ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Thursday, April 11, 1996 TAG: 9604110083
SECTION: NEIGHBORS PAGE: E-2 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
A full 80 percent of small businesses die before their 10th birthday. Half of them expire within the first two years.
Those sobering statistics come from Ernie Kaufman of Radford, president of the Roanoke chapter of the Service Corps of Retired Executives. The 26 residents of the Roanoke and New River valleys, who are sponsored by the Small Business Administration, volunteer their expertise to help new ventures get a toehold on life.
What can hopeful entrepreneurs do to overcome the odds and run a successful business?
Kaufman categorizes his answers into three steps: planning, diversification and expansion.
People too often launch into a business with little in-depth planning, Kaufman said. Business owners must understand who their customers are, who the competition is and the factors that drive the market for their product or service.
Without planning, he explained, a business will try to be all things to all people rather than focusing on its niche in the marketplace.
Related to lack of planning is undercapitalization which, he said, means insufficient cash flow planning.
Kaufman said owners think of buying the physical things like inventory, but they don't consider their staying power. After the doors to the business are open, he said, the owner must have the money to carry the enterprise to profitability and to meet adversity.
Initial success, however, carries its own hazards. That's when the owner must consider diversification.
What is the owner to the business and what is he not? What should the owner be doing for the business, Kaufman asked, and what should he delegate to employees?
The temptation, he said, is to scatter assets into product lines and services that are not part of the core business. What should the business undertake and what is outside of its niche?
Success, or getting beyond the break-even point, can also break a business, Kaufman said. Then the owner has to let go, relinquishing control to other people when he may not want to share the power. But the owner can't do it all, Kaufman said, and he must find out how to delegate or he will begin to make poor decisions.
That's also when the owner is likely to overlook the first basic of having a continuing business plan. Business, Kaufman said, is "plan, plan, plan. It's a constant theme. If you fail to plan, you plan to fail."
Just recently, Kaufman said, SCORE was working with the owner of an older business who had suddenly found he could no longer pay his taxes. He had abdicated cash flow planning and had stopped running the essentials of his enterprise.
Mike English, manager of the main office of First Union National Bank of Virginia, said a bank looks at two primary factors in helping to finance a small business.
One is that the owner must have enough capital going into the enterprise. Some people, he said, try to finance a business by borrowing against bank cards, the most expensive credit there is.
The second factor is the owner's experience in the business. Too often, he said, a used car salesman will propose to open a restaurant because he likes to cook at home. The bank looks for a track record in the type of venture proposed.
A bank views favorably an owner who proposes to keep the steady income from his regular job while establishing his own business, English said. This may be a family enterprise in which one spouse will retain a regular job while the other runs the family business on weekdays. On weekends, both will work.
English said it is difficult to tell in advance who will succeed, however.
John Jennings, who heads the Blue Ridge Small Business Center, said some entrepreneurs fail and some hold on a long time but don't do well. Others just barely maintain a job for themselves. A rare business thrives and creates new jobs.
If a business does well, Jennings said, it can get the infusion of capital it needs to expand and grow. Even so, it can grow too fast and still fail, Jennings said, because rapid growth eats up capital.
The factors of success, he said, are a focus on marketing and sales, a managed cash flow and advance planning. You must know your market, competition, industry and production.
You have to assume a market for the product, Jennings said. A surfboard shop, for instance, would probably not do well in Roanoke.
Given the market, he said, you have to get two things: repeat sales and referral sales from your customers. To win those sales, Jennings said, a business must give excellent customer service. Few grow through only new sales.
If you are a success, Jennings said, others will copy you. And that will change the market, so you must plan some more.
Gloria Elliott of Roanoke, a consultant to many small and large businesses, said those who succeed are in business for three different reasons.
Elliott, whose firm is Elliott & Associates, said some like the lifestyle of business-owning. These people want more control over their lives, and they share the values of business.
Others are truly entrepreneurs, she said, and the third type of person is in business for the money.
Successful business owners constantly seek knowledge, she said, and they spend their time and money on learning. They may form advisory boards for their businesses, and they never become isolated.
A closely held business tends to reflect the founder's personality. The owner pays attention to details, strategy and the corporate mission.
A successful owner, Elliott said, never stops selling. There is a difference between marketing and selling, she said, and a good owner always sells. The person doomed to fail, she said, opens a cute little shop and waits for customers to drop in.
Successful entrepreneurs, she said, are risk takers and optimists, but they are never stupid or outrageous. "They always seem to represent themselves," Elliott said.
Then they have what Elliott called "fiscal smarts." They have medium and long-range plans for money management.
Social skills are important as well, she said. And they move quickly to take advantage of opportunities.
Nor do successful owners take business personally. They tend, Elliott said, "to externalize failure and internalize success."
Those who have made it in business for 10 or more years, Elliott said, have "some degree of life balance." They take part in matters of faith, family and community.
Businesses that tend to fail, she said, are restaurants first of all, then used car lots and dry cleaners. But many more fail in the sense that 85 percent of businesses never make it to the second generation of the family, Elliott added.
People become disillusioned, she said, because they had unrealistic expectations, especially about the money they could earn. Others don't have enough capital to see the business through the founding period.
Some people give up out of "pure fatigue" because the hours of a business owner are long, and employees may not work up to expectations. Owners may also become bored by the minutiae of running a business.
Owning your own business, she said, can be tedious, boring and risky after the excitement of the start-up.
When you do start up, Elliott said, "the feedback is not realistic" because "the whole world comes the first month." The inevitable letdown after the opening can be disillusioning, she said.
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