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Small Business Big LifeFive Steps to Creating a Great Life with Your own Small Business
By Louis BarajaS
Thomas NelsonCopyright © 2007 Louis Barajas
All right reserved.
Chapter OneWhy Start a Business?
Two aspects of the American dream are ingrained in the minds of most people in this country. The first is to own your own home. The second-and I believe more powerful-is to create and own a successful business. Small business is the foundation of the United States economy and the bedrock of its prosperity.
As one of AOL's Latino "Mi Negocio" small business experts, with my own small business (a financial and business planning company), many of my clients are immigrants, minorities, and the working poor. These are men and women just like my father, who came to this country with limited education and no training in any skill. After nineteen years with a lighting manufacturing company, my father left his job because he wanted more for himself and his family. Like hundreds of thousands of people every year, he thought to himself, I can do better on my own, and he started his own wrought iron business. He worked very hard, treated his customers fairly, and supported his family with the income from his business for thirty-three years.
Almost every workday I get calls and e-mails from people and meet with clients who, like my dad, either want to have or already own some kind of business. I've seen their success stories and failures. I've seen people who are just in the dreaming phase and those who are ready to cash out and sell their thriving enterprises. I've lived the ups and downs of starting and running two small businesses myself. And I've observed that far too many people have little idea of why they want to create a business, much less how to run one.
According to many business surveys, the three most common reasons to start a business are:
to make more money
to have more control of your time
to sell a better product or deliver a better service
In my experience, however, there is another, more compelling reason why people decide to start their own businesses: they're forced into it by economic necessity. No matter what they do, they can't earn enough to support themselves and their families on their current income, and they believe a small business is the answer to their situation.
Henry David Thoreau once wrote, "The mass of men live lives of quiet desperation." Every single day I see people who are living lives of quiet financial desperation. If you ask how things are going, they'll smile and say, "Fine," never telling you they just went home and had a fight with their spouse, who spent an extra forty dollars that week to replace a pair of shoes. Or they're always looking to spend as little as possible for anything. Recently a friend of mine bought tires for twenty dollars each. "Isn't it great to find tires for so little?" she said to me. The tires weren't new, of course; they were retreads. But she couldn't afford anything better.
Financial desperation isn't confined to people who live in rundown neighborhoods. Recently, I heard a morning DJ on one of the radio stations here in Los Angeles talk about being part of the "squeezed" middle class. He said, "If someone makes over $100,000, they're supposed to be in the top ten percent of all wage earners in this country. But if you fall into that category, please call me and tell me if you feel rich. I live in L.A. and I make six figures, but between the house payment, insurance, taxes, car expenses, and just living, I'm barely squeaking by. When I or my wife or my kids need new shoes, we don't go to Nordstrom, we go to Payless. The other day I went to Taco Bell, and I had to look through my car to find enough spare change to buy a couple of tacos. Anybody else out there in the same boat?" For the next hour, the guy couldn't take the calls fast enough. In today's modern world it seems that earning enough to pay for the basics of living is getting harder and harder.
Most people I know do not want to be rich; they just want to achieve what I call financial dignity. Financial dignity is being able to cover your financial obligations so you can sleep well at night. You can make the mortgage payment or pay the rent each month. You have health insurance for yourself and your family so that you can get decent medical care, and you can afford to go to the doctor without having to cross the border to receive medical help, as many Latinos in Southern California do. You can pay for eyeglasses and eye exams and dentist visits. (A lot of people who don't have good vision won't go to the doctor because eyeglasses aren't covered by insurance.)
Financial dignity means that you are able to send your children to decent schools. You have a little money put aside for a rainy day. You can invest each year in a 401(k) or other retirement plan. You pay your bills on time; there are no bill collectors chasing you. When you need to, you can pay for big items like furniture or appliances without having to put them on layaway or dip into your emergency fund. You can take your family on a decent vacation once a year and create some memories. You can help your brothers or sisters or parents in an emergency. You can go to a restaurant and order what you like, instead of having to choose the least expensive item on the menu. You can take your spouse to a movie once in a while. You have a decent car that doesn't break down all the time because it's so old. You can bury a loved one without having to borrow money. You can donate to your church or favorite charity. You can pay your property tax bill or other major yearly expense without having to wait for the tax refund check.
