I was out chatting with the landscaper for a half hour, as his dudes dumped dirt in the backyard. It is going to take ten truck loads of dirt to fill in one little corner of the yard. When you smoosh down dirt, it doesn’t add up to much. That, my friend, is your deep thought of the day.
The landscaper used to be a Wall Street trader pulling in 300K in bonuses, but he hated it. So, he saved those bonuses and bought a landscaping business. His business seems to be doing so well that he buying up investment properties on the Jersey shore.
Yes, I am very good at pumping people for information.
This guy is doing well, but most small business efforts fail. What is he doing differently? Hmmm… I think that’s my next round of questions.
Apt. 11d 
When you smoosh down dirt, it doesn’t add up to much.
You can make a whole house by compressing the dirt into forms. Don’t smash it that much or you’ll never get anything to grow.
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The difference is that he had money to begin with so he could make it through the low points that inevitably happen in the first few years of starting a small business.
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Also, he wasn’t selling frozen yoghurt. An alarming number of people around here are trying to sell frozen yogurt and it confuses me because I thought that stopped in 1995.
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Like Scantee, I’d guess that his big advantage was having enough money to make it through times when he didn’t have a lot of revenue. I suspect that’s what does in lots of small businesses- no reserves, hit a hard time or take longer to get established than you expected, run out of money, then close. That will kill places that have potential and good business plans, let alone poorly thought out places. I’d also guess that this guy had better money management skills than lots of small business owners as well.
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I look forward to Laura’s pumped information. Pumping information from people is such a great skill. I agree though, that inability to weather the low points of risk is a significant issue in failure in many enterprises. I’ve been saying for a while that I think that explains at least part of the lack of success of poor students in college (in addition to the fact that they are more likely to experience the risks compared to higher SES students, which is analogous to a trader having better money management skills compared to a run of the mill small business owner).
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How do you make a small fortune in the business? Start out with a large fortune. Having at least 6 figures in savings to start a business and buying an already established business(?) are big factors.
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There’s a ‘many are called, and few are chosen’ factor, too. Restaurants go under at a huge rate. Interior decorator businesses. Bookstores! If you go for something like landscaping, or locksmith, or small remodellings to geezerproof the houses of retirees (‘age in place’) your chances are a LOT better. Something which feeds on the anxieties of middle-class-panic parents (SAT prep) – Golden!
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Being able to select, hire, and motivate people who will come every day is a huge factor in small business success. Being literally on the ground yourself, like this guy, is great.
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At a guess, without knowing more details, I would say:
1. Sufficient start-up capital, as several other commenters have noted. Insufficient capital is the #1 killer of small businesses.
2. An unsentimental assessment of demand in the area. People start businesses because it’s something they want to do. Businesses that make it are doing things that other people want done.
3. Running it like a business. Many small-scale entrepreneurs don’t, or can’t. His time on Wall Street will probably have taught him important lessons that a lot of folks, even the ones whose small businesses succeed, have to learn the hard way.
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Also super helpful to have a spouse with health insurance. That’s the issue preventing many of my IT colleagues from going it on their own.
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There are businesses and businesses. Prior to Obamacare, New York State pretty much destroyed its individual health insurance market with community rating, but in most states, if you can’t afford individual health insurance, you aren’t well-capitalized to start what I would consider a real business, i.e., one with employees and a physical office. Of course, some IT professionals may be dreaming of working as independent consultants, which doesn’t really require any capital, in which case spousal health insurance would indeed be useful.
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I’ve heard that people in MA don’t feel this burden anymore — that there are comfortable ways to buy insurance as a consultant. In WA, as well, in the major metropolitan areas, it’s possible to buy insurance at the same rates offered at companies. Some employers are known for their generous plans — as part of their compensation package (and to help lock in employees). But, I expect obamacare to make a difference in people’s ability to switch employment and freelance/consult. Now, instead of the oat being a big unknown, you can look up costs and see exactly what value you are getting from your employer coverage and know the expense if you leave.
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I’m not sure what an oat is in this context, but I think and hope you’re right about Obamacare and encouraging entrepreneurship.
