I thought about things like:
- Cash flow
- Subpar product
- Lack of demand
- Lack of sales
And even a few more than that. There are lots of things that could seem to lead to small business death, but it all seems to come back to overspending.
It’s actually very similar to our personal lives. Most of our issues in our personal lives come from overspending. We know that we should spend less than we make. We know that we really don’t need all the material things available today.
But the temptation is so strong for so many that it remains a huge issue.
Now, is spending necessary for growing a business? Yes, but only when you can afford it. Afford meaning you’re aware of the risk associated with it and you feel that the risk is in your favor.
Are Entrepreneurs Risk Takers?
It’s an interesting contradiction…there is a feeling that entrepreneurs are these wild gamblers. In some senses they are, but in many other senses they aren’t. Most really successful businesspeople are very careful with their risk. They only act and spend when they feel like they have a distinct advantage of some kind.
It’s the same with professional gamblers. Is it pure luck that the same 10 people make the finals in the World Series of Poker every year? Maybe once in a great while the lucky person will sneak through, but mostly it’s the people that play the odds as much in their favor as possible.
When you’re a new business just starting out there are all kinds of things you can spend your money on. Most aren’t necessary. And the more you spend the more likely you are to fail. Especially if you’re taking on debt. Every debt comes with interest. Just another form of overspending.
Lean spending in the early days forces you to have laser focus on the product or service you’re selling. It forces you to do everything you can to bring in sales. Everything.
You can’t fake it when you’re not spending money. It’s just you, your product and trying to find someone to give you money.
Nice things aren’t bad…if you can afford them. It’s good to have goals and things you want to have someday. You just need discipline to really earn them and not cut any corners getting there. Once you start taking shortcuts (like debt or overspending) you’re starting to increase the risk of losing in the business world (and in your personal life).
Southwest Airlines Example
Southwest Airlines is one of the most successful businesses of the last half century. They are in a super competitive industry. One of the founders, Herb Kelleher, was really a believer in the theory of:
Think small and act small and we’ll get big.
His reasoning was basically to not overspend. And the company was famous for not going into new markets until they could really afford to with equipment and staffing. They could have taken on debt. They could have done it before they had the staff. But they had discipline.
Now, you might think that they had to spend to buy equipment when starting out. And they did. But Herb was in his early 40s and as successful attorney before launching the business. And he knew that a total loss in the early going wouldn’t derail his financial well being.
There are times when you need to spend large amounts of money to grow. There is nothing wrong with wanting nice things.
The key, though, especially for small businesses is to avoid overspending. It’s really the root of just about all issues facing small businesses.