Entrepreneurship; how to mitigate the risk of failure

Entrepreneurship brings with it significant risks. 25% fail in the first year of their existence and 80% have failed after 5 years. 33% of all small businesses will never make a profit and another 33% will never do better than break even. This leaves a puny 33% to emerge successfully. Roughly the same number of small businesses close up shop yearly as new ones are founded. When we look at restaurants, the picture is even bleaker. First year failure rates are a whopping 80%! In this highly customer service dependent industry miss-striskeps, which will merely lead to a slow and painful death of other start-ups, are magnified and put into the open for everybody to see. With the high level of competition and choices, consumers can easily shun a restaurant, too.

Also, from our own experience and from looking at those numbers we can only disagree with a recent statement that small business is succeeding due to government support and not a function of hard work, ingenuity and foresight of entrepreneurs and their employees.  If we analyze successful businesses, four key factors are always dominating:

  • Ego

Most entrepreneurs go into business because they are good at what they do. They believe that this is the cornerstone of their business. This is certainly true in some professions where employment can be exchanged for an independent technician’s job. Not so in a restaurant. A good chef needs to acknowledge that he cannot cook, buy food, take reservations and serve his customers all with the same intensity and customer focus. So, admitting to one’s strength and surrounding oneself with the qualified people in positions where they can use their strength, is key. Admitting to the limit of one’s strength and giving up control is, however, the biggest hurdle to overcome.

  • Management

After acknowledging that we need help comes the tricky part, choosing the right partner and attracting and retaining the right employees. Most spouses, friends, acquaintances and family members who are always conveniently available when one needs a “body”, should not be chosen to be on the bus. Starting with the company’s values and working the way down to design the best organizational form will give the framework to describe jobs and the skill set needed for success. Building a strong company starts with being creative and flexible to attract same minded-employees for whom customer satisfaction is the #1 goal.

  • Marketing

‘When we open the door they will happily come’. Most of the time this is only half true. If a business does not know who their target market is and what the expectations of potential customers in this target market are, not much will happen. The time to throw out a couple of ideas and wait to see what will stick, is over. No business can finance such a marketing approach and the wrong customers we might attract will be disappointed and tell others on social media and in person about their disappointing experience. For a restaurant the question might be: are we looking for ‘eaters’ who value fast service, consistent menu items, reliable quality and who want to be in and out quickly or ‘diners’ who savor a dining experience, are wowed by the atmosphere, ever changing food and beverage choices and highly attentive and personal, unrushed service? Knowing and focusing on a marketing niche and catering to their needs is the only way to establish and grow a successful business. If we fail to do so, we will not last beyond the novelty effect.

  • Finance

Granted, having fun and loving what we do is a great thing. Unfortunately, without raising capital, managing the cash, and creating profits, a business cannot survive. We see too many business owners who cannot read their income and profit and loss statements and are utterly surprised to find themselves over and over in the situation of payroll or bills that are due and an empty bank account. Further in restaurants, food quality depends in large on the quality of the ingredients. Together with cost for the restaurant’s location and ambiance we have to calculate the food and beverage prices we need to charge to be profitable. If the customers are not willing to pay these, even the greatest concepts fail.

As in a restaurant, it is not enough for a small business owner to follow his passion. Being successful comes from knowing one’s strength and surrounding oneself with capable people who complement one’s strength and passion and deserve one’s trust. We all have the chef’s choices: continue passionately cooking and leaving managing the business to others or learn the management skills needed and leave the cooking to someone else. Doing both leads to the high failure rates and dismal profit outlooks many small businesses face.

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