Running your own business is synonymous with success. Obviously, entrepreneurs are enjoying life and enjoying the growth of their businesses.
What is the reality?
Owning a business requires not only cash costs but also a very large amount of time. Therefore, other areas of life suffer from this.
A study by Simply Business (which provides insurance brokerage services) found that more than one million small business owners in the UK are jeopardizing their family and social life because of work. In particular, 750 thousand of them cannot spend summer holidays with their children. Plus, half a million entrepreneurs cancel scheduled events with friends and family at least once a week because of work.
Thus, for people who want to spend as much time with their family as possible, the intense work schedule is very stressful. Lack of free time for many people is becoming a serious problem. In 2015, scientists from the University of California San Francisco, University of California Berkeley, Stanford University conducted a study of the state of mental health among entrepreneurs.
Of 242 entrepreneurs, 49% reported having psychological problems, including 30% suffering from depression. In addition, in the UK, 18% of entrepreneurs reported that stress at work affects the way they do business.
Given this information, not everyone appreciates running a business because it interferes with other aspects of life. For a significant number of entrepreneurs, this is burdensome from a psychological point of view.
Myth 2. A Business Plan does not Improve the Process of Running a Small Business
In order to start a small business, the main thing is to have an idea and a desire to create it. But a business plan will not help in any way, because only large companies need it.
What is the reality?
The North Carolina Small Business Center Network, which teaches and advises new businesses, explained the importance of a business plan. Most business startups fail within three years. It is the business plan that will help you notice your problems in time. This is the so-called roadmap that shows where and how your business is going.
A business plan is a document that describes:
- the fundamentals of a business, products and services,
- the goals of the business,
- the milestones for achieving those goals.
During a period of growth, a business plan is useful for predicting a company’s expansion. It can include strategies and timing for selling or closing a company if needed.
The Australian Center for Entrepreneurship Research found that business planning for small firms has a positive effect, but it is culturally sensitive. In particular, the positive effect is much weaker in countries characterized by a high level of uncertainty escape since the creation of new enterprises is associated with a high degree of risk.
The term “uncertainty escape” emerged in the 1970s as a result of cross-cultural research conducted by Dutch sociologist Geert Hofstede in 70 countries around the world. It turned out that in countries with a high degree of “leaving”, residents find it difficult to adapt to economic, political, or social changes. In addition, they are anxious about the potential loss of stability. They are trying with all their might to stay in the workplace, even if they are not satisfied with the working conditions or wages. People in such societies value stability so much that they are often not willing to take risks even for the sake of positive change. Therefore, it is more difficult to start your own business in these countries.
But in countries with a low level of “uncertainty leaving” there are much fewer formal rules. People adapt more easily to changes and new situations, changing professions, and creating new enterprises. So business planning is much more effective here.
72% of founders learn that their intellectual property is not a competitive advantage (according to the startup research company Startup Genome). This means that just an idea is not enough to build a successful company.
Comprehensive product planning is essential, including market analysis and justification, competitive product analysis, pricing analysis, manufacturability, and ROI.
Myth 3. Most US Startups are Successful
The USA is a land of opportunity. This is where the American Dream comes true.
What is the reality?
There are a large number of startups in the US – 45,745 (according to the World Startup Ranking). About 10-12% of firms in the US open annually and the same number closed. Thus, the success of one enterprise does not mean the same success for another.
Shikar Ghosh, a lecturer at Harvard Business School, says that 70-80% of US startups lack expected return on investment. So, failure is the norm for most companies. For example, in Silicon Valley, the fact that a business has failed is not considered a failure, but rather a positive experience.
Myth 4. Small and Large Businesses can Both Benefit from the Same Management Rules
Business is business and the same rules apply everywhere.
What is the reality?
Harvard Business Review published an article explaining the differences between the rules for running large and small businesses.
Large enterprises usually have low rates of change and annual growth. Hence, their financial statements describe a system of rough equilibrium. Short-term variances throughout the year are small compared to the overall result.
