How to Use the Self-Evaluation Lists
After you’ve completed the four self evaluation lists, spend some time reading them over. Take a moment to compare the skills needed in your business to the list of skills you have. Do you have what it takes?
Show them to your family and, if you’re brave, to your friends or anyone who knows you well and can be objective. Of course, before showing the lists to anyone, you may choose to delete any private information that isn’t critical to your business. If you show your lists to someone who knows the tough realities of running a successful small business, so much the better. You may want to find a former teacher, a fellow employee, or someone else whose judgment you respect.
What do they think? Do they point out any obvious inconsistencies between your personality or skills and what you want to accomplish? If so, pay attention. Treat this exercise seriously and you will know yourself better. Oh, and don’t destroy your lists. Assuming you go ahead with your business and write your business plan, the lists can serve as background material or even become part of the final plan.
You have accomplished several things if you have followed these steps. You have looked inside and asked yourself some basic questions about who you are and what you are realistically qualified to do. As a result, you should now have a better idea of whether you are willing to pay the price required to be successful as a small businessperson. If you are still eager to have a business, you have said, “Yes, I am willing to make short-term sacrifices to achieve long-term benefits and to do whatever is necessary—no matter the inconvenience—to reach my goals.”
Reality Check: Banker’s Analysis
Banks and institutions that lend money have a lot of knowledge about the success rate of small businesses. Bankers are often overly cautious in making loans to small businesses. For that very reason it makes sense to study their approach, even though it may seem discouraging at first glance.
Banker’s Ideal
Bankers look for an ideal loan applicant, who typically meets these requirements:
- For an existing business, a cash flow sufficient to make the loan payments.
- For a new business, an owner who has a track record of profitably owning and operating the same sort of business.
- An owner with a sound, well-thoughtout business plan.
- An owner with financial reserves and personal collateral sufficient to solve the unexpected problems and fluctuations that affect all businesses.
Why does such a person need a loan, you ask? He or she probably doesn’t, which, of course, is the point. People who lend money are most comfortable with people so close to their ideal loan candidate that they don’t need to borrow. However, to stay in business themselves, banks and other lenders must lend out the money deposited with them. To do this, they must lend to at least some people whose credit worthiness is less than perfect.
Measuring Up to the Banker’s Ideal
Who are these ordinary mortals who slip through bankers’ fine screens of approval? And more to the point, how can you qualify as one of them? Your job is to show how your situation is similar to the banker’s ideal.
A good bet is the person who has worked for, or preferably managed, a successful business in the same field as the proposed new business. For example, if you have profitably run a clothing store for an absentee owner for a year or two, a lender may believe you are ready to do it on your own. All you need is a good location, a sound business plan, and a little capital. Then, watch out Neiman-Marcus!
Further away from a lender’s ideal is the person who has sound experience managing one type of business, but proposes to start one in a different field. Let’s say you ran the most profitable hot dog stand in the Squaw Valley ski resort, and now you want to market computer software in the Silicon Valley of California. In your favor is your experience running a successful business. On the negative side is the fact that computer software marketing has no relationship to hot dog selling. In this situation, you might be able to get a loan if you hire people who make up for your lack of experience. At the very least, you would need someone with a strong software marketing background, as well as a person with experience managing retail sales and service businesses. Naturally, both of those people are most desirable if they have many years of successful experience in the software marketing business, preferably in California.
Use the Banker’s Ideal
It’s helpful to use the bankers’ model in your decision-making process. Use a skeptical attitude as a counterweight to your optimism to get a balanced view of your prospects. What is it that makes you think you will be one of the minority of small business owners who will succeed? If you don’t have some specific answers, you are in trouble. Most new businesses fail, and the large majority of survivors do not genuinely prosper.
Many people start their own business because they can’t stand working for others. They don’t have a choice. They must be either boss or bum. They are more than willing to trade security for the chance to call the shots. They meet a good chunk of their goals when they leave their paycheck behind. This is fine as far as it goes, but in my experience, the more successful small business owners have other goals as well.
A small distributor we know has a wellthought-out business and a sound business plan for the future. Still, he believes that his own personal commitment is the most important thing he has going for him. He puts it this way: “I break my tail to live up to the commitments I make to my customers. If a supplier doesn’t perform for me, I’ll still do everything I can to keep my promise to my customer, even if it costs me money.” This sort of personal commitment enables this successful business owner to make short-term adjustments to meet his long-range goals. And while it would be an exaggeration to say he pays this price gladly, he does pay it.