Open-and-Shut Businesses

No more open-and-shut businesses

What's worse than retiring or getting laid off? Sinking your severance pay, your savings or borrowed money into an "open-and-shut business" (Israelis call them "ritch-ratch" businesses, after the sound of a zipper) that opens and closes in no time!

Business and marketing experts argue over whether the number of businesses started every minute around the world is in the tens of thousands or the hundreds of thousands... Either way, one thing is clear: if even a handful of them survived, our cities would be flooded with businesses and offices.

Sooner or later, many of these ventures turn out to be mistakes, and they bring their owners a severe financial crisis and sometimes emotional damage as well. How much damage depends on the size of the investment, on how long it took to recognize the problem and decide to close, and of course on the entrepreneur's emotional resilience and how supportive and stable their family is.

So what makes so many people take a spin at such a dangerous business roulette?

As it turns out, there are plenty of reasons. The belief that "if you're self-employed, you're rich" and that "in your own business, the sky's the limit" pushes quite a few frustrated employees to clear the hurdle and open a business. Most of them go in without any relevant knowledge or experience. In fact, the opposite is true: someone who has developed an employee's mindset, filling a defined role in an existing business or plant run by others, will in many cases struggle to develop the mindset of an entrepreneur, an owner or a general manager.

The idea of bringing in a professional manager to run the new business is usually rejected out of hand. The common attitude among employees who've "made the switch" is: "Now I'm in charge, I'm the one steering, I'm my own boss. I don't need managers anymore..."

Another reason for failure is the "engineering and production approach", also known as the "product approach". An entrepreneur with this approach tends to build the entire business around a particular product or idea (sometimes one he first came across while he was still an employee), on the assumption that the chances of success come from how unique the idea is, how brilliantly the product performs and so on. There's no doubt that a unique, successful product can help a new business succeed, but you have to understand that it isn't the only condition. History is full of good ideas and products left orphaned on the shelf because of pricing problems, unprofessional marketing, or simply because nobody except the optimistic entrepreneur himself was interested in them.

We could go on and list countless reasons for failure, any one of which would eventually be enough to close the business. But most of them can be prevented in advance by checking things out first.

People tend to think that market research is a very expensive, time-consuming process that needs an outside expert involved all the way through, and that it's only for large plants or organizations. Many entrepreneurs also worry that the research itself will expose their idea too early.

Lately it's become clear that there are simple, down-to-earth tools anyone can afford, and they don't necessarily require a business degree or decades of business experience. Tools such as analyzing historical records (in an existing business), observing similar businesses, "do-it-yourself research" like focus groups, "market tests", pilot studies and the like can be carried out by the entrepreneur himself, sometimes with a little help from an outside consultant, and they may well prevent a disaster. What sets them apart is their low cost (less than a fax machine for the office) and the fact that they don't take much time.

A pilot study, for example, based on a small sample (a few dozen people) whose findings are analyzed by hand, can answer questions like these in advance: how to define the product or service, which market segments or groups are likely to buy it, in what volumes and over what time frame, how much they'd be willing to pay and on what payment terms, which key features to emphasize, which promotion and advertising methods will work for it, who the decision-makers in the field are, how it's perceived (or likely to be perceived) by the relevant audiences, what the substitute products are and how much weight they carry in the market, where to put the points of sale, which distribution channels to choose, and much, much more.

Naturally, any business plan drawn up afterward should be based on the research findings. That's the only way to make sure there's real substance behind it, and not just castles in the air.

Yes, the number of open-and-shut businesses can be cut dramatically. Lines like "I didn't know", "the market is weak", "customers just don't get it", "I had bad luck" and so on will, from now on, be nothing but worn-out excuses from someone who chose to bet the whole pot.