Episode Host: Henry Lopez is a serial entrepreneur, small business coach, and the host of The How of Business podcast show – dedicated to helping you start, run, grow and exit your small business.

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The following is a full transcript of this episode. This transcript was produced by an automated system and may contain some typos.

Episode Transcript

This transcript has been lightly edited for readability.

Henry Lopez [0:12]: Welcome to The How of Business podcast. This is Henry Lopez, and on this episode, I’m going to share five reasons why you should not start a small business. The way I see it, part of helping you start a business is helping you decide if and when you should start a business. The reality is that about one in five new businesses with employees close in the first year, and about half are gone within five years, according to the U.S. Bureau of Labor Statistics.

You can find all of The How of Business resources, including the show notes page for this episode, and learn more about my one-on-one and group coaching programs at thehowofbusiness.com. I also invite you to join The How of Business community on Patreon, and please subscribe wherever you might be listening so you don’t miss any new episodes. And if you’re listening on Spotify, I invite you to answer the poll question for this episode.

In my years of coaching aspiring business owners, I have found that those who struggle the most very often started for the wrong reasons, or before they were ready. I believe it’s best to know before you take that leap, before you make that investment and that sacrifice, rather than end up completely frustrated or maybe even financially ruined.

I’m not here to talk you out of starting your first small business. I just want you to go in with your eyes wide open, and hopefully avoid some of those key mistakes that can lead to failure. And so, on this episode, I’m going to share the top five reasons not to start a small business yet. I want you to ask yourself these questions and think about what to do instead.

Reason #1: You Mainly Want to Escape Your Bad Job or Boss

Reason number one is that you mainly want to escape your bad job or your horrible boss. The question here is: Am I running from something or toward something? Am I just running away from my boss and a bad job, or is it that, and also that I’m looking to build something that grows into a business?

You won’t have a boss like you have now when you start a business, but you are typically trading a boss for what we call stakeholders: your customers, your clients, your patients, your partners, your investors. Those are people that, to some extent, you’re answering to. But of course, it’s a lot better than having a boss who’s on top of you, has unrealistic expectations, and perhaps is holding you back.

But you have to be careful that you’re not creating a new job for yourself with more hours, more risk, no paid time off, and not making anywhere near what you were making before. Seth Godin puts this well when he says that an entrepreneur’s job is to build a company that does the work. In other words, you have to look for and develop a business where at some point you’re not necessarily in the day-to-day. The business still makes money even when you’re not there.

And counting on more free time? Well, early on, most owners work more hours than they ever did at their job. At least that’s been my experience. Now, once you get the business up and running, maybe six months, a year, two years into it, then of course you should perhaps be working less.

So leaving your job, in and of itself, is not a business plan. You need to have a good, solid business plan, including financial projections, and then execute on that and make sure that you validate as quickly as possible that you have a healthy business model. That means a business that pays you a fair wage and makes a profit.

So the key here is: don’t start a business just to get away from something that’s not good. Start a business because you want to build something, a business that grows beyond your exchange of dollars for hours.

Reason #2: You’re Following Your Passion

Reason number two: following your passion. The question here is: Is there a business here, or is this just something that I love doing? Because loving something and being passionate about something does not equal a healthy business model.

Customers don’t pay for your passion; they don’t care. I mean, they care because they want to know that you are passionate about delivering what you deliver, but they pay you to solve a problem for them, or to help them aspire or make a transformation.

Turning your hobby into a business can also take the joy out of it for you. Now you have to deal with the financials and the marketing and the sales and difficult customers and all of the things that come with a business, and then it’s no longer a hobby.

I think Mark Cuban puts it well when he says that following your passion is the worst advice you can get. Everybody has passions. But passion does matter. It certainly is one of those six essential traits that Gino Wickman says you need to be an entrepreneur, which I talked about in episode R346. It is important, but it’s a matter of how you interpret that. You don’t have to be passionate about donuts if that’s what you’re doing, selling donuts and coffee. You have to be passionate about what you’re building and where it’s taking you, and what you’re providing for your customers. That’s the passion that gets you through the tough times.