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iPad spelling correction. I think the oat is supposed to be the cost, which is a bad sentence, but maybe more sensible than oat. I hope I’m right, too. We have benefited, personally.
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That was a popular theory, but it just hasn’t shown up in the data on Massachusetts. At this point, experts seem to be coming to the conclusion that it’s much more likely to spur early retirement than entrepreneurship. Ultimately, health insurance is just not the biggest part of a decision to start a business, even if you’ve got a pre-existing condition, so the marginal effect seems to be too small to show up in the data.
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bj,
I was afraid it was an acronym I hadn’t heard of.
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Do you have a cite for the MA study? My belief was based on anecdotal evidence of freelancers in Massachusetts, but it would be interesting to see the data. I can see how the ACA might also be a enable to stopping work early retirement, or caretakers stepping away from the workforce, and part time employment). It would be interesting to see a study of employment in MA as part of the health insurance experiment, a parallel of the analysis on mortality.
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NYTimes had a piece on it not too far back. You can sort of squint hard and say, well it didn’t get better, but maybe it looks good compared to the rest of the US, which was also not doing so well. What you don’t see is an explosion that’s strong enough to show up unequivocally, which means that any effect is small, and probably dwarfed by early retirement.
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I’d bet that it is also hard to separate out people deliberately moving to start their own business from those who became unemployed and started their own business after not being able to find a job.
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Found the NY Times article, which says the evidence is inconclusive — that is, no effect of increase in creating new companies can be found in the period following the enactment of the health care law (which also coincided with the Great Recession).
“This is why it is impossible — or perhaps irresponsible — to attempt to tease out any connections, or the absence of a connection, between any of these facts and the health care law, according to Mr. Nakosteen and every other economist we spoke with. There are just too many other variables at play, not least of which is the greatest economic calamity since the Depression. ”
http://boss.blogs.nytimes.com/2012/11/02/assessing-the-impact-of-health-care-reform-on-new-businesses-in-massachusetts/?_php=true&_type=blogs
There is a Rand study that showed higher rates of self-employment among those with spouses with benefits and at the age when people become eligible for Medicare. A working paper examines the effect of New Jersey’s reforms on the individual health care market and concludes higher rates of self-employment. Finally, a analysis by Blumberg, Corlette, and Lucia, makes predictions about increases in self-employment with the implementation of the ACA. It will be interesting to see if those predictions hold up.
My conclusion is that the jury is still out on whether the ACA will increase entrepreneurship, and some of the analysis will depend on what we count — self-employment, small businesses, etc.
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One of the success factors is knowing your temperament and strengths. Are you a self starter? Can you manage people? Do you mostly like to deliver the product/services and are you also comfortable with selling/marketing/promotion/dealing with suppliers/staff/etc.? Do you know when your expertise ends and when to hire someone else?
Are you a big picture person or good at the details? Are you a great starter or a good finisher?
Have you done a realistic business plan? Do you have the financial resources to supply the “burn” til you are breaking even/turning a profit (this can take a year or more)? Do you have a mentor for advice/kick in the pants?
Do you love this particular business?
It’s not impossible but you really do have to know if you are the right person to run a business. It’s that old “finders, minders, grinders” – you have to be all three to be an entrepreneur. Or at least til you are making enough to hire out what isn’t your natural talent.
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As a ‘husband with benefits’, I’ve been very helpful to my wife’s ability to make a go of it as an independent hang-out-her-shingle lawyer.
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Hah, has your value reduced with the ACA?
i think part of the effect would depend on how much once insurance is subsidized — by the time the ACA rolled around, the value of my employer subsidy had reduced to about $7000 on the cost of a 14K plan — not a lot of money in our budget, or as a percent of salary (less, say, than the retirement matching funds, or the Social Security contribution). And with the ACA, one can know what it would cost to buy coverage (and that you can’t be denied).
But some employers provide greater subsidies and more extensive coverage.
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Beedge, it’s very possible I’m less a man than I useta be, since Obamacare. BUT, she’s not showing me the door. Also, I carry dental, and you have to have several years in the same plan before they cover orthodontia for the kids. More reason to think I am safe. Thanks for asking!
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