I'm sure you agree that none of these are extravagant financial goals. None of them takes a lot of money if you look at the expenses one by one. But put together, they add up to more than many people can earn working in America. And for far too many of us, the difference between financial dignity and financial desperation is only one paycheck. If either you or your spouse gets sick, has an accident, or loses your job, you can slip from dignity to desperation in a moment.
It doesn't matter if your job is blue collar or white collar, professional or manual labor, if you've been in this country for a year or forever-everyone deserves the opportunity to achieve financial dignity through his or her own efforts. But for many people, the only means of achieving financial dignity is to start a business. For them, becoming an entrepreneur isn't a luxury-it's a necessity born of their need for a better life.
When my father came to Los Angeles, he didn't have any idea of creating a business; he just wanted to earn a better living for himself and his family. But he found himself stuck in a low-paying job with little or no opportunity for advancement. And he also lacked the formal education that could have landed him a higher-paid manager or supervisor position. So out of necessity, he created his own business.
Nowadays I see people all the time caught in the same situation as my dad. They are working several jobs just to support their families, and they do not have the time or resources to get the education they need. As a result, they do not become professionals, they do not become executives, and they do not move up in the corporate world. They are stuck in low paying, service sector "McJobs" that provide little income and even less respect. Their lack of education forces them to go out and create their own solutions to produce more income. The only way most of them can see to make more money and provide their families with a better quality of life is to start their own small businesses.
What my father did have, and what so many immigrants have, was the drive to succeed and the willingness to work hard. More important, he had optimism. He dared to dream of creating something better for himself and his family. That same dream brings people to our country every day. Dreaming of a better life is the fuel that propels every would-be entrepreneur.
If you're reading this book, I believe you, too, have dared to dream. You've either created your small business already, or you've been inspired or motivated to think about starting one in the future. If so, congratulations! You have completed the most important step of all: you've opened the door to the possibility of a new, better, different future for you and your family. You believe enough in yourself and your abilities to consider taking on what can be one of the biggest decisions of your life-to leave the security of a job to create something on your own.
I urge you not to take this step lightly, because it will mean a lot of hard work and sacrifice. However, there are ways you can improve your odds of success and, more important, your odds of having a great business and having a life at the same time. This book is designed to show you some key ideas, beliefs, and strategies for starting and running a small business that will (1) provide you with a good income, (2) give you enormous satisfaction both in terms of the work you do and how your work fits into the rest of your life, and (3) become a valuable asset that you can sell when you're ready to move on. But in the same way your small business starts with a dream, creating that small business starts with an understanding of what it will take to make the transition from who you see yourself as right now to the small business owner you can become.
THE LADDER OF WEALTH
When I teach people about attaining financial greatness, I show them something I call the Ladder of Wealth. (Robert Kiyosaki uses a version of this ladder in his book Rich Dad, Poor Dad.)
Most people enter the ladder at the bottom as students, interns, or apprentices. They usually make very little money, if any at all. They're investing time and energy to master a specific job or profession.
After a certain amount of time and/or demonstrated ability, they become employees and are paid for their work. It is possible to become financially successful as an employee, if you work really hard and put as much money as is allowed in your 401(k). But you probably will have to work a very long time and save a lot, or be in the kind of job that requires technical skill and thus pays a high hourly wage. In my dad's case, employment was never going to produce the kind of financial dignity he wanted for his family.
The next step on the Ladder of Wealth for most people is to become managers or supervisors. The company invests in you, trains you, and then promotes you, or you leave the company to become a manager or supervisor somewhere else. Managers make more money than a typical employee, but the way to wealth is pretty much the same: you keep working, put as much as you can into your retirement savings, and hope your company stays in business.
