Entrepreneurship

Why Most Small Businesses Don’t Work and What to Do About It

April 4, 2020
Dwayne Walker

Within the first 5 years, 80% of businesses fail.

I’m here to tell you why businesses fail and how you can be a part of the 20% of winners.

The people who start businesses in the 20% are entrepreneurs risking capital to make a profit. When in reality most people who start businesses are technicians, people who were good at an aspect of their job and decided to start their own show. They typically start a business with the assumption that they already understand the technical work (playing the piano, washing cars, etc.)of a business, you will understand a business that does that technical work (a piano instruction business, a car washing facility, etc.).

That’s a myth. There’s a lot that goes into starting and running a business that a technician will not understand.

In fact, knowing the technical aspect of a business is usually a crutch because you end up doing all the work yourself instead of forcing yourself to learn how to make the business work for you.

And when you work “in” your business instead of “on” your business your passion and love for the technical work start to feel like a chore. You overwork yourself bouncing between different aspects of the business. This new mindset towards your task starts to take a toll on the overall quality of your business. The business that once had you exhilarated now has you exhausted.

The issue is that most people set up their businesses as people dependent when they need to be systems dependent. This means setting up systems and procedures that require people with the minimum amount of skills to keep it operating at a high level.

The Entrepreneur, the Manager, and the Technician

Everyone that wants to go into business has to play the role of three people: the Entrepreneur, the Manager, and the Technician.

The Entrepreneur is the visionary in you who thinks ahead and makes plans for the future. The Entrepreneur is the innovator and creator of new methods. This part of you thrives in the unknown, pushing boundaries, creating opportunities, and engineering chaos into harmony.

The Manager in you establishes order and predictability in the workplace. They strive to create consistency across the board.

The Technician in you is the worker and the doer.

A good balance of the three personalities is required for you to succeed. The Entrepreneur sees a vision. The Manager takes that vision and creates an actionable plan. The Technician executes that plan.

If you’re only a technician you will become enslaved to your own business because you’re the only one capable of creating the work required. The business can only survive with you. If your business depends on you, you don’t own a business — you have a job. On the contrary, if you decide to hire other people you need to be able to manage them, keep them motivated, and have a plan and direction to take risks then you can expand your business to create jobs for other people.

Everyone is more suited to one aspect or the other, and each has its own advantages and disadvantages. But in order to be a good business owner, you need all three in the same amount. You need to be able to do the technical work, in the beginning, to cut costs, manage and train other employees, and take risks and have a plan for the future.

Three Stages of a Business

Infancy: The infancy stage is where the business operates on what you want rather than what the business needs to grow and succeed. Everything starts off great, but eventually, your business hours and workload starts to devour you. This stage ends when the owner can’t keep up with demand and supply or quality drops. The end of this stage is where businesses either fail or succeed. Most people realize that they aren’t meant to be Entrepreneurs and instead are happier working as Technicians for someone else’s business.

Adolescence: The adolescence stage is where you’ve decided to let your business grow by seeking technical help. At this stage, the Technician in you encounters more work than you’re comfortable doing on your own, for the Manager, it’s more subordinates than you’re comfortable managing and for the Entrepreneur, how many managers you can keep motivated to head towards your vision. When you’re in this stage be careful not to fall into the management by abdication trap, where you have people working under you and you start to remove yourself from the business. Often, the people you hired don’t do the work to the level you want them to and you end up having to revert back to the Infancy stage. No one cares about your business as much as you do.

Maturity: At this stage, you must handle the entrepreneurial aspect of running your business by hiring managers to follow the vision of the company and to manage the technicians who are doing the work. You are not supposed to work in your business — you work on it here. You know exactly who your customers you serve are and how you can add more value to their lives. When you have a mature business you can really focus on creating an impact.

Sidenote: Everyone who launches a Mature company still goes through the Infancy and Adolescence stage but they handle them like masters. I will tell you how later.

It’s up to you to determine how big you want to grow your business first. You need to have a clear understanding so that you can dictate your business’s key processes that need to be done, the key milestones that need to be achieved, and the void you are aiming to fill in the marketplace. The key is to plan, envision, and articulate what you see in the future for both yourself and your employees. You need to build a systems-dependent business, not a people-dependent business. The system runs the business, the people run the systems.

