How Businesses Fail

We’ve all seen the numbers on how businesses fail.

The numbers are out. The US Small Business Administration says that 20% of businesses fail within the first year. When you dig deeper they state that over half of small businesses fail within ten years. These data alone are enough to shut down some entrepreneurs. So what does it take to beat the odds? Must you be a wild-eyed risk taker to make a small business work in the US? The answer is no.

Failure defined.

If a business stops functioning it is considered a failure. Take for instance an example. I wrote a post on business partners. In it and in the accompanying video, I explain that I don’t know how to make partnerships work. My first partnership ended poorly. If two partners split and each start their own version of the company, which is what happened to me, the partners can choose to dissolve the existing business and start their own. This would be a failure of the original business, but results in two more businesses. If each partner builds a successful company the result would be two successful businesses and one failed company for a net gain of one successful company. But each entrepreneur succeeded. This and many more examples and hypotheticals show why these numbers are flawed.

How to avoid failure.

You don’t. Failure, as defined by the numbers, means most entrepreneurs will fail. As soon as they change their name, structure or model, they may have failed. Rarely does an entrepreneur begin their first venture and hit home run. Being flexible can be a good trait for entrepreneurs, that results in multiple “failures” according to statistics. The following video shows a few examples of “failures” I’ve had and the results. It also gives a great way to think about problems you may be facing to determine if it’s time to shut down, or power through.

Cults and Business

a concentric ring appears as a worship site with the title, the link between cults and business

What do cults have in common with business?

Jared was on stage. He was teaching his audience health, wellness and positive thinking. The crowd roared. They loved what they were hearing. The high price of the tickets and seeing Jared on the stage in person played into the cult like adoration. Jared moved the event to Obanjon Island, off the coast of Croatia. The crowd, who now are called the Echelon, were happy pay upwards of $4k for a ticket.

Then it all changed. Pictures of Jared dressed like Jesus, with his followers dressed in white, flooded the internet and roused suspicion. Mars Island, as the event was called was a successful version of Fyre Island, the famous, pricey event that became nightmare. Shirts claiming, “Yes This Is A Cult” became available for sale. The band 30 Seconds To Mars, headlined the event and the Echelon were being referred to as, “The Family.”

Real or fake

This is not a hypothetical story, or the re-telling of the origin of a famous cult. This is the real story of a marketing and business move. Jared Leto, famous method actor and front-man for the band 30 Seconds To Mars used cult tactics to sell high-priced tickets to an all-inclusive concert. By all accounts, it’s working.

The many facets of Jared Leto are amazing. However this is not a story about him. This is also not an investigation into whether Mars Island and Leto’s fan base, The Echelon, are a cult, though it is hard to distinguish this event from many cult related events.

This is the story of how similar cults are to business. In a business, what you don’t know can be dangerous. The same is true about cults. In the following video I explain my next project. It will be dangerous. I will dive deep into the behaviors of cults. The danger is that some behaviors of cults, aren’t harmful. Despite the inherent scare of cults, my next project will cover what is unhealthy about cult psychology, and what isn’t. Then the tricky part happens. We will cultivate the good and abandon the bad from cult behavior.

The following video explains the journey.

Systems Help Entrepreneurs Grow Revenue

You are working way too much. Your business isn’t growing. All you need is a 36 hour day and you’ll be fine right? Wrong. You need systems. Someone else in your company has to be able to do what you do. It seems overwhelming to grow a business and build the systems necessary to make it run. But, with a little free help from Google Drive, you can do exactly that.

How Systems Help

Right now in your business you are probably the bottleneck. If there is any action or task that has to go through your head to get done, you are slowing down your growth. Timothy Ferris revolutionized automation in his book The 4 Hour Work Week. If you haven’t read or listened to it stop reading this and get it. He outlines great ways to systematize your success as an entrepreneur. But some of his recommendations cost money, which is in short supply when you start. One tool that is basically free that can launch you into the systems championships is using the tools Google offers to track and share vital information to your team. Alan Turing changed the world with his system of breaking the Enigma code during WWII. The systems you implement will at least change your business.

What System Should You Build First

The first system any entrepreneur should create is the system that gives them back their time. Whatever consumes you, that causes you to roll your eyes when you do it, needs to be systematized. The simple outline for building that system is to

1. Track it. build a tracking system that gathers the data.

2. Create actions. What actions need to happen when the data reaches certain levels? If your sales go up, do you order more material? When conversions go down, do you run a promotion? These actions are going to be crucial to the next step.