So let’s stick with the food example. Let’s say you’re a great home cook, you love food, and you have great recipes that your grandma passed down to you, so you want to open a restaurant. And then you end up spending most days on staffing and people not showing up, trying to manage food costs, the rent going up, all of the health department regulations, and everything that goes with owning a restaurant, as opposed to what you’re passionate about, which is the cooking.

Instead, when it’s a passion or a hobby, you want to see if you can test the market before you quit your job and make a business out of it. Will people really pay, and pay enough, for this hobby or passion of yours? Take away the passion, and if there’s still a customer that will pay for it, then you may have something. And then it has to be on top of a solid business model that’s going to make sufficient profits and that can scale.

A Word From Our Sponsor

Henry Lopez with a brief break from this episode to share a special offer from our show sponsor and trusted service partner, Oostas. Oostas specializes in digital marketing services for small business, including websites, SEO, social media management, and pay-per-click advertising. You know how important it is to promote your business online, but the world of digital marketing can be confusing and expensive. That’s why you need Oostas, a digital marketing company you can trust and who are dedicated to helping small business owners.

I’ve had the pleasure of working with Oostas and their founder, Adam Kirk, for several years now, and they are my trusted service partner for websites and digital marketing. Oostas really understands that every business has distinct digital marketing needs. That’s why they take a results-driven approach to all your digital marketing. They start with a comprehensive analysis of your business, your goals, and your target market, and then they develop a tailored digital marketing strategy that’s designed to take you where you want to go online.

Oostas is offering a special discount for The How of Business podcast listeners. Just let them know you heard about Oostas on The How of Business podcast, and you can schedule a no-obligation consultation with Oostas to see how they can help you with your website and digital marketing needs. To learn more and to take advantage of the special offer, please find a special link to Oostas on the show notes page for this episode at thehowofbusiness.com.

Reason #3: You Can’t Afford It Yet

Reason number three: You can’t afford it yet. The question is: What happens to my family or myself if this takes longer to get to break even, to start paying me, or if it fails altogether? What’s the impact of that?

A lot of owners, like I said, can’t pay themselves much, or at all, in that first year, or maybe even longer. It almost always takes longer and costs more than we plan. That’s just what I’ve always found. It usually takes longer to ramp up and get to break even. All of those things put strain on how much money you have available to carry you through that period of time.

So if you’re putting all of your retirement savings at risk, or all of your home equity, or of course if you’re personally guaranteeing a loan, which you will have to do if you get a loan, all of that puts your financial security, and perhaps your family’s financial security, on the line. And that might be too big of a risk.

Mike Michalowicz, the author of Profit First, who I’ve had the pleasure of having on the show, says that if you don’t pay yourself, you’ll start to resent the business, and it will own you instead of you owning it.

So instead, you need to know what your runway is, how much time you have. That’s part of the financial planning. You need to have an emergency fund and working capital, and make sure that your personal debt is under control before you quit your job and start this business. Start something on the side. Famously, Barbara Corcoran’s advice is to quit once the side business covers your basic expenses. Now, I know that’s not always possible, but if you can’t do that, you need to at least have enough personal reserves to cover what you need to provide for your household for at least six months, if not longer.

The number one thing that kills small businesses is running out of cash. And the reason that happens is you’ve cut corners, you’ve overestimated how quickly you’ll get to break even, you’ve put everything you have in, there’s no other resource to tap, and now it didn’t go as planned. You need more cash, and there’s nowhere for that cash to come from.

Reason #4: You Can’t Handle Uncertainty or Pressure

Reason number four is that you can’t handle uncertainty or pressure. This is more of a character trait, something that you may or may not have. The question here is: How do I really react when things are uncertain and it’s all on me? Because that’s what business is about. You have to be ready to handle the hard decisions.