Working On Your Business, Not In It

Your business is not your life. At best, it’s its own organism that lives or dies solely off of how well it does one thing — finds and keeps customers. Once you realize that your purpose in life is not to serve your business, but the primary purpose of your business is to serve your life, you can start working on your business instead of in it with a full understanding of why it's necessary to do so.

There are rules to follow if you want to win in the game of working on your business. These are the rules for building that model.

1. The model will provide consistent value to your customers, employees, and suppliers, beyond what they expect.

Value is what people perceive it to be, nothing more. Ask yourself, what could my business to not only provide consistent value to your customers, employees, and suppliers but would provide it beyond their wildest expectations?

2. The model will be operated by people with the lowest possible skill level.

Yes, I said the lowest. Because if your model and systems depend on highly skilled people, it’s going to be impossible to replicate. The lowest skill level doesn't mean unskilled, it means the lowest possible necessary to fulfill the functions. So, create a model that’s systems-dependent rather than expert-dependent. How can you create an expert system rather than hire one?

3. The model will stand out as a place of impeccable order.

In a world of chaos, your customers, employees, and suppliers crave order. It gives confidence to these people when your business shows that you know what you're doing.

4. All the work in the model will be documented in an Operations Manual.

Documentation will provide your people with the structure they need with a written account of how to “get the job done” in the most efficient and effective way. The Operations Manual is clear and specific guidelines for your Technicians. It designates the purpose of the work, specifies the steps needed to be taken while doing that work, and summarizes the standards associated with both the process and the result.

5. The model will provide a uniformly predictable service to your customer.

The business must look and act orderly. If you don’t, then your customer will one day get a delightful experience from you and then randomly one day they will get it taken away. It’s similar to the “Burnt Child” Syndrome where a child is rewarded and punished for the same behavior. This can be disastrous for the child and similarly for the customer.

The Business Development Process

Building your business is a continuous process called the Business Development Process comprised of Innovation, Quantification, and Orchestration.

Innovation

“Creativity thinks up new things. Innovation does new things.” How the business interacts with the customer is more important than what it sells. Innovation continuously poses the question: What is standing in the way of my customers get what they want from my business? Innovation should make It easier for you and your people to operate your business, otherwise, it’s not innovation it’s complication. Constantly instill the question in your team, “How can we make this (system, task, interaction, etc.) better (faster, smoother, easier, etc.)?”

Quantification

Quantification allows you to measure everything that goes on in your business. That way you can know what needs to be innovated and if your innovations actually work. Quantify everything. Know your numbers! Without the numbers, you can’t possibly know where you are or where you’re going.

Orchestration

Orchestration is the elimination of discretion, or choice, at the operating level of your business. You figure out your unique way of doing business and build systems that allow that unique way to run smoothly.

Your Business Development Program

You must build your business in a way where the system works so well that someone would want to buy the business from you. But only if it works without a lot of work and without you to work it.

Your Primary Aim

Before you determine anything about your business you must look into yourself. Ask yourself:

  1. What do I value most?
  2. What kind of life do I want?
  3. What do I want my life to look like, to feel like?
  4. How do I wish to live on a day-to-day basis?
  5. Who do I wish to be?
  6. What would I like to be doing two years from now? Ten years? Twenty? When my life comes to a close?
  7. What would I like to learn during my life — spiritually, physically, financially, technically, intellectually, relationships?
  8. How much money will I need to do the things I wish to do and when would I need it?
  9. What would I like to say about my life after it’s too late to do anything about it?

Your primary aim is the answer to all these questions. Great people have a vision for their lives that they practice emulating every single day. They go to work on their lives, not just in their lives. Their lives are spent living out the vision they have of their future, in the present. The difference between great people and everyone else is that great people create their lives actively, while everyone else is created by their lives, passively waiting to see where life takes them next.

“The difference between a warrior and an ordinary man is that a warrior sees everything as a challenge, while an ordinary man sees everything as either a blessing or a curse.” — Don Juan

Your Strategic Objective

Your Strategic Objective is a very clear statement of what your business has to ultimately to for you to achieve your Primary Aim. it is the vision of the finished product that is and will be your business. It’s just a list of standards used for measuring your progress toward your end vision.

