Lately owning your own business is enjoying a revival. Newspapers, magazines, and books carry romantic success stories about new enterprises here and there. As most who have tried will attest, however, for every success story there is a pile of sad ones. It is easy to step onto the own-your-own-business playing field but difficult to score a touchdown. In short, it is tough to build a successful enterprise of consequence.

A variety of things can go wrong. The outcome is that sales volume, which is always uncertain, turns out to be less than expenses, which are always certain. Said in simplest terms: There is negative cash flow—more money departing than arriving. If the drain continues longer than anticipated, the financial foundation of the business erodes. “Happiness is Positive Cash Flow,” should be the first play in the entrepreneur’s playbook. In many respects, building a business is like playing professional football without a time clock. The bruising contest never ends. In short, entrepreneuring isn’t for the faint of heart.

Still the call to entrepreneuring beckons. The Wall Street Journal reported some time back that over 37% of the 100 million households in the USA “include someone who has founded, tried to start, or helped fund a small business.” The people in this groundswell include software designers, florists, biotechnologists, new farmers, B&B proprietors, niche retailers, and health care innovators. Some will prosper through a combination of inspiration, perspiration, and business know-how. Understanding the rules of the game does improve the odds of putting some points on the scoreboard.

There are three levels of complexity in the game of entreprenuring: Self-employment; small-business ownership; and venture building. The three are similar in fundamental ways (sales, expenses), but the higher levels require more resources—human and financial.

Self employment means you are your own boss. People at this level are very familiar to us; they include dentists, plumbers, CPAs, movie stars, beauticians and barbers, real estate brokers, and a variety of independent retailers. “Keep thy shoppe, and thy shoppe will keepe thee,” is an ancient axiom. Entrepreneurs at this entry level typically sell a recognized skill or service; they may or may not face serious competition. For example, a singer attempting to break onto Broadway has an uphill battle regardless of his or her talent. But a physician might open an office in a remote town and be the only M.D. for miles. Movie star, Arnold Schwarzenegger, was self-employed. Now he is managing (trying to, anyway) a large organization, called the State of California! Often the self-employed don’t require much start-up capital, and employee matters are minimal because there are few, if any, employees. On the other hand, when a self-employed boss is ill, revenue suffers! The life of the enterprise depends primarily on the life of the owner.

Small-business ownership, the second level, blankets the nation. Entrepreneurs at this level are those who start or buy restaurants, local banks, larger retail stores, construction companies, manufacturing firms, and various kinds of distributorships, to name a few of the many possibilities. These people generally face a more complicated task than do the self-employed. Often a significant amount of money is required to initiate or purchase the business. The dollars come from personal sources or institutional supports such as banks or finance firms. The capital in a start-up is used for employees, inventory, equipment, fixtures, and facilities. Often money is also needed for a sustained effort to attract and hold customers, i.e., for sales and marketing. As far as a financial goal, small-business owners sometimes want to build a business that will be around after they are not. With proper planning and adequate performance, an owner or ownership group can create value in an enterprise, value that is independent of the personal skills and personalities of the key people at a given point in time. Building value may provide the owner(s) the opportunity to sell a “going concern” at an acceptable price at some point in time. Such a concern can also passed along to children or other family members. At the risk of over-generalization, it can be said that while self-employed people seek to make a living; small business owners seek to make a living and, in addition, to consciously build their net worths, which is a somewhat bigger task. Different financial objectives require different plans and resources.

Venture builders are people who operate on the third level of complexity. People at this level of the entrepreneurship game set out to build a BIG company from Day One. A team of people plus external—usually other peoples’—capital is typically required. With such money comes attorneys, directors, and a myriad of complicating factors. Venture builders of the Bill Gates variety are national heroes these days. Venture building is the advanced level of entrepreneurship; participants compete in the Olympics of capitalism.

What can an appreciation for the levels of play do for a prospective or active entrepreneur? When a person is clear about his or her ambitions and intentions, he or she can better avoid the common mistakes that sink budding enterprises. Credit agencies routinely leak the news that over sixty percent of all fresh ventures fail. In an August 2003 Business Week news brief labeled, Keys To Failure, the top reasons most businesses fail were listed as:

• Too Much Debt (28%);
• Inadequate Leadership (17%);
• Poor Planning (14%);
• Failure to Change (11%);
• Inexperienced Management (9%);
• Not Enough Revenue (8%).

Sobering.

Entrepreneurs at all three levels are wise to be thoroughly familiar with what it takes to win in the business they are undertaking. If you are a budding entrepreneur, look for models of others in similar businesses who have gone before. If you are short of required know- how, team up with someone who has it. If the proposed project is capital intensive, don’t start without enough money in the bank or deep-pocket partners. If you will have to steal customers from Bank of America or Safeway to succeed, make sure you have a heavyweight marketer on your team, in your business plan, and in your expense projection. If you are opening a barbershop in a new retirement community, check to see if the prospective residents have hair and can afford regular trims! Homework pays.

Seasoned venture capitalists seldom invest money in enterprises that do not include executives proven in doing precisely what needs to be done “in the particular type of business” at hand. Why should a self-employed entrepreneur or small-business person pour his or her available resources into a little-understood business if the pros won’t? They shouldn’t. Failure Keys A. and F. above (too much debt, too little revenue) are the predictable results of skimpy leadership, poor planning, rigidity, and inexperience—also listed above. You owe it to yourself to learn what you need to know before going out on the field. Otherwise it can be a long day.