Don't Quit Your Job Until You've Talked to a Small Business Failure

Over the last week I've done several posts on different surveys showing how small business owners view risk.  A quick summary is most small business owners think working for someone else is more risky than owning a small business and they are very good at minimizing business risk. 

Several people have asked me does this data mean that small business ownership is less risky than traditional employment?  The quick answer is yes, but only if your small businesses is successful. 

The reason is the referenced surveys only surveyed existing small business owners.  This is almost always the case with small business surveys because most research is focused on what is going on at existing small businesses. 

But if your goal is to find out how all small businesses owners think about risk, this approach is flawed.  This is because former small business owners - the folks that went bankrupt, lost their companies or were removed from their jobs - are no longer small business owners so they aren't included in these surveys.  Because business failures are excluded, the survey results are biased towards successful small businesses. 

It's possible (probably likely) that failed small business owners consider small business ownership riskier than those still in business.  And including them might change the survey results. 

This is called survivor bias and it is a common research problem. 

My favorite example of survivor bias is surveying existing customers to develop satisfaction ratings.  I was once asked to figure out why a company was losing so many customers despite having stellar customer satisfaction ratings. 

It turned out they didn't include customers that left prior to the annual customer satisfaction survey.  After all, they explained, they weren't customers anymore.

Not surprisingly, when surveyed this group rated the company very low in several important areas.  But because of stellar ratings from the shrinking number of customers that stayed with them, the company was unaware of these problems. 

So if you are considering small business ownership, entrepreneurship or self-employment keep survivor bias in mind as you read surveys and talk to people.  Also, make sure to talk to folks that have failed.  They will give you important and likely different perspectives than people that have succeeded. 

Comments

[Corporate sales training]

Many people only dream of the benefits of being a business owner. They think of the freedom of not having to answer to anyone but many forget about the drawbacks. No provided healthcare, no paid time off, no guaranteed paycheck, etc.

Before embarking on your own it's wise to get a few skills under your belt. One skill is management. Be sure you can successfully manage others and more importantly manage your own time. It's easy to get side tracked and once time is gone there is no way to get it back.

Get a good grasp on sales. If you don't know how to sell it'll only be more difficult to earn an income. Whether you'll be selling physical products or services you offer make sure you understand the various ways to close a deal. Here are some sales pitfalls to avoid.

http://www.usanfranonline.com/sales-management-training/

In my opinion the benefits outweigh the drawbacks to being your own boss.

Good luck!

[Web Development]

I never thought of it like that - and I think a lot of people looking to quit their job to launch their own startup are just looking for motivation, so dont analyze research methods so closely.

[OwensAUDRA32]

Have no a lot of money to buy a house? Worry not, just because that's available to receive the mortgage loans to solve all the problems. Thence take a credit loan to buy all you want.

[tdee]

Steve,
The double hat thing works in scenarios like this: A cable/satellite equipment installer works for a big company during day and on nights and weekends provides home theater/audio/network services to residences he/she just visited (no conflict with big cable/satellite company and serving an unmet need). Eventually, the financial rewards of business ownership outweigh the safety of big company steady pay check. An owner wanna be can follow this model and be successful. However, it's taxing on family, social, and physical aspects of life. The person in this example has had the business for 3 years with no regrets.

[Stefan Topfer]

Steve -

you can turn this whole thing also upside down. I was recently asked what a person who lost their job should do, look for a new job or start a business.

Today there is no need to choose. You can do both until your business is strong enough to support you - then your are better of to run your business and quit the job.

[Steve King]

Thanks for the feedback.

Richard: I haven't seen anything written about this. It would make a good article.

Amanda: It is hard to get over failure, but I think you have the right attitude about it. Here in Silicon Valley failure is common and accepted - and generally considered a badge of honor. Good luck with your new venture.

Tim: Thanks for the feedback. I always think about your advice to us on research while both conducting and reviewing survey data.

Redhotfranchises: We've had research on the franchising industry on our agenda for a couple of years. I hope we can finally get to it soon - it is an important industry.

[Created By: Amanda]

Hi, I am proud to say that I have had a failed business! Proud, only because from that experience came a HUGE wealth of experience that I would never have learnt otherwise.

I am currently in full time employment, helping SME's (in South Africa) grow, and I can draw more practical advice from that experience than I can from any of my business studies or positive self employment experiences, plus I can explain the realities of many situations in a way that others understand.

It took me a long time to get over my failure, but I am about ready to start out on my own again. This time, I am doing things the way I know, will minimize the risks involved and I am grateful for my previous experience.
www.createdby.co.za has been set up to combine my knowledge with many others to form a hub for Micro entrepreneurs as I firmly believe that sharing information is essential for growth in our sector.

[Richard]

Steve,

Do you have any links or stories about small business failures who went back to work after failing at their business?

[RedHotFranchises]

It is interesting that many people's reaction to losing their job is to turn their attention to franchising as an alternative. After recovering from loss of job, many individuals that have been looking at self employment as an alternative, get focused and active, whereas every small business has its risks, Owning a Franchise is the ultimate coming with its own brand awareness, a system and territory.

With 100's of franchise opportunities available there has never been a better time to look at the options. As well as researching online options there are also many exhibitions and publications that can be made use of to access helpful information.

Visit http://www.redhotfranchises.com to see many opportunities available from nearly every industry.

[Team The Rise To The Top]

Steve-

Thanks for posting this, I think it's really easy to take a step back and look at all of the small businesses that have succeeded in their endeavors and decide that their outcome was worth the risks. But it's really important to look at businesses that failed and why those businesses failed. Great advice!

Thanks

[Tim Berry]

Double win with this one Steve.

- First, really good advice for anybody looking to start a business.

- Second, some really good practical examples of how the framing of research can affect the results, which ends up as a good reminder of how we need to use research and pull it into the decision making process, while avoiding the temptation to think that research trumps common sense.

I expect to link back here on one or more of my blog posts soon. Regards, Tim