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Why? Tough Questions, Tough Decisions

I FREQUENTLY SPEAK with small-business owners around the country. Sometimes we have the chance to sit down over coffee or a meal-or, more recently, over Zoom. I have certain questions that I've found to be most useful in understanding their businesses. Perhaps the most important question: "Why are you doing what you're doing?"

With some of the businesses we see in the SBR series, the answer may be: "I love to bake." In the case of Ohm Nohm Bakery & Cafe in Season 5, Episode 5, we met the owner, Jessamine Daly-Griffen. She was a devoted mother of kids who needed gluten-free baked goods. For her, the original "why" was "I couldn't find healthy and delicious baked goods for my family nearby, so I decided to make them myself." That's a wonderful example of taking matters into your own hands and solving a problem. I tip my hat to her.

Here's the interesting thing: your "why" may change over time, and that's okay.

However, I cannot overstate the importance of being clear with yourself about why you are starting or have started a business. While your "why" may adapt at different times, what cannot change is the ability of the business to create sufficient income to support its owners and workers. That is the point of a business. If it can't support the owner and workers, it probably isn't a business at all.

When we look at Jessamine's gluten-free business, she could have just continued to bake those items at home for her family. Instead, she got into business. Why? Because word spread about her excellent baked goods that solved a serious health need and were not available anywhere else in the counties surrounding Fredonia, New York. She ramped up her operation into a commercial enterprise to meet that important need for other families.

Many businesses start as a noble pursuit, to do something nice for neighbors or the community, and many owners dream about the business being able to comfortably support their families at the same time. Many groups can organize themselves like a business. Nonprofits are a great example of organizations that are organized similarly to businesses.

Every business needs to provide a source of income for the owner and team of workers helping the business succeed. Just because you want something to be a profitable business does not mean it has that potential.

Perhaps the business can be successful, but not in your location. Or perhaps the business is already successful in the current location, but it's potential for more is limited by some factor. Maybe the business is better as a hobby than a business, or maybe a hobby has the potential to become a great business.

When a Hobby Becomes a Business

Some people's businesses begin as hobbies. They let off steam (or save money) by building furniture, and then people take notice and ask to have something built. Other people have hobbies that stay hobbies, and that's cool too. In the case of Jessamine, it was not a hobby but a critical need for her family to have gluten-free food. But Jessamine can't work for free, simply to provide her neighbors gluten-free food. She needs to provide for her family and have a reasonable return on the investment of her time, talent, and treasure.

So when does a fun, helpful, or important activity become a business? There are several markers for when that occurs. It starts to become a business when you:

• Invest in commercial equipment to make things faster
• Sign a lease
• Quit your day job
• Hire employees
• Begin to take substantial sums from your savings, or you pay for the activity on your personal credit cards, or both

Somewhere along the line, when you've passed enough of these markers, you're a business. Becoming a small business is a very big deal. Now you have other people and their families depending on you for their very livelihood. You may be taking on liability if someone slips and falls in your establishment, or if a product you sent from your online business gets misused in some way.

It's at this point of becoming a business that people need to ask once again: "Why am I doing what I'm doing?," but the fact is most people don't ask it again. As far as I can tell, most of the SBR businesses did not ask this critical question. They started the activity, and their "why" at the time might have been clear. Then they gradually morphed into a business, but nobody told them to ask that key question once more.

A business needs to have a purpose, and the purpose can be anything you want it to be. It can be that you're going to run a nonprofit bakery, or that your town needs a combination golf course and community center that will be run partially through donations.

The problem happens when someone is running a store or other organization that's become a business and they reach their breaking point. They get to the place where they are often overwhelmed and not making enough money to pay themselves. They're running today's larger business with the "why" or purpose that they started with five years ago, when it was just a hobby.

For the vast majority of businesses we've worked with over the years and most recently showcased in SBR, their current purpose doesn't typically involve making a fortune and becoming a national sensation; however, it does involve making a living, which certainly is a reasonable and necessary goal.

When It's Right to Be Brutal

When you ask the tough question of why you want to be in business, and if you decide that you do want to make a reasonable profit from it, then you need to ask yourself three other questions:

1. Is there truly a market for what I'm doing?
2. If there is a market, can I deliver the products or services profitably?
3. If so, how long will it take me to get to that profitability from where I am today?

Those are tough questions! Here you're already operating a business; am I really suggesting that you need to step back and ask these fundamental questions at the same time? Yes. You'll have the best chance of meeting your goal of making a living from your business if you have a brutally honest review at this stage.

In the case of Ellen's Bridal & Dress Boutique in Season 1, Episode 3, owner Lisa Downs was able to get a handle on the size of her potential market by finding out how many marriage licenses were issued in Wabash County each year.

When it comes to the second question of profitability, this is where you need to know your numbers, even if some of them were from your hobby days. If you've been making a profit at times, that's great. What have been your most profitable products or services? What were the least profitable? As we discuss in Chapter 3 about crucial numbers to know, do you have a handle on the maximum profitability of your operation as it exists today?

That third question requires a tough assessment: What are the numbers telling you, and are they moving in the direction of crossing over into regular profitability?

It's not the end of the world if they're not showing profitability-if you are willing to make changes.

Course Corrections

Don't get me wrong: I'm the last person to want to put a damper on people starting businesses. Those brave people are a major target market for Deluxe. But what I am suggesting is that running a business is a bit like flying a plane. If you ever look at the route that commercial pilots take when crossing the country, you will see that it is never a straight line from takeoff to landing. They're continually making course adjustments as instructed by air traffic controllers, in order to avoid other planes and skirt around bad weather.

As a business owner, you also need to get your bearings on a regular basis and analyze where you are, where you're going, and what it will take to get there. In the SBR series, we saw many times where the current course would not allow the owners-no matter how hard they worked-to make ends meet and keep the doors open, never mind pay themselves a modest sum.

Therefore, to reach the destination of staying open and paying themselves, often the SBR businesses would have to raise prices or think of ways to trim inventory, menu items, or services offered, and other creative solutions.

Much of this book is a guide to helping you through the process of asking important questions and giving you options: it's thinking about these questions that allows you to get your bearings as a business. They involve where you are financially, what your products and services are, and how you stack up to your competition, among many other considerations.

In the course of filming many seasons of SBR, the Deluxe team has conducted literally hundreds of interviews with small businesses, and our team talks to millions of small businesses every month. We have never come across a business where the owner said: "I started the business because I was a business-school graduate and I wanted to put into practice the ideas I learned in the classroom."

We think business schools are great and they can teach many valuable skills. I had the good fortune to graduate from one of the country's top business schools-Northwestern...