The first standard is money. Gross revenue. How bis is your vision? How big will your company be when you’re finally done? $300,000 company? A million-dollar company? $500-million company? You able to know what your gross profits are going to be, pretax profits, and after-tax profits. The truth is, you really can’t accurately predict all of this. But some standards are better than no standards. Ask yourself, “ How much money do I need to live the way I wish? How much do I need to be free?”. Ultimately there’s only one reason to create a business of your own, and that’s to sell it. To do it, finish it, and get paid for it. It’s important to think about when you want to do that and for how much you want for it. Three years from now? Five years? 10x earnings? 20x earnings?

The second standard is that the business is worth pursuing. The business has to fulfill the financial standards you created for your Primary Aim and Strategic Objective. Understand what you are selling. Business owners usually think they are in the business of selling a commodity, the thing your customer walks out in their hand. In reality, the product is what your customers feels when they walk out of the business. What feeling will they have? Order? Power? Love? The truth is, nobody’s interested in the commodity. People buy feelings. Understand who you are selling too. The customer is all the characteristics you use to define them — age, sex, income, family status, education, profession, and so forth.

Your Organizational Strategy

To organize your business you have to know how to keep people accountable for every task within it. The best way to do this is to create a Position Chart, a document that identifies expectations for each hierarchal role in the company.


Draw this out for the grand vision of the business. You will fill in the responsibility for each role and also who will currently fill them. In the beginning, it will be all you or split between you and your cofounders and this document will stand as a contract between all of you. When you start working on your business, you will start at the bottom of this position chart with the intention of eventually finding other people to do the Tactical Work to free yourself to move up in the positional chart and do Strategical Work. Yes, in the beginning, you and your co-founders are all those employees until you replace yourself with someone else. As you work in a position make sure you look at the grand scheme of your business process and document manuals for each position. If you notice a certain conversational framework converted to more sales then document it in the sales manual. If you notice that customers love when you say, “My pleasure,” then document it in the customer service manual. While you are working in your business focus on balancing your Technician personality and your Entrepreneurial personally to create the systems that you will eventually place your new employees in.

Your Management Strategy

Your management strategy shouldn’t be dependent on finding amazingly competent managers — people with finely hones people skills, with degrees, with highly sophisticated techniques for dealing with and developing their people. You don’t need them. Instead, you need a Management System designed to produce marketing results. The more automatic that system is, the more effective your business will be.

Create an operations manual for your managers that are a series of checklist to follow religiously. Create resources that make it easy to train new people almost instantly and has them producing a result identical to that of someone working with you for quite some time. Create systems that simply someone who is responsible will be able to oversee.

Your People Strategy

You can’t get people to do anything. If you want it done, you’re going to have to create an environment in which “doing it” is more important to your people than them not doing it. Where “doing it” becomes a way of life. For every new person you add to your company let them know and feel like you take them seriously and they are worth talking to about what you consider to be a very important business. For every new hire clear out your schedule to show them they are the most important aspect of their agenda because you aren’t hiring them to work, you are hiring them to do something more important than that. They should respect you and you should respect them. You’re looking for people who want something more than just a job. Here is how Michael Gerber phrases communicating the importance to the new hire:

“The work we do is a reflection of who we are. If we’re sloppy at it, it’s because we’re sloppy inside. If we’re late at it, it’s because we’re late inside. If we’re bored by it, it’s because we’re bored inside, with ourselves, not with the work. The most menial work can be a piece of art when done by an artist. So the job here is not outside of ourselves, but inside of ourselves. How we do our work becomes a mirror of how we are inside. ‘Work’ is passive without ‘you’. It can’t do anything. Work is only an idea before a person does it. But the moment a person does it, the impact of the work on the world becomes a reflection of that idea — the idea behind the work — as well as the person doing it. In the process, the work you do becomes you. And you become the force that breathes life into the idea behind the work. You become the creator of the impact on the world of the work you do.”

Essentially, there is an idea behind the work that is more important than the work itself and there is a method of achieving this. First, the customer isn’t always right, but it’s our job to make them feel that way. Second, everyone in your business is expected to work toward being the best they can possibly be at what they are accountable for. Lastly, your business is a place where everything tested to fuel innovation and growth. Your business is a place where your employees go to practice being the best they can be.