Entrepreneurship, business ownership, can be a lonely pursuit, especially if you’re doing it by yourself, and the toll that it can take is real. The question, though, is: Do you embrace tough decision-making, or does it paralyze you?

Don’t go into business thinking that once you get everything set up, it’ll just always be the same. Things will always be changing. The market will change. Consumer preferences will change. Competition will come and go. Government regulations will come and go. So there’s always something impacting us that we have to adjust to. And if the thought of that makes you highly uncomfortable, if you prefer things to be methodically the same, then you may not be cut out yet to own a business, because it’s all about uncertainty. It’s all about pressure. And so you have to have the ability to refocus that pressure, refocus that stress.

So if you’re not sure about this, test your tolerance with a side business before you go all in. Build the support system that you need: a coach, a peer group, a mentor, a partner. You might consider a franchise because of the systems and the support network that come with it. Uncertainty doesn’t go away when you own a business. You have to embrace it and be able to make hard decisions, and make them fairly quickly.

Reason #5: You Hate or Are Afraid of Selling

And reason number five is that you hate selling, or you’re afraid of selling. The question is: Am I willing to ask people for their money? Am I willing to share my value proposition? No sales, no business. Nothing happens until we sell something.

And often, for us as small business owners, you are the sales department. Now, maybe you’ve partnered with someone who’s going to bring that skill. That’s great. But too many people think that customers will just show up without selling, without marketing, because you put up a website, let’s say, or you open your shop. Marketing creates interest, but sales communicates value and brings in the revenue.

So if you hate selling, or you’re not confident in it, or you have some preconceived notions about what selling is, which is often what I find to be the issue, maybe it’s because you think it’s manipulative. And it doesn’t have to be. It’s about serving people. It’s about meeting their needs, helping them solve their problems or achieve their aspirations.

So ask yourself: How will the customer be different as a result of doing business with us? If you answer that question, that’s sales, and it’s the most effective way. We’re not talking about cheating people or manipulating people or leading them to buy something that they don’t want or need.

So talk to potential customers before you start. Better yet, get someone to pay before you even open, or launch with an MVP. You don’t have to love selling, but you do have to be willing to do it, to position your value proposition, and to get better at it over time.

The Five Questions

So those are the five reasons why you should not start a business yet. Again: Am I running toward a healthy business, or just away from a job? Passion: Is there a business here that customers will pay for? Money: Do I have the runway without risking my family’s security? Pressure: Can I handle the uncertainty and the tough decision-making? And selling: Am I willing to sell, and do I know where my customers will come from?

If you answered no to some or all of these, it doesn’t mean that you’re not going to be able to own a business, but it might mean that you’re not ready yet. These five reasons and questions are a quick check.

And if you want to go deeper, that’s exactly why I created my online course called Starting Your Business: Are You Ready? It helps you figure out how ready you are now, and how willing and able you are to start that first business. It covers your why, the myths and realities of business ownership, and the skills and support that you’re going to need. You’ll complete the Business Ownership Readiness Scorecard, which lets you know exactly where you stand and gives you a blueprint, a path to getting there. I have a discount code for this course now, and you’ll find it on the show notes page for this episode at thehowofbusiness.com. Again, it’s called Starting Your Business: Are You Ready? It’s an online, self-paced course that’s perfect for you if any of these questions made you think about whether you’re ready right now to start a business.

Starting a business can be one of the best decisions you ever make, but for the right reasons and at the right time. Not yet is not never. It’s really about how you set yourself up to succeed, or to have a higher probability of success, when you are ready.

This is Henry Lopez, and thanks for joining me on this episode of The How of Business. I wish you the best as you start and grow your successful and profitable small business. I release new episodes every Monday morning, and you can find the show anywhere you listen to podcasts, including The How of Business YouTube channel and my website, thehowofbusiness.com. Thanks for listening.