Building a Business That Lasts: The Steps to Avoid Blunders

A small business owner hangs an Open sign on the door.

(Image credit: Getty Images)

"Mr. Beaver, my husband, 'Leroy,' is a high school history teacher and just inherited $50,000. He wants to use it to open a business but does not know what kind of business.

"I grew up in a family that still owns several small neighborhood hardware stores, started by my grandfather, so I know a lot about what it takes, but Leroy has no business experience at all.

"When I ask, 'Why?' he replies, 'I need to prove myself to your family.' Do you know someone who can share what it takes to start a business that is sure to fail? Thanks, 'Bea.'"

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There is another way

My reader's email could not have arrived at a better time, as I was just about to interview David Whorton, Silicon Valley entrepreneur and author of Another Way: Building Companies That Last … and Last … and Last.

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Whorton offers a refreshing approach to building a business that endures, also known as an evergreen business — the goal is to put people first. "There is another way to build a successful business than the current philosophy of 'bigger, faster is always better,'" he says.

He shares with us how to start a successful business by setting out the steps that can contribute to failure.

Failing to conduct a risk assessment

Don't leap first, figuring that you'll simply work out the details later.

Risk comes in four major buckets:

Market
Team
Technology
Financing

A would-be owner needs to ask themselves many questions related to these four buckets:

Do you understand the market, the intended customer and their willingness to buy?
What will be required from all the technologies your product or service will rely on to be differentiated?
Where are you going to find the good people you will need on the team?
Will you be able to build it from its own cash flow or need to raise outside capital? If outside, what is the likelihood of successfully raising the funds required?
What does your product or service and the products or services associated with it cost? How will you provide service and support?

Not knowing the answers could inevitably lead to your business failing.

Quitting your job and having no income separate from your new business

Your job and current paycheck might provide you with a safety net. "If you can continue to bring in income while building your company, you will give yourself more time and much less anxiety," Whorton underscores.

Not thinking through the business model

Whorton cautions against relying on what you see in other, similar businesses. You need to think about what you want to achieve and resist using the industry-standard business model.

Consider which business model is best suited to your concept, your business and your funding strategy: For example, retail, franchise, third-party distribution, marketing-driven and direct-to-customer (internet) sales all have different benefits and cash requirements.

If you want to build an evergreen business — one that will endure — you'll want a business model that generates cash early and does not rely on outside equity or debt.

Falling into the 'if I build a great product or service, they will come' mentality

Ask: How am I going to get this product in front of my customers? Through stores, partners, a third party, field sales representatives or other sales or marketing programs?

Biting off more than you can chew from an emotional perspective

Are you psychologically able to deal with the people issues that arise in any business?

Being a founder can be a lonely and very stressful process for a number of years. There is a lot of uncertainty associated with establishing and running a business. For example, Whorton says, "You lose a major customer, half your revenue vanishes, and you think, 'Oh my gosh, if I don't have a strong balance sheet, I have to lay off people! I just can't do that!'"

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Ask yourself and the people who know you best: Am I ready for these challenges at this stage of my life?

Feeling threatened and therefore not hiring people who have more experience than you do

Whorton points out that you need to hire people who can help your business succeed. "Just because you get along on the local baseball league team does not translate into that person being a competent, honest sales representative. Hiring people whom you are just friendly with, but you know little about their character or capability, spells trouble."

Don't ignore red flags, such as "I know that he never stays employed at the same place for more than a year, but I really like him, and he has a lot of cool things to say about how he works." The fact that this person has not survived in one place for more than a year tells you that something's wrong, and you have to dig into it.

Remember that character counts. "When you get good people with great character, take care of them and let them shine," Whorton underscores.

Going into business because you feel it's expected of you, including joining a family business

Running a business is hard, so you should really want to do it.

You want to go into the business with the attitude, "This is my purpose in life — I want to have a team that is allied with my vision and values." A red flag is someone saying, "I've got this idea. Now, I'm not really in love with it, but it seems to have some traction, so I'm going to run with it."

An inspiring read

Whorton concluded our interview with these comments: "If you are starting a business, ideally, it is one that you want to dedicate the rest of your life to. That's the secret to evergreen companies that endure well over a hundred years.

"My advice to college students who are vaguely thinking about getting into business one day is to develop a curious mind and consider yourself to be a lifelong learner. Pursue a well-rounded education and discover the common denominators of prior and current business leaders — what helped them succeed?"

Reading Another Way was as inspiring as my interview with its author. Whorton's candor made me feel as if we'd known each other for years.

If you are thinking of opening your own shop, Whorton shows you the way to building that place on the planet you will love to return to every day.

Dennis Beaver practices law in Bakersfield, Calif., and welcomes comments and questions from readers, which may be faxed to (661) 323-7993, or e-mailed to Lagombeaver1@gmail.com. And be sure to visit dennisbeaver.com.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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After attending Loyola University School of Law, H. Dennis Beaver joined California's Kern County District Attorney's Office, where he established a Consumer Fraud section. He is in the general practice of law and writes a syndicated newspaper column, You and the Law. Through his column, he offers readers in need of down-to-earth advice his help free of charge. "I know it sounds corny, but I just love to be able to use my education and experience to help, simply to help. When a reader contacts me, it is a gift."