3. Assign actions to your team. Give ownership of that response to the action to your team members. That is their job and people love owning the responsabilty to helping the company grow, so give that to them.

How Business Looks After Systems

I consult entrepreneurs often. Implementing systems is frequently the first thing we do together. In the following video I show exactly what a few of our tracking systems from Google Drive look like and how we built them. Once these systems are in place entrepreneurs get their life back. They are able to spend time with the family or friends knowing the business is running without them. Take a look at a few examples and put them to use in your business. You’ll be glad you did.

The Truth About Killdozer and Entrepreneurs

A building is demolished with the words, "the truth about killdozer" framing the image.

On June 4th, 2004 Marvin Heemeyer, an entrepreneur from Granby Colorado, started up the Killdozer. This was a bulldozer, outfitted with a home made bulletproof tomb. It was a giant hunk of machinery made for destruction. Killdozer was the machine in which Marv would demolish businesses and city buildings in his town, and commit suicide over a business deal gone wrong. Many people look at this event positively. They love the sentiment of it and the Robin Hood nature of the story. The problem is they are wrong.

Was Marv the underdog entrepreneur we think?

Every June we see posts and article celebrating Killdozer Day. Fans hail it as a libertarian and entrepreneurship win over big government. The myth says that Marv stood up to big government and took back power. He ended his life to fight tyranny and send a message. That message was that big government shouldn’t interfere with small business. But, as with most myths, the story is completely wrong. Before you repost some random article toting the goodness of this event, read on to learn the truth.

What Happened?

I wrote a post that was called Why Your Small Business Isn’t Working. One reason I listed was that entrepreneurs get the math wrong. This is exactly what happened to Marv. He made a previous miscalculation on the sale of a piece of property. This miscalculation drove the events of that day. In the following video I explain exactly what happened without the myth and misinformation that surrounds this story. Take the truth from the story of Killdozer and use it to avoid the miscalculation that Marv made.

Business Partners

You think a partnership is a good idea. You are probably wrong. This is why.

So you found the perfect complement to your business. They have the answers, skills, or resources you don’t. That would seem like a perfect reason to take on a partner. But it’s not. Many experts say that over 50% of partnerships fail. My anecdotal information is that I don’t know of one partnership that succeeded. Here are a few reasons why.

The Pareto Principle

We’ve all heard of the Pareto Principle, or the 80/20 rule. One aspect is that 80% of the work is done by 20% of the people. The question becomes, how do you know that both of you are 20% people? The answer is, you don’t. You both may be in the 80% group and do little. The business will fail if this is the case. If one of you are a 20%er and the other isn’t, the relationship should fail. Someone is being taken advantage of in this scenario. The odds are that you both are not in the 20%, and if you are your struggles have just begun.

Personality conflicts

With two driven and well-focused individuals, each will have a level of disagreeableness. This isn’t a bad thing. Disagreeableness is one of what psychologists call the Big 5, or 5 main personality traits. Disagreeableness isn’t a bad thing. You have to be a bit disagreeable to quit your job and strike out on your own. It doesn’t mean you are hard to get along with, it means you are willing to challenge the status quo. This challenging nature we find in many entrepreneurs makes it very difficult for two to agree on most things. But it also makes it tough for either of them to back down, even if the other is right.

Income disparity

Even if you both make the same amount of money, you perceive it differently. Suppose a doctor becomes partners with a nurse. If the business pays them both $200,000 per year they will perceive the wage differently. The doctor may have taken a massive payout and she could be wondering if the business will even work. On the other hand, the nurse is thrilled with his income and wants to maintain it as long as possible. No one is equal. We all come from a different perspective and it is really hard to balance dissimilar perspectives.

Mental spectrum

We are all screwed up. I am, you are and so is your potential partner. We all have quirks and oddities in our personality and they bump into each other from time to time. In this video I explain what happened between myself and my two previous partners that I never saw coming.

Rolling stone did an interview with Bernie Taupin who describes his partnership with Elton John here. But unless you have that type of relationship with someone, and even if you do, the odds are that your partnership won’t last. The likelyhood of your business failing are stacked against you already. Don’t add another layer of difficulty.

