       Performance management to help make evidence-based decisions, and if necessary adapt to continually get there ahead of the competition.

-       A way of operating to ensure execution and the business stays on track. ROSEis a framework that helps business owners and leadership teams achieve the outcomes desired.

We believe 6 key building blocks are foundational and common to most successful businesses; Appropriate capital, talent, structure/organization, purpose, networking, and of course planning, which is the first step to being appropriately capitalized.

Planning is a core discipline to achieve success. Developing a road-map to meet business goals including budgets, timeline, what is the average contract value per customer? how do you plan to acquire customers? what is the cost of customer acquisition and length of time on average to acquire?

Plan, run, review and revise, to fine-tune results. Listening to clients, ensuring quality customer service, for higher retention. It costs on average 5 times less to keep a client than to acquire a new one. Keeping ahead requires implementing a system to track key performance indicators, and tweaking behaviors to maintain and or improve results. KPIs; cost, quality, timeliness, customer satisfaction, and staff motivation are integral and drive the numbers that help define and maintain business health – sales, spend and cash flow.

Business Stages

We believe a business can progress through 7 distinct, and fluid stages; From startup to viability, growth, and various levels leading to and from sustainable success, or failure. Sustainable success is characterized by an agile and highly functioning business. Resources are effectively used to deliver predictable results. Each stage has identifiable hurdles, but many common to business type or industry. To navigate each stage and steer towards, or maintain business success, requires varying degrees of emphasis and focus on the precepts, and business drivers that underpin operational excellence. The structure or organization that works for a start-up does not necessarily apply or work as the company chooses to grow. The skill-sets or talents necessary to lead a larger enterprise are different from the flatter structure in an early-stage company.

Business Disruption

The infrastructure and framework in which a business operates continues to dramatically change. How consumers and businesses decide to buy, and from where. The exponential technologies businesses use to compete, and the lightning speed at which they are evolving; BigData, Cloud, AI, Machine Learning, Block-Chain, Augmented Reality technologies - We are in the midst of a 4th Industrial revolution driven by digitization, profoundly impacting all industries, economies, and disciplines.

Digital has transformed business resource capabilities and the resulting possibilities. Lowering the costs of managing a business across all disciplines from financials, purchasing, inventory, sales, and customer relationships to project management, operations, and HR.

Rapid deployment of proven cloud solutions helps ensure a company has a single source of data truth across the whole business. Immediate adoption of value-adding functionality allows for more time to focus on the business not implementing software. Actionable intelligence enables quality decision making throughout the firm and can empower, motivate and help the most important resources, the people. Not complex, solutions help with;

-       Profitability

-       Cost reduction

-       Improve reputation

-       Develop new revenue streams

-       Accelerate growth

-       Digital transformation and agility

To succeed in an increasingly digital economy, you need to constantly create value from the latest innovations to meet changing customer expectations and fierce competition. Businesses, even the small mom, and pop ones, who adapt and embrace digital, can compete without complexity, or prohibitive costs to grow businesses their way. The rapid rise and success of companies from Airbnb, to Uber have altered transport and hospitality business landscapes with business models delivering value not previously seen in those markets.

Keeping up with it all is a challenge, but the changes drive opportunities, which is exciting and exhilarating. The opportunities abound for people that want to take the leap of faith, leave their corporate world to start on their own. Stay thirsty my friends.

The world is changing faster and to survive so must a business

This year, in 2020 ;

– The average person will have more conversations with bots than with their spouse (1)

– 100 million consumers will shop in augmented reality (1)

– 85% of a customer brand experience will occur without any human interaction(2)

– Over 80% of the G500 will be digital services suppliers through industry collaborative cloud platforms (3)

– By 2030, organs will be biologically printed on demand (4)

Sources

(1) Gartner, Top StrategicPredictions for 2017 and Beyond: Surviving the Storm Winds of DigitalDisruption Oct, 2016(2) Centric Digital, How Omni-Channel Customer ExperiencesDrive Brand Transformation Oct, 2015 (3) World Economic Forum, Healthcare in2030: Goodbye hospital, hello home-spital Nov, 2016(4) IDC Research, Inc. Nov, 2016

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