MOAA - Today's Officer: BYOB: Be Your Own Boss

Business ownership is not for everyone, but for self-starters who have what it takes, hiring themselves could be a great career move.

After retiring from the Army, I worked in the corporate world for four years before starting a business. It was a wholesale distribution corporation, providing specialty products and installation services to general contractors who built homes, apartments, and condominiums in a major metropolitan area. On day one, the company consisted of me and two employees, some used office furniture, and rented office and warehouse space. We had no customers our first day in business, but a decade later, we marketed and sold a mature but still-growing business with a team of fully trained employees, operational systems in place, and a substantial customer base.

For me, owning a business was both challenging and rewarding, and I hope I can encourage other military retirees who are self-starters and know how to handle competing priorities, manage a budget, and lead an organization to consider business ownership. On the other hand, if you are not well-suited for business ownership, I hope to dissuade you from the temptation and save you the heartache.

Like military service, owning a business is either great for you and your family or it is pretty miserable. Also like military service, even if it is a good fit for you, every day is not a picnic, and every night is not a Saturday night. Competition is intense; the U.S. Commerce Department says that out of every 10 new small businesses, seven will survive their first year, three will still be going after three years, and only two will remain after five years.

Business ownership is the closest thing to command I have found in civilian life. Owners continually focus on organizational goals and improvement, personnel decisions, training, strategic planning and decision making, logistics, and financial management. According to business author Brian Tracy, “Leadership is the most important single factor in determining business success or failure.”

There were days when everything went right and days when it seemed everything went wrong. Regardless, we had to keep everybody focused on our company’s mission and core values, make key decisions, and motivate and empower employees to help us provide high-quality products and exceptional service at a fair price.

Some say there are three basic rules for succeeding in business: 1) never run out of cash, 2) never run out of cash, and 3) never run out of cash. Starting and operating a business requires money … and probably more of it than you would expect. If you want to own a business, you can start a new business, buy an existing business, or buy a franchise. There are pros and cons of each option, but they all require a lot of start-up cash. Business owners operate in a ruthless environment, and your business simply will not survive if you underestimate the capital required to support you and your business until it becomes profitable. J. Tol Broome Jr. writes in Anvil Magazine that the No. 1 small business killer is undercapitalization. “If your cash-flow problems cause delays in filling orders, you will have dissatisfied customers who stop buying. And no more sales leads to no more business.”

Of course, everyone would prefer to finance his or her own start-up costs. But even for those with the highest level of financial self-discipline, who have accumulated significant wealth, buying or starting a business could involve taking on considerable debt. You will have to perform the appropriate due diligence to carefully evaluate the quality of your business idea. You must be absolutely convinced that your skill set and your business model and plan support putting every dollar, and all of the possessions you have accumulated thus far in life, on the line. If you are not certain that you have a winner, it’s better to find this out sooner rather than later.

Let me say four important words about your business model and plan: They are both huge! First, what do you want your business to do? If you cannot explain this in a sentence or two, you do not have a model, you have a vague idea. Business owners find there are always temptations to move them off their business model. Consider these tips to stay focused:

* Ensure your business focuses on an area where you have great expertise and which you are passionate about. In his book, Small Business Management (West Publishing Company, 1983), Michael Ames writes that the No. 1 reason businesses fail is lack of experience. (He says the No. 2 reason is insufficient capital.)

* Listen closely to advisors, employees, and customers, but always remember that you are the one responsible for protecting the future of your business.

* Develop a detailed business plan before you make a final decision to start a business. Evaluate the plan in a dispassionate manner. If this evaluation does not absolutely convince you (and other trusted professionals) that you have a model that will make some serious money, do not proceed.

* Be realistic and thorough when estimating start-up costs. Do not underestimate operating costs or overestimate projected sales or profit margins just to make the cash-flow numbers look attractive.

* Ensure your idea passes the common-sense test. How many independent bagel shops have you seen open, operate for a few months, and then close the doors? I am sure somebody out there has made a fortune in bagels, but I suspect more have lost their shirts.

My experience has convinced me that successful business ownership requires a special blend of self-discipline and confident intuition that cannot be replaced by analysis, intellect, or hard work. Success in business does require these, but the kind of self-discipline and intuition I am referring to primarily revolves around financial decision-making. Financial self-discipline in business is more than some combination of effort and the application of common sense. It is a special skill set that few seem to possess. A study by Jessie Hagen of the U.S. Bank reports that 82 percent of business failures are caused by poor cash-flow management skills.

People with a high level of financial self-discipline possess an uncommon long-term willingness to spend less than they make. They invest the surplus wisely and find great satisfaction in this process and the results. They enjoy results more than experiences in regard to personal financial matters.

I am still looking for a financial self-discipline pill or a class to take or a book to read, but there just do not seem to be any quick or easy fixes. Developing financial self-discipline is hard work — it takes time and effort, and few are willing to make the personal sacrifices needed to develop it. “The dot-com days and the excesses of that era are over,” says Hank Hoffman, a former Army officer and president and CEO of SiriCOMM Inc. “Today’s successful entrepreneurs have learned to throw nickels around like they are manhole covers.” He says this is how many survived the dot-com crash, recession, Sept. 11, and going public during the WorldCom and Enron scandals.

To be financially qualified to start your own business, you will need to have financial self-discipline, win the lottery, or receive a huge inheritance. Of these three possibilities, I am persuaded that the last two will not keep you in business for the long haul. How can you determine whether you have a high level of financial self-discipline that can be combined with intellect and perseverance to increase your chances of success in your own business? Here is a tool that may help you answer that question:

Which of the following statements best describe you?

___ You would rather own stock in good companies than drive an expensive car.

___ You have never leased a car, and the car you are currently driving is paid for.

___ You never carry a balance on your credit cards.

___ Your wristwatch cost less than $75.

___ No one in your family has a credit card from an upscale department store.

___ You almost never argue with your spouse about money.

___ You have calculated your net worth within the past year, and it is more important to you than your annual income.

If all of these statements describe you, you probably have a pretty high level of financial self-discipline.

Developing financial self-discipline is similar to the self-discipline most of us developed to prevail in academia; it is also similar to the self-discipline required to maintain physical fitness or optimum weight level. The self-discipline necessary to succeed in business demands the application of the same principles, but here is where theory and practice go their separate ways. Successful entrepreneurs are not necessarily the smartest, best educated, fastest runners, or the most slender folks on the block. Many say they want to own their own business, but few are willing to make the sacrifices it takes to qualify for business ownership or for a business to succeed.

If you are still serving and anticipate retirement in the next few months or years, I also have some specific advice for you: Focus on what you are supposed to be doing! In other words, do not retire before you retire. All of your years of experience, education, and training have equipped you to make your most significant contribution to our nation during your last assignment or two. You will never regret giving everything you have to give until the last day you wear your uniform.



MAY 2008