What you don’t know about business.

a woman is thinking surrounded by question marks

I’ll bet you didn’t know this one thing about starting a boating company in Maui. What don’t you know about your business that is lurking in the future?

NUMMI changed the way management is done in the US by knowing something others didn’t. You can read about it here. They took something people didn’t know about culture and turned it into an amazing success. You can do the same thing. Learning what you don’t know is an incredible way to build a standout business. The other side of the coin is, what you don’t know can kill your business.

What don’t you know about your idea?

Do you know that you can’t serve beer and pretzels together in North Dakota? This is a big deal if you think you’ll make your fortune selling beer to oil rig workers. Did you know bloggers have to pay a $300 license fee in Philidelphia? Nav.com lists 9 weird facts about entrepreneurship you probably weren’t aware of. These are the type of issues that, if overlooked can cost you a fortune in money but more importantly, time. Don’t jump into your idea without learning what you don’t already know.

What I didn’t know about my businesses.

I have started more businesses than I can count. Today I officially have two successful companies. One is in the power grid/communications industry and one is this business, with which you are interacting now. Both are “successful” in that they produce full-time income for me and around 20, full-time team members, plus a few contractors. What I didn’t know was how long it would take for them both to become “successful.” In the video below I also line out what I didn’t know about my competition and team members. Had I known how long it can take for these to work out I would’ve given my other endeavors more time before I killed them.

Dig in to learn what you don’t know first.

Ask questions first. Then ask questions about your questions. Then, chase out the answers to your questions so you can find more questions to ask. I promise there is something out there waiting to pounce. If you don’t uncover something surprising or difficult about your business idea, you haven’t asked enough questions. Do you know the insurance mandates? Are import/export laws an issue? Does your location match your customers traffic patterns? You need to dig deep into your idea to uncover the monster. Don’t use questions to hide behind, but make sure you are prepared to take on the issue once it pops up.

I learned this crazy rule about starting a boating company in Maui.

Don’t sink your time and money into an idea that will never work. Also don’t start something without know what it takes to make it work. Learn what you don’t know to find success that others haven’t found.

Why Your Small Business Isn’t Working

a man at a computer is frustrated

You built it and….they didn’t come. Here’s why.

You thought building your small business would be the hard part. After you made a business plan, put the money together, built the logo, created the workflow built the website and a thousand other potential problems were solved by the hard work and imagination you put into this idea. You crossed every i and dotted every t 😉 and threw open the doors. The figurative tumbleweeds have rolled in ever since. Now you can’t understand why your amazing idea isn’t making you the next 21st century billionaire. Business is like a combination lock. You can have most of the numbers right and still not open the door. The following is a list, in no certain order of what you may be missing to get the ball rolling and your small business working.

You thought you could do business on your own.

Entrepreneurs think they can do it on their own, so they try to. They become so busy doing the marketing, the accounting, the management, logistics, brand identity, online presence, sales, operations and on and on that they don’t do any of it well. Most small business owners don’t get to start with a wage or a salary. They work for free with the promise of income from profits. The money usually goes to the team members you have to have, whether full-time, part-time or 1099 freelancers, in order to succeed. You didn’t build a job, you built a system and a machine that will make you money over time, but for now you have to put some form of a team in place to help you do your dream well. You cannot do this on your own. It takes a village. So get that village working for you.

You thought your small business idea was amazing.

This is the toughest of all the problems. I’ve watched as retirees cashed out their retirement to start the next big frozen banana treat, wedding rental business and Italian restaurant, only to learn that no one wanted what they sunk their life saving in. Unfortunately, if you didn’t test the concept, you lost. There is no substitute for inexpensively testing your idea BEFORE you sink your fortune, or borrowed money into it. If you spent all your time on branding and website design, only to open up to crickets, you missed a huge opportunity. Always make a few, cheap sales, before you invest in anything. Surveys and opinions aren’t real. When someone hands you money for your idea, then you can start, but not before.

Your math was wrong.

That bicycle cost $1500. You just knew that your bike shop could sell those bikes for $900 dollars and make a profit. You outsold your competition only to find you owe more that when you started. Now you see why the competition hates your new small business since you bought their customers away. Customers who were barely paying for their business have driven you to the brink of disaster. The unknowns are killers. Insurance, taxes, advertising, maintenance fees and on and on will sink and underprices business model faster than a torpedo sinks boats. In the age of launches and promotion we’ve lost the art of the slow start. It’s crucial that you know the numbers before you try to start. That means going into this understanding that there are costs you don’t yet know. Learn them, face them and price accordingly.

