The historical concept of entrepreneurship is simple; a trade is learned, then mastered, and eventually utilized to support a household. However, throw in modern capitalism, high margins, franchising, technology integration, marketing, overhead, employee benefits, and taxes, and it undoubtedly gets complicated. Today, we glorify the entrepreneurial spirit in this era of Shark Tank. We often overlook what the reality of being a successful entrepreneur in 2020 actually entails or why some of us choose to even pursue the arduous journey at all.
Why Do So Many Startups Fail?
Recently, my design business surpassed the 10-year mark, a coveted milestone that an estimated 60-70% of small businesses fail to reach according to Forbes Magazine and the SBA. At the age of 26, I left my job of six years in the ad agency world, unfulfilled and eager for the next steps in my career. As a passionate agency-level designer and budding filmmaker, I was fortunate to be instantly inundated with freelance video, web, and graphic design projects from my close network. This unanticipated workload resulted in the launch of AMVCreative, my full-service video production, web, and graphic design company. What I did not realize was that right out of the gate I had already conquered the largest obstacle that leads small businesses to fail; market needs.
An important reality of entrepreneurship is that market need is statistically the most pivotal piece when considering starting a business. According to a 2019 CB Insights survey of 101 failed small businesses, the top three reasons for failure were as follows: “42% had no market need, 29% ran out of cash, and 23% did not have the right team in place.” While I had a clear market need for my service, cash flow and personnel management over the first few years would prove to be extra difficult, especially in an unplanned business.
I would learn first-hand the financial pressure that resulted from setting poor margins and underbidding projects. I would also endure the consequences of hiring contractors who fell short in their passion, diligence, and skills required to grow the startup. For me, the ensuing burn-out and financial stress proved no surprise that “62% of small businesses choose not to have any employees at all” according to CB Insights.
Immense Risk Requires Immense Balance
Almost immediately, a small business owner will realize that a key reality of entrepreneurship is that there is always an immense risk. The very definition of an entrepreneur is “a person who takes on a greater than normal financial risk to operate a business.” Anybody who has voluntarily given up a steady paycheck, health insurance, and a 401K match to pursue entrepreneurship knows the heavy feeling of this risk. If you add a spouse, mortgage, and kids into the mix, that risk becomes even heavier and — according to the data —arguably irresponsible to carry. So, given the statistics and the risk involved, the ugly question surfaces, “Why even start a business in the first place?”
The answer goes right back to history. We, as humans, are all inherently compelled to develop new ideas, build, and create. In our hearts, we have always been artists, artisans, builders, merchants, skilled laborers, and thinkers. There is a passion inside all of us to solve problems and reap the rewards, as well as accept the responsibility for our failures — not as defeat — but as motivation to build and achieve even greater! When any of these inherent desires are stripped away, we are inevitably left with a void.
Forbes reports that over “50% of American employees are unhappy with their jobs”, and the Gallup organization reports that a staggering “70% of employees are actively disengaged” with their jobs. The void is indeed real, and the data would seem to indicate that scores of workers are potentially missing out on their primal entrepreneurial callings.
Does this mean that the masses should leave their jobs and carve out a new living that is enveloped in their greatest passions? According to Gallup and Forbes, yes…in an ideal world. Another stark reality we must face is that true entrepreneurship ultimately needs to provide a means for living. Shark Tank personality and Billionaire businessman Kevin O’Leary puts it bluntly, “If you’re a few years into your business and it’s still not making money, it’s a hobby.”
Toting the fine line between passionate hobby and successful business is the delicate balance that ultimately defines an entrepreneur. This balance involves constant creativity and problem-solving in the wake of seemingly overwhelming — and sometimes conflicting — odds. According to CB Insights, young entrepreneurs are more apt to fail because of lack of experience and cash. Conversely, having excess cash flow often leads to “premature scaling and spending that contributes to over 70% of small business failures,” says a recent Startup Genome report.
Finding that sweet spot in the market where you can flourish without burning out is truly the blueprint for your small business’s success. Today, AMVCreative continues to grow because our wages are fair for both the company and our clients, and hiring the right personnel has tripled productivity. Most of all, we have learned from past mistakes and our services continue to be in very high demand.
A Case for Entrepreneurship in 2020
COVID-19 forced almost all entrepreneurs to either pivot, partner, or expand their services to ultimately satisfy the paramount factor needed for success, the current market needs. When my business saw almost all live video production work — over 33% of total revenue — immediately suspended in the wake of COVID-19, we instantly doubled down on digital video and web solutions. In the end, we have been able to make up that deficit and deliver what our clients needed most at that moment.
Instead of crippling the company, our COVID-19 response propelled AMVCreative to new levels of digital design and built an even stronger foundation moving forward. The same credit goes to any small business that is still churning during these unprecedented times. As an entrepreneur, you will quickly find out that overcoming obstacles will become part of your DNA and you find yourself always anticipating the next challenge.
While most statistics would seem to discourage even the most “disengaged” 70% of workers from making a passion-driven leap into entrepreneurship, perhaps a recent TD study may give them a nudge. The study found that for small business owners, “97% found great pride and accomplishment in owning their business, 91% felt a deep personal connection to their employees, 84% felt that same deep connection to their customers, and 86% credited their business to giving them the opportunity to volunteer their time and donate to charities.”
One final reality of entrepreneurship to consider, as a recent Manta study shows, is simply that “94% of small business owners are happy being entrepreneurs.”
Whether or not entrepreneurship is worth the risk for you, your passion will need to surpass any statistic when taking that first step and hopefully each step thereafter for the ten years that follow!
What are some of your reasons for wanting to become an entrepreneur? Let us know in the comments!
This article originally published on GREY Journal.