Your Small Business will Fail in 10 years or less

The man I worked for,

he had one of the biggest companies in New York City.

He ran it for more than 50 years.

Fifteen years, eight months and nine days,

I was with him every day. I worked for him,

I protected him, I looked after him, I learnt from him.

Bumpy was rich, but he wasn’t white man rich, you see?

He wasn’t wealthy.

He didn’t own his own company. He thought he did, but he didn’t,

he just managed it.

The white man owned it, so they owned him.

Nobody owns me, though.

That’s ’cause I own my own company, and my company sells a product

that’s better than the competition,

at a price that’s lower than the competition.”

-Frank Lucas American Gangster (2007) dir. Ridley Scott

See Price Strategy for more info.

According to author, Robert T. Kiyosaki in CASHFLOW QUADRANT, in the US 9 out of 10 small businesses fail in five years. Out of the one remaining, nine out of 10 of the fail in the next five years. In other words, 99 out of 100 small businesses ultimately disappear in 10 years. He writes, that it due to lack of capital, lack of experience and burn out by wearing all of the hats.

What’s a Cash Flow Quadrant? Mr. Kiyosaki breaks it down like this:

cashflow-quadrant

Small Business the Backbone of Canada? Lies.

Out of 115,000 small businesses in Canada that start up, 100,000 disappear.

How many small businesses have failed to put it on the net 15%. How many big businesses have failed to put it on the net: Less than 1%

 http://www.cbc.ca/news/business/10-surprising-stats-about-small-business-in-canada-1.1083238

A small business is  what most trades people, artists, accountants, dentists, consultants who work for themselves to make a sole income. When I worked in film in Vancouver, the visual effects industry is a good example. There are employees or staff jobs that most people (in general) hold onto like their balls, they are involved with most projects. To obtain a staff job in the VFX industry has its own politics no different than any industry. Seniority, who you know and talent are what lands you a “coveted and secure” staff job. The contractors like some of my friends who contract out the work project to project. Then there’s the business owner, the (wo)man with the plan, the system in place that who owns the production house and pays the employees (HR, Accounting, IT, etc) and contractors their money for their services, and lastly and more importantly, the investors who obviously have more investments in other areas of business making money work for them.

Think your out of the woods being an educated employee? Think again.  More on this in later posts. Kiyosaki goes into this in detail in Rich Dad, Poor Dad, another highly recommended read.

The tricky part that Kiyosaki does not explain fully, but does go on to explain “that few that attempt to go from Small Business to Business owner actually make it. Because of the technical and human skills to be successful in each quadrant are different.” Grow Locally, Think Globally comes to mind. Name a business that have put it on the net and  they started out as a one or two (wo)man operation. I agree that all the human and technical skills are necessary, but it’s the vision of small businesses or maybe the blindness of small businesses to behave as a big business that leads to their own demise. Paradoxical, but I think it’s valid.  Start up culture is like this. Co-Founder of the Y Combinator, Paul Graham, author of Hackers and Painters, goes on to say that start ups are like mosquitoes, designed for one thing. A single score. Get in and get out. Conversely, Amazon, Apple, Microsoft, Google, Netflix, and others started with big business mentality as a start up and exploited an entire industry, not just a market problem.  As these companies become dumber and larger by the second, ironically getting lost in big business thinking. The small businesses try to exploit what these giants can’t see (High Risk, High Uncertainty, which start ups are built to thrive on). Refer to Innovator’s Dilemma. Hence the score, some continue on, and fizzle out. Some like Graham sell when it’s time to and fund one of the biggest, most reputable start up sponsor companies in the world. Y Combinator. He became a small business owner to selling to big business and taking his money to invest in small businesses. A niche that seems rewarding. Many successful people go from small business and developing the system into a big company and becoming an investor.

Here’s a link of corporate following in small businesses’ shoes http://business.financialpost.com/2014/07/20/corporate-ceos-could-take-a-page-from-small-firms-playbook/?utm_source=dlvr.it&utm_medium=twitter

 

Mixing it up: If you’re an Employee learn how to become a professional investor. There are some books I’ve read and currently reading that will be referenced in these blogs: Mary Buffett’s Buffettology, Benjamin Graham’s Intelligent Investor, I’m currently reading The Intelligent Asset Allocator by William Bernstein. More on that later aswell.

Kiyosaki’s Advice to becoming a business owner: 1. Find a Mentor and 2. Buy a franchise.

Remember, Wealth is the amount of days you can leave your job and still live the lifestyle you have.

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