What I’ve learned from my failure and the framework I’m using to do better
Let’s face it; the data is in on starting a business — most fail and fast. As per this article from Forbes, the Small Business Administration (SBA) says the following:
“50% of small businesses fail in the first year and 95% fail within the first 5 years.”
I should know because I’m part of this statistic. I started a small online business a few years ago that I closed down after a few years with little to show except bruises to my ego and pocketbook.
Of the businesses that do succeed, how many barely provide a living wage for the owner despite 60+ hour workweeks?
The reality is that most small business owners would be better off in a corporate job — they would work fewer hours and make more money.
Do you think owning a Subway Franchise is a good business?
Sure, you get to be your own boss, but the data shows that the average Subway location makes about $30k/year in profit. And that is for 7 days a week of work and a +/- $200,000 investment, people!
You can see that you would need to own some 10 or 20 locations before you start to make a decent living, and you certainly can’t hire a GM to handle the work with the profit from one or two locations.
Unfortunately, most businesses look like Subway.
But a few don’t.
How can you tell the difference in advance between a business that will set you free and a business that will drive you into the ground?
Fortunately, there is a framework you can use called CENTS.
Let’s run through it and then apply it to my first business failure to see where I went wrong.
The CENTS framework was developed by MJ DeMarco, author of the book “The Millionaire Fastlane”. Despite the terrible title, it’s an excellent book on building wealth.
DeMarco, if you aren’t familiar with him, tried and failed at many businesses before finally finding success by founding Limo.com, a website that worked to bring leads to limo businesses.
He sold it for a pretty penny, took it back from the new owners when they went bankrupt, fixed it, then sold it again for a prettier penny.
That set him up for life, and he has been teaching others how to get rich young through entrepreneurship ever since.
DeMarco hits the nail on the head when he talks about most businesses either failing or being miserable to run.
I’ve mostly focused on real estate investing because starting a business is so “risky”. The fact that my first try at entrepreneurship, a website selling my photography as wall art, was a dismal failure wasn’t encouraging either.
Fortunately, DeMarco’s CENTS framework explains why so many businesses (including mine) fail:
C — The commandment of Control:
Make sure that no one person or company can control your future. This could be one supplier, one customer, or even one platform. For example, do you think starting a channel on Youtube is a good business for life-changing wealth? They can change the rules overnight and ban you from the platform for life. Game over. Same with any other platform like Facebook, Medium, or Google.
You must control it yourself (make your own website) or be diversified enough to deal with changes.
E — The commandment of Entry:
How hard is it to start your business? If everyone can do it, then everyone will. Growing a Youtube channel or starting an Amazon drop-shipping business is very tough because there is a tremendous amount of competition. Businesses that generate life-changing wealth typically have barriers to entry that keep most people out.
You need to be dedicated and persistent enough to get past the barriers that will keep your competition to a minimum.
N — The commandment of Need:
You must have a product or service that the market wants or needs. You must do something different from the current providers. You need to create value. If you just offer another similar product or service from lots of other competitors, then you will fight on price and race to the bottom.
Remember, it is not about what you love but what the market needs.
T — The commandment of Time:
All startups require significant time in the early years. There are no 4-hour workweeks here! But after things get up and running, your business needs to be able to operate largely without you, or you will forever be chained to it. This could be through automation, as your website handles 90% of the tasks, or through hiring someone to run it for you. Of course, you have to make enough money to hire someone (unlike our Subway Franchise owner!).
S — The commandment of Scale:
How easy is it to scale the business? Are you selling information products on a website such that you can sell to 1 million people about as easy as 100? Or are you making and selling sandwiches from 10 am to 8 pm, only able to serve a certain number of customers per day?
For your income to grow exponentially, you have to be able to scale.
As mentioned above and written about here, I previously attempted a business to sell my photography as art.
I’ve loved photography for several years, and I’m good enough at it that people enjoy my work.
Since I wanted to try out entrepreneurship and saw others doing something similar, I jumped in.
At first, I found a platform called SmugMug that is set up for photographers to sell photography. You can build your page and showcase your products.
Well, that didn’t work because no one ever saw my page. It turns out SmugMug is for people who already have clients like wedding photographers, etc.
Then I paid to build a slick website and started learning about SEO, but I was never able to gain any traction or make any sales outside of friends and family.
So after 3 years of trying hard and too much money spent, I shut it down.
Now I have a better understanding of why I was likely doomed from the start. Let’s analyze:
- Control — When I was on the SmugMug platform, one single entity controlled my success. I didn’t realize it at the time, but this was a significant risk. I learned that I needed to have my own website to better control my business (SmugMug had no SEO capability), but that came too late to make a difference.
- Entry — This is a huge eye-opener. There are thousands of photographers trying to make a living selling their art. Instagram is full of them. There is so much competition that many give away their work for free, hoping for some publicity. Just look at Pixabay or Pexels to understand the economics of trying to be a photographer. How can you make money when the competition is giving away their product for free?
- Need — This is another important lesson for me. I wanted to sell photography because that is what I was good at and what I enjoyed. That is selfish and usually results in failure. Business isn’t about “doing what you love”; it is about adding value to the lives of others. If no one wants or needs your product, you will not sell anything. I found out AFTER I tried the business (and spent money) that there was no need for more wall art, even if my photographs were attractive.
- Time — Even though the storefront and ordering were online and automated, the order processing (ordering from suppliers) was not. It wasn’t an issue with a handful of orders, but if I had magically started selling many products, I would have been overwhelmed with the system.
- Scale — Similar to the above, the storefront, ordering, and payment system was automated and easy to scale. Passing the order to the supplier was manual and NOT easy to scale. However, I worked with large print labs, so they would have easily been able to fulfill even very large orders if ever required. The weak link in the system (beyond the obvious part of having no customers) was the connection between my website and the supplier. If successful, I may have been able to find a way to automate that as well, but alas, it never happened.
As you can see, Jason Clendenen Photography was a low-probability success from the start.
The barrier of entry was too low, and the need was non-existent. In addition, there were issues with time and ability to scale.
It was a struggle for as long as I worked on it, then it died a quiet death on a pile of other failed “do what you love” dreams.