At these two levels-employee and manager-the way to wealth is through income. Some businesses will allow employees and managers to participate in the equity of the company (that is, the value of the business) by putting company stock into the individuals' retirement accounts or giving stock options or bonuses when the company does well. But for the most part, if you work for someone other than yourself, you will run into what I call the income ceiling: you only can make as much as the company is willing to pay you. That's why so many people are eager to do something that can generate greater rewards. (In some cases, people leave a company because they have higher standards. They look around and think, I always wanted to do what I'm doing, I'm working hard, but the owner's never around, and the company just doesn't care about us or our product. I believe I can do it better, so I'm going to go out on my own.)
Most people who start their own businesses choose their product or service based upon what they did in their previous jobs. They do what they were doing before, only this time they're working for themselves: they become self-employed. The jump from manager/supervisor to self-employment is tricky. The great news is that there's no income ceiling. The bad news is that there's no safety net, either. You are directly responsible for every cent of income you produce. You can make a lot more money, but you can make a lot less as well, especially at the start. You're also responsible for business taxes, Social Security, the full cost of health insurance, all retirement savings, supplies, raw materials, and so on-things that employers often provide.
The problem with self-employment is that wealth is still achieved through income rather than equity. If you're not working, there's no income; and when it's time to sell the business, there's nothing to sell because all the value of the business is represented solely by your work. Essentially, you have created another job, working for a different boss-yourself.
Showing people how to step to the next level, that of a business owner, is both my expertise and my passion. As a business owner, you're building something that has value in addition to what's provided by your individual efforts. You create an entity that brings in money while you're not there, allowing you to take vacations, go to your children's school and sports activities, or spend time with your spouse. You can work on making your business better instead of having to drive the truck or prepare the taxes or press the dry cleaning or sew the shirts or create whatever product or service you provide. You're also building an asset that someone eventually will want to buy or that you can pass on to your children when you retire.
There are two additional rungs on the wealth ladder: investor and philanthropist. As an investor, once you've created a small business and you're building equity, you either can put your profits in your retirement nest egg or use them to grow your business. Eventually you may do well enough to invest in another business, either your own or someone else's venture. The goal here is to continue to build equity for your future.
At the final level, philanthropist, you have an income stream that allows you and your family to live at the standard you desire, and you can use your additional profits to make a difference in the lives of others. Warren Buffett and Bill Gates are both superlative examples of men who have taken the fruits of their businesses and used them to do good in the world. However, in every community you can find examples of small business owners who are sponsoring schools, amateur sports teams, clinics, and charities. The good news is that you can adopt parts of the philanthropist mind-set all along the way and increase your satisfaction and fulfillment in the process. We will talk more about the joy of contribution in later chapters.
Is it possible to go from being an employee or manager directly to business owner? Can you transform your current business from self-employment to something that has life beyond your individual work? Absolutely. I believe the path to a great small business and a meaningful life is clearly marked, but it takes energy and commitment to walk it successfully. There are also many stumbling blocks, which I cover in "The 22 Temptations of a Small Business Owner" in the appendix. This book is designed to help you map out your own unique path to success, based on your values, goals, needs, desires, and life situation. If you follow its suggestions, you can reach the goal of owning a business and having a satisfying life more quickly than you ever imagined.
THE THREE M'S
When you decide to make the leap from employee or manager to small business owner, there's a lot of work to do first. You've got to figure out what business you want to start; you have to create plans for that business; you have to amass capital either from your own savings or through financing or investors; you have to figure out where to put your office or storefront or facility. There are a hundred different decisions, plans, and dreams you must implement. However, in order to be successful, I've found that the first area where you must put your efforts is the one between your ears.
Excerpted from Small Business Big Life by Louis BarajaS Copyright © 2007 by Louis Barajas. Excerpted by permission.
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