Your business location doesn’t make sense.

This is not an insult. It’s a common mistake small business owners make. They create a better mouse trap and sell it at the airport. Their art is the most beautiful thing in the lawyers office who gave them cheap rent. They have the nicest sail boat in Arizona. It’s really easy to get this wrong. You have to make sure your customers look at your offering and love it. Most people want to have the only business in town. This is usually bad thinking. If there isn’t a version of what you do near you, there could be a reason. Make sure your entire idea makes sense.

You got bad advice.

You paid a “coach” to tell you what to do, only to learn that they didn’t know what they were talking about. Check out this video explaining some of the fakery I’ve seen and what to look for before you take advice.

Take the time to flesh out your idea before you put a ton of energy, money or time into it. If you’ve already started it, don’t be married to bad ideas or practices. Kill what doesn’t work, fix what needs fixed and dig in. You may need an outside set of eyes to be open and honest about what isn’t working. Business is like a combination lock. You may have most of the numbers right and just need one more to open the lock. Or you may have them all wrong. Sometimes it’s easier for someone else to see which is true. Go start your thing, but start it right.

Take care.

Jonathan Freedman, and Psychological Reactance

This is taken from SWAY; The Link Between Autism and Influence. 

Jonathan Freedman, psychological reactance is a very popular term in the anti-child-spanking community of parents. If you dig into the research behind the movement you will find his name. You will also find this study cited repeatedly. Freedman didn’t study how to change a child’s behavior in the moment. He studied how to influence lasting change.

Freedman knew that in 1965 most boys of seven to nine years obeyed their parents as a result of the threat of spanking. Spanking was the gold standard of parenting then. There was not an anti-child-spanking community, in fact it was just the opposite.

Spanking in Monaco

Consider this Sunday Dec. 12 1965 article in the Chicago Tribune titled Princess Grace Does the Spanking in Monaco.

-In a rare interview with this reporter, Princes Grace discussed how she raised her family.

“Children need much love and affection,”she said, “but also some discipline. “I’m rather severe with mine.”jonathan freedman, psychological reactance

Did Rainier ever apply a hairbrush to his offspring like ordinary fathers?

“Well, sometimes I use my hand on them,” she replied.

“Prince Albert,” his mother said, “already is being taught that it will be his duty one day to govern the principality,” and she added: “It is fairly easy to teach him. He is quiet, and thinks a lot.”-

He is Quiet and Thinks A lot

Any parent of a toddler knows what a relief those moments of silence can be. The article is not asking about the validity of spanking or if the family used spanking. It asked how did the family used spanking and who did it.

This occurred in the fractured era of Churchill’s death, LBJ’s Great Society, the start of the Vietnam War.It happened during the assassination of Malcolm X and the racial tensions in the American South with Dr. Martin Luther King leading the charge. In that backdrop, the validity of spanking was not on the forefront of societal happenings. The quick peace and quiet it brought must have been a huge relief.

But a small experiment happening in this pivotal moment in history would go on to influence the parenting style of the nation.

This excerpt from Readings in Managerial Psychology by M. Boje explains it best.

Jonathan Freedman

“An experiment by Jonathan Freedman gives us some hints about what to do and what not to do in this regard.

Freedman wanted to see if he could prevent second to fourth grade boys form playing with a fascinating toy. But only because he had said that it was wrong to do so some six weeks earlier. Anyone familiar with seven to none year old boys must realize the enormity of the task. But Freedman had a plan. If he could first get the boys to convince themselves that it was wrong to play with the forbidden toy, perhaps that belief would keep them from playing with it thereafter. The difficult thing was making the boys believe that it was wrong to amuse themselves with the toy-an extremely expensive, battery controlled robot. (This was in 1965)

Threats vs. Options

Freedman knew it would be easy enough to have a boy obey temporarily. All he had to do was threaten the boy with severe consequences should he be caught playing with the toy. As long as he was nearby to deal out stiff punishment, Freedman figured that few boys would risk operating the robot. He was right. After showing a boy an array of five toys he warned them, “It is wrong to play with the robot. If you play with the robot I’ll be very angry and will have to do something about it.” Then Freedman left the room for a few minutes. During that time, the boy was observed secretly through a one-way mirror. Freedman tried this threat procedure on twenty-two different boys, and twenty-one of them never touched the robot while he was gone.

