05/30/2009 05:12 am ET | Updated Nov 17, 2011

Why Most Small Businesses Fail and What to Do About It

Small business is big business. In the United States, more than half of all jobs are in companies of 100 people or less and more than 10% of all people are self-employed.

Yet most small businesses fail.

Why is this? And what can you do about it?

The biggest problem is that most small business owners don't really own their businesses. They act like employees rather than entrepreneurs. They love providing their services, but desperately wish they didn't have to do all that "business stuff" that goes with it. They assume that 80% of their success will come from the quality of their services. In reality, 80% of success comes from the quality of your business systems. It comes from the quality of your recipe for success.

Building a business is like baking a cake. It requires a set of ingredients and a recipe. If an ingredient is missing, or a step is left out, it doesn't work. Yet most small business owners and practice builders focus all their energy on just two or three of the ingredients, and don't even realize they need a recipe. Then they wonder why business always seems so tough.

Small business guru Michael Gerber says that the fatal assumption most service providers make is: "if you understand the technical work of a business, you understand a business that does that technical work." In other words, we assume that all we really need to do is offer a great service and have great intentions, and clients will beat a path to our door.

But this simply isn't true.

An employee asks "what do I need to do today?" A business owner asks "how's my recipe for success doing today?"

Employees get caught up in doing what's urgent, and measure success according to how busy their day was. A business owner focuses on doing what's important, and measures success according to the goals and key metrics of the business.

Employees build a business through trial and error -- by making all the mistakes themselves. A business owner constantly seeks to learn from others