Small businesses employ half of the workforce in the United States. However, statistics show that over 70% of those will go out of business after operating for ten years. This is the startling truth that not many are aware of when starting out. In this episode, Michelle Seiler Tucker unmasks the truth about small businesses and reveals why many of them go out. Don’t fret, though, because Michelle is also going to share with you some information to help you save your business and even plan your exit.
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Unmasking The Truth About Small Businesses And How You Can Save Yours
We’re going to be talking about one of the most important subjects. I believe that everybody should read this. This is about unmasking the truth about small businesses. Most people don’t understand small business. There are 30.2 million businesses in the United States and 99% are small businesses employing half of the workforce. Even before COVID-19, small businesses were in danger of going out of business. It used to be that 90% to 95% of all businesses would go on business in the first 1 to 5 years. When I’m on Exit Rich in 2019, I did the research again and learn that the business landscape has changed dramatically from when I wrote my first book, Sell Your Business for More Than It’s Worth in 2013. Now, only 30% of those business owners will go out of business for five years. Out of over 27 million businesses, over 70% of those businesses will go out of business after being in business for ten years.
If you have a business and you’ve been in business for 10, 15, 20 or 25 years, you’re at more risk of going out of business than if you were in business for the first five years. These are startling statistics and you need to pay attention to this. It’s scary. You hear in the media about the big-box stores that go out of business all the time. You hear about Toys“R”Us, Kmart, JCPenney, but you don’t hear about the small businesses going out of business on every street corner, in every town, in every state across our great nation. It’s unfortunate because when these businesses close after being in business for ten years, most of these owners are Baby Boomers who have poured their heart, soul, energy and efforts into their business over several decades. Many of these owners are going to be forced into selling their business for pennies on the dollar or worse, having to close their business or having to file for bankruptcy.
When a business owner files for bankruptcy, they don’t lose their business assets. They lose family assets as well because most business owners co-mingle their business and their family assets by signing a personal guarantee. They’ll lose their family home. Think about the personal guarantee you sign for a lease, vehicles or an SBA loan. In addition to that, their mortgage of personal assets or mortgage family home in which to get a loan, they use their home as collateral. They are mingling those family and personal assets and that pierces the corporate veil. When you pierce the corporate veil and you have to file Chapter 11 or file bankruptcy, they are going to take your personal assets as well. This is sad to me. These are strong statistics and it is my passion, my life’s work, and my mission to help as many business owners as I possibly can to save their businesses and plan their exit.
“The number one reason that businesses go out of business is lack of innovation and marketing.”
That’s why we started this show so they can plan their exit and sell their business for their desire sales price so you can finally enjoy the life that you’ve worked so hard for and the sacrifices that you’ve made along the way. Business owners pour their heart, soul, energy, resources, everything into growing their business and then when it’s time to enjoy the fruits of your labor, you want to be able to do that. You want to be able to retire and go see the world and fulfill all of your dreams. It’s my mission to help as many of these business owners as I possibly can. Business owners ask me all this time, “Michelle, why do businesses go out of business?” The number one reason is lack of innovation and lack of marketing. They stop innovating, marketing and asking their client, “What do you need? Have your needs and wants changed?”
If you’ve been in business for years and you keep doing business the same way, you’ve always done it without going back to your consumers and asking them, “Have your needs changed? Have your desires changed?” “Have your wants changed?” If you continue to do things the way you’ve always done, then you’re going to end up losing that client base because you stopped innovating, marketing, and asking your customers, “What do you need?” I always say that the brand that makes it easiest to do business with them is the brand that wins. Think about Amazon. They have completely changed the way that consumers do business. They’ve completely changed the way that consumers will purchase products. Consumers can purchase practically anything naked from the comfort of their home and that product is at your front door within two days on Prime free shipping.
The brand that makes the easiest for the consumer to do business with them is a brand that wins. Therefore, you must evaluate your client base, find out what their needs are, and how have they changed. Become the solution’s expert and innovate to meet their demand. If you don’t, your competitors will. It’s that simple. Ask yourself, “What business are you at? What business should you be in?” I don’t know if you’ve ever watched the movie, The Founder. If you haven’t, you should. It’s one of the best movies ever based upon the McDonald’s journey.
The brand that makes it the easiest for the consumer to do business with them is the brand that wins.
Ray Kroc grew an empire and took it over from the McDonald brothers. Ray Kroc was in the bank and he had already mortgaged his house, coming only personal assets with business assets. We had already taken out a mortgage on his house, but he was upside down in assets and inventory. He was at the bank trying to borrow more money and the loan officer said, “No. What collateral do you have?” He had none. There was a gentleman that was sitting around the corner in a cubicle and he overheard the conversation and he followed Ray Kroc out of the bank. He followed him down the street. He said, “Sir, I was listening to your whole conversation. I think I can help you.” Ray goes, “What do you mean?” He goes, “What business are you in?” Ray said, “I’m in the restaurant business. I have McDonald’s.” He said, “No, wrong answer. What business should you be at?”
Ray thought about it and he goes, “I don’t know what you’re talking about. I’m in the restaurant business.” This gentleman said, “You need to be in the real estate business because if you’re in a real estate business, that’s a game-changer. You can go up and buy the land, build the property, lease it back to the franchisees. If the franchisees are not compliant, you get to evict them and put another franchisee in there. You have leverage and control, plus you have equity, which you can go ball more money.” That one question turned Ray Kroc and McDonald’s around dramatically. It put them to the next level. McDonald’s is the largest real estate holding company in the world. Think about that one question, “What business are you in and what business should you be in?”
Ask yourself, “How can you innovate, pivot and wish to stay relevant in the mind of your clients?” Look at Apple Computer. What business were they had? They were in a computer business. Steve Jobs returned and asked the question, “What business are we in? What business should we be in?” It’s the most important question you should ask in your business. That one question led Apple to innovate the iPod, iPhone, iPad, iCloud, iLife and iTunes. It was a revolutionary move that completely catapults them to the next level and put them on the top because they were in the computer business. What business are they in? They’re in a connection business because you’re being connected by your iPhone, iPod or iPad, everything. It was the biggest move that this company can make. It took them from zero to hero quickly by that one question. It completely catapults that business to the next level.
One thing that Steve Jobs does so well that I like is he doesn’t ask clients what your needs or wants are. He does something completely revolutionary, different, and unique from anyone else. He goes in and asks the company the question, “It’s not about what the clients need and want.” “It is.” “What if they don’t even know what they want or need. Why don’t we create it? We’ll create demand.” Nobody was walking around with iPads, iPods, iPhones and all of this stuff before. Steve Jobs created the demand and everybody else followed. Look at your brand because when Steve Jobs created demand, it elevated a brand traumatically. Look at your business and ask, “What demand can I create that my competition is not doing? What am I can I create that the consumers don’t even know they need?”
Like Amazon, how many were shopping from home and could virtually buy anything they want and have it delivered in a matter of two days with free shipping? Amazon created that demand. Ask yourself what business are you in and what business should you be in? This one question is transformational, not transactional. Take some time, do some soul searching, get into a quiet place, and ask yourself. This one question can make you millions, billions, then pivot, innovate, market and take massive action. That’s what Steve Jobs did. That’s what Ray Kroc did from McDonald’s. What are you going to do? Let’s start by asking the question then pivoting and taking that massive action. Thank you so much for joining me on another episode. I can’t wait to see you next time.
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