To accomplish this, you people want s structure to go through in which they can test themselves and be tested. It’s a game and these are the rules:

  1. The system comes first, then you ask them to do it. Not vice versa.
  2. Never create a game for your people you aren’t willing to play yourself.
  3. Make sure there are ways of winning the game without ending it. Interject victories in the processes.
  4. Change the game from time to time — the tactics, not the strategy.
  5. Don’t expect the game to be self-sustaining. People need to be reminded of it constantly. Once a week, hold a special meeting about the game. Once a day, emphasize something someone did exceptionally that aligned with the game.
  6. The game needs to be fun from time to time. “Fun” needs to be defined by your people.
  7. If you can’t think of a good game, steal one. Look at businesses you admire or businesses that align with your goals.

Make sure your game is a game worth playing. People crave surfing a purpose in this World. Give them a place of community that has purpose, order, and meaning.

Hiring Process Steps:

  1. Show a scripted presentation communicating your idea to a group of applicants. This presentation also describes the business’s history and experience in successfully implementing that idea, and the attributes required of the successful candidate for the position.
  2. Meet with each applicant individually to discuss their reactions to and feelings about the idea, as well as their background and experience. Ask each applicant why they felt like they were superbly appropriate for the role.
  3. Notify the successful candidate by telephone. Again, a scripted presentation.
  4. Notify of the unsuccessful applicants, thanking each for their interest. A standard letter, signed by the interviewer.
  5. On the first day of training to include the following activities for both you and the new employee:
    - Review your idea
    - Summarize the system through which the entire business brings the idea to reality
    - Take the new employee on a tour of the facilities, highlighting people at work and systems at work to demonstrate the interdependence of the systems on people and the people on systems
    - Answer clearly and fully all the employee’s questions
    - Issue the employee their uniform and Operations Manual
    - Review the Operations Manual, including the Strategic Objective, the Organizational Strategy, and the Position Contract of the employee’s position
    - Complete the employment papers

You must lead the company in the direction that it should go. You must set the standard. There is a hierarchy of systems:

  1. How we do it here
  2. How we recruit, hire, and train people to do it here
  3. How we manage it here
  4. How we change it here

Once you have these systems in place you will be able to fulfill the purpose of your business.

Your Marketing Strategy

To develop your Marketing Strategy forget about your dreams, visions, interest and what you want. Forget about everything except your customer. That’s all that matters. Every purchase decision a customer makes is based on conscious and subconscious triggers that are a product of their reactions, perceptions, attitudes, associations, beliefs, opinions, inferences, and conclusions. It's a sum of their life and personality. That’s why the two pillars of a successful marketing strategy are demographics and psychographics. If you know who your customer is — demographics — you can then determine why they buy — psychographics.

From your business’ perspective, the marketing process is embedded in all aspects of your business. It starts with the promise you make to your customers that attracts them to you, it continues with the sale you make, and it ends with the delivery of the promise you originally made. Some places call it Lead Generation (Marketing), Lead Conversion (Sales), and Client Fulfillment (Operations).

Your Systems Strategy

A system is a set of things, actions, ideas, and information that interact with each other, and in so doing, alter other systems. In short, everything is a system. There are three kinds of systems in your business: Hard Systems, Soft Systems, and Information Systems. The Innovation, Quantification, Orchestration, and integration of these three kinds of systems in your business is what your Business Development Program is all about.

Hard Systems are when you approach problems using a system that achieves one specific result or solves one specific problem every time it’s done. Soft Systems is when you approach problems using a system that achieves very abstract goals and ideas — to get more sales, hire more quality candidates. Information Systems are the systems that provide statistics and information about the other two.

Conclusion

“This path you’re now on, this entrepreneurial path, winds around corners that will amaze you at times, and even shock you at others. To be sure, it will be anything but certain, but that’s why it is so exciting! It’s the path of surprise. It’s the path of constant engagement. And because it’s all those things, it is truly the path of life, or, as Rollo May might have called it, ‘the path of freedom.’ He said: ‘Thus freedom is not just the matter of saying Yes or No to a specific decision: it is the power to mold and create ourselves. Freedom is the capacity, to use Nietzsche’s phrase, ‘to become what we truly are.’”

Use entrepreneurship as a path to your freedom.

Concepts from Dwayne's notes on “The E Myth”

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