Small Business Owner Insights

Year after year, we hear that the number one reason businesses fail is they are under capitalized. That is much like saying all people die of heart failure. It is a technical, if very misleading, truth.

Yes, the reason they close is because they ran out of money, but they had other causes that led to that failure; lack of sales probably being the chief one. A much more valid problem is one of too much money.

I no longer remember who it was that said you can never be too rich or too thin, but I do know a start up can have too much money. I once was involved (in a minor way) with a landscaping business start up, and the initial budget was $10,000. Of that, $7,000 went to office space, a new truck lease and office furniture. Now, in all fairness, it was a nice office, but not that nice. And besides, it was only nice for the next three months before they had to (not surprisingly) close.

Had they only had, say, $3,000 the tune would have been different indeed. Instead of buying a beautiful desk no one would ever see they would have used a card table in their garage and spent money on fliers, door hangers and uniforms. Instead of a new truck lease, they would have gotten by with the 5 year old truck they had, maybe splurging for the $300 “super saver” paint job from Bob’s Body Shop. In other words, they would have bootstrapped their way forward.

You see, money turns off portions of your brain. When we are presented with a choice, it is human nature to go with the easiest solution. When you are flush, you do not negotiate a better deal, look for a cheaper vendor, or look for alternative solutions. Instead, you try to buy your way out of problems like a spoiled brat, throwing money at problems, hoping they will go away. (Here is a hint: If you can solve a problem with money, either you did not have a problem, or that is not the real problem.)

While I do not recommend that if you have some money you give it all away to impoverish yourself (but should you want to, please write for my address), please do recognize that there are often solutions that require much less money or even (heaven forbid) no money at all.

I was once told by an early mentor that “The First Order of Business is to Stay in Business”. That is sound advice. Conserve your cash, slash costs and look for the cheaper way. We make it a rule, when looking at a substantial outlay, to ask ourselves “How would we accomplish this if we were broke”? Very often we are amazed at what we come up with.