Success?

So a strong threat was successful while the boys thought they might be caught and punished. But Freeedman had already guessed that. He was really interested in the effectiveness of the threat in guiding the boys’ behavior later on, when he was no longer around. To find out what would happen then he sent a young woman back to the boys’ school about six weeks after he had been there. She took the boys out of the class one at a time to participate in an experiment. Without ever mentioning any connection with Freedman, she escorted each boy back to the room with the five toys and gave him a drawing test. While she was scoring the test, she told the boy that he was free to play with any toy in the room. Of course, almost all the boys played with a toy. The interesting result was that, of the boys playing with a toy, 77 percent chose to play with the robot that had been forbidden to them earlier. Freedman’s severe threat, which had been so successful six weeks before, was almost totally unsuccessful when he was no longer able to back it up with punishment.

It is Wrong . . .

But Freedman wasn’t finished yet. He changed his procedure slightly with a second sample of boys. These boys, too, were initially shown the array of five toys by Freedman and warned not to play with the robot while he was briefly out of the room because, “it is wrong to play with the robot.” But this time, Freedman provided no strong threat to frighten a boy into obedience. He simply left the room and observed through the one-way mirror to see if his instruction against placing with the forbidden toy was enough. It was. Just as with the other jonathan freedman, psychological reactancesample, only one of the twenty-two boys touched the robot during the short time Freedman was gone.

The real difference between the two samples of boys came six weeks later, when they had a chance to play with the toys while Freedman was no longer around. An astonishing thing happened with the boys who had earlier been given no strong threat against playing with the robot. When given the freedom to play with any toy they wished, most avoided the robot, even though it was by far the most attractive of the five toys available (the others were a cheap plastic submarine, a child’s baseball glove without a ball, an unloaded toy rifle, and a toy tractor.) When these boys played with one of the five toys, only 33 percent chose the robot.

From the Inside

Something dramatic had happened to both groups of boys. For the first group, it was the severe threat they heard from Freedman to back up his statement that playing with the robot was “wrong.”It had been quite effective at first, while Freedman could catch them. Should they violate his rule later, though, when he was no longer present to observe the boys’ behavior, his threat was impotent and his rule was, consequently, ignored. It seems clear that the threat had not taught the boys that operating the robot was wrong, only that it was unwise to do so when the possibility of punishment existed.

For the other boys, the dramatic event had come from the inside, not the outside. Freeman had instructed them, too, that playing with the robot was wrong, but he had added no threat of punishment should they disobey him. There were two important results. First, Freedman’s instruction alone was enough to prevent the boys from operating the robot while he was briefly out of the room. Second, the boys took personal responsibility for their choice to stay away from the robot during that time. They decided that they hadn’t played with it because they didn’t want to. After all, there were no strong punishments associated with the toy to explain their behavior otherwise. Thus, weeks later, when Freedman was nowhere around, they still ignored the robot because they had been changed inside to believe the they did not want to play with it.”

Jonathan Freedman, Psychological Reactance

Freedman proved that, at least in young boys playing with robots, forcing them to act a certain way did not change their minds about acting that way. Threats only created the desirable situation in the moment, but it did not create lasting change. In fact, a natural, psychological reaction that we all experience probably had the opposite effect from Freedman’s demands. This natural occurrence is called psychological reactance…………Quick and Stephenson 2008 study proved that dogmatic language initiated psychological reactance. The following are examples of that language.

  1. Imperatives such as must or need
  2. Absolute allegations, such as  cannot deny that or this issue is extremely serious.
  3. Derision towards other perspectives, such as any reasonable person would agree that

We can see that demands get us the opposite of what we are after. In contrast, messages that are less dogmatic do not provoke psychological reactance such as.

  1. Allusions to choice such as you have the chance to or we leave the choice to you
  2. Qualified propositions such as there is some evidence that or their issue is fairly serious.
  3. Avoidance of imperatives or derisive language. Rather than saying, “Take out the trash,” say, “Please take out the trash.”

Psychological reactance explains why so many people have lost their influence on society. From Harry Markopolos, Dr. Ignaz Semmelweis, and possibly you. Are you making demands, or offering options? How much more influence could you have if you simply changed how you speak?