St.Louis Business Journal
CAN YOU SURVIVE FAILURE IF YOU START A BUSINESS

By Anna Navarro

June 1998  

Author's note: Client stories in this column are based on actual situations fictionalized to protect privacy and told with permission.

Today’s American business hero is the entrepreneur. Sometimes it seems that beneath the suit jacket of every corporate manager beats the heart of a business owner.

Or does it?

The notion of buying a business and being your own boss often appeals to those whose strength is managing people and organizations. It is especially attractive to high level managers who have been downsized or laid off with sizable severance packages.

But it isn’t a good solution for everyone who has had high level management responsibilities. The decision to purchase a business is a complicated process. While any purchase will require the technical expertise of lawyers, accountants and investors, it is unreasonable to expect this group to tell you whether the decision is good for you on a personal basis.

Before taking the step of hiring financial and legal advisors, it is wise to do an extensive internal review to decide whether buying a business is an appropriate decision for you, given your life situation and who you are as a person and a professional.

Here is a process to guide you through the personal aspects of the decision.

1. Ask yourself whether you are ready to be the ultimate decision-maker for every aspect of the business, from the loftiest to the most mundane. Are you prepared to be the person where every buck stops? The one who takes final responsibility for foreseeing the future, tending to the present and learning from the past?

Many people who have managed huge divisions and hundreds or even thousands of people, realize upon reflection they prefer the context of a large corporation. Buying a business is not a good idea for them.

A good example is Harold, who had been the vice president and head of several major divisions of a large corporation. When the parent company sold the divisions to another mega company, his position became surplus. He got a handsome severance package and cashed in on his stock options. His first thought was that he never intended to be let go again, and that he would buy and run his own company.

But, with deeper analysis, he began to realize that while he relished the challenge of going after difficult goals, and had succeeded numerous times in doing that, he was less good at seeing the very big picture and shaping the goal from scratch.

He also realized that whenever he faced challenges in the past, he could count on corporate resources to go after them. Crafting goals from the inception and raising resources from the outside were not appealing.

He also liked having someone else to turn to in crisis situations, and made good use of feedback and input from his superiors. In fact, “managing upwards” and corporate politics were among his key skills. After coming to terms with these insights, he decided not to risk his nest egg, and instead to look for another division level position.

2. Find out whether owning a business is a lifestyle fit. To do this you need to know what ideal characteristics you want in a work situation (skills want to use, working conditions, location, compensation, etc.) and the general type of business you want to explore. Sometimes the latter flows out of your past experience (such as knowledge of retailing or manufacturing) or it comes from a personal interest, such as art or music. However you determine it, you need at least a “provisional focus” for investigation.

Armed with a knowledge of the characteristics you want in work, and this provisional focus, you are then ready to talk to people who own businesses in the general area that interests you, to check out if it is a match.

One former client had an extensive knowledge and love of food preparation, which had been a lifetime hobby. She had been a branch manager in the insurance industry, overseeing large teams of underwriters.

She seriously considered buying a business related to food, but conversations with owners of restaurants, catering businesses and industrial food service operations showed her she would probably have to manage unskilled employees, many of whom had no long-term commitment to the business. A brief stint in the customer service end of insurance had taught her she didn’t like managing this type of employee.

She decided this was not the right field for her, despite her interest in food, and shifted her explorations to companies that offered services to businesses. This turned out to be a much better fit for her because it involved managing more highly educated employees.

3. Explore whether you have the stomach for undergoing the process of buying a business, which can be a very arduous undertaking. Go to the library or browse the Web for stories of people who have bought their own businesses. Read about those whose dreams didn’t pan out as well as those who were wildly successful. In particular, for a look at the dark side, I recommend “Buying a Business” in Inc./ Feb 1990 and it’s sequel “The Rest of the Story” in Inc./ Oct 1991.

4. Ask yourself if you and your family can handle the risk that comes with buying a business. Look at both psychological and financial factors. Specifically, ask this question: “If it fails, can I survive?”

Some people are comfortable proceeding with a few months of living expenses set aside is case of disaster, confident (though not thrilled) about the prospect of being able to successfully re-enter the job market if the business fails. Others require several years living expenses and a safe retirement before going ahead.

The answer to whether you can survive failure often depends on your personal situation, and factors such as whether your children’s education is already paid or whether they could transfer to a less expensive school, live at home or work their way through school. A working and supportive spouse can also help increase the degree of risk you can tolerate.

Failing when you buy a business is different than failing on a job because you are spending your money. What’s on the line is your financial future and your family’s.

The answer to the question “Can you survive the failure of this venture?” must be YES before you can continue.

Anna Navarro is the founder of Work Transitions, a nationwide career consulting firm that trains independent career strategists and consults with individual clients.

This column was originally published by the St. Louis Business Journal. The actual title of the column and date in which it appeared in the Business Journal may be slightly different from what appears on WorkTransitions.com.