Small businesses, on the other hand, are rarely in balance. They must respond to large short-term fluctuations in every aspect of the business. Small businesses are often in seasonal sales changes. This leads to periods of rapid growth and decline. Besides, small businesses must update their cash flow projections at least once a month.
Thus, a small business cannot be viewed as a miniature large business. Each business has its rules.
Myth 5. It is Enough to Control Cash Flows in Startups only from Time to Time
At the beginning of a startup, more attention should be paid to the ideological content of the project. Cash flow control is a secondary matter, so it is enough to do it from time to time.
What is the reality?
Cash flows are the movement of funds within and outside the business. Profits and expenses determine the solvency of the business. If you do not control cash flow, then your startup can fail. For example, more than 90% of startups failed not because of competition, but because of self-destruction. Such conclusions were made by startup research company Startup Genome based on data on 3,200 young companies.
Wasp Barcode Technologies, a small business management consultancy and assistance company, published a 2017 report on the state of small businesses in the United States. A study of over 1,100 small businesses found that 55% of them do not track their assets.
This is a serious problem because 82% of small businesses fail because of poor money management. To avoid this, it is necessary to monitor cash flows. If this is not done, then not only the business suffers but also the owner’s income. For example, more than 35% of the surveyed respondents have repeatedly missed paying their own salaries.
Cash flow control allows you to create cash reserves. This, in turn, allows employers to pay salaries on time, pay bills and stay afloat during adverse situations.
Myth 6. Women are Engaged in Entrepreneurship Only in Economically Developed Countries
A businesswoman can be found in countries with high economic development. In other countries, women are not engaged in entrepreneurial activities.
What is the reality?
In fact, the opposite is true. During times of economic growth, women’s participation in business declines. And, in less developed countries it rises. These are the conclusions reached by The Global Entrepreneurship Monitor in its report for 2016-2017 that collected data on entrepreneurship from around the world and analyzed how and where women do business.
The highest rates of women’s participation in entrepreneurship among 74 countries are found in Latin America, Southeast Asia, Sub-Saharan Africa, and Canada.
The creation of their own business by women is seen as a potential source of economic and social development. Some women start doing business because of the need to financially help the family. Some are looking for opportunities for self-realization. And others are motivated by a combination of necessity and opportunity.
Most women start entrepreneurship in sub-Saharan Africa. However, this is where they most often stop doing business due to the constant struggle with non-profitability.
More than half of female startup founders (56%) say they are trying to change the world with their help compared to only 41% of male founders.
Myth 7. Small Businesses are Better Off-Setting Low Prices for Goods or Services Compared to Competitors
Freshly baked new enterprises must set low prices – dumping – in order to take an advantage over competitors.
What is the reality?
The North Carolina Small Business Center Network, which teaches and advises new businesses, has created a guide to managing startups. One of the recommendations provided relates to pricing. So, for most small businesses, setting a low price is not the best option.
First, it is difficult to obtain the required rate of return in this way. Secondly, it is not known how much customers care about this or that price. For example, they may not be worried about price, but they may be interested in the quality of a product or service. Thus, experts believe that it is better to have average prices and compete for quality and service.
Myth 8. A Large Bright Advertisement Banner is a Guarantee of Sales Growth
Businesses looking to attract as many customers as possible should use bright-colored ads banners.
What is the reality?
One of the first large-scale studies of the effect of signage on sales was conducted at the University of San Diego back in 1997 and then continued in 2012. Scientists have calculated the impact of signage on the flow of customers in fast food chains.
It turned out that the increase in sales depends not only on the design of the advertisement but also on their number and location. For example, one additional signage led to a 4.75% increase in annual sales. Another additional advertising banner increased the annual number of customer transactions by almost 4%.
Delivery company FedEx conducted a survey on the impact of signage on American customers. The study found that thanks to good signage 76% of American customers (almost 8 out of 10) visit stores they have never visited before. In addition to location, quality design plays an important role. More than two-thirds (68%) of visitors believe that store ads reflect the quality of products and services. It is not the brightness of the banner, but the high-quality design. This was confirmed by the fact that more than half of buyers (52%) answered that they were less interested in going to a store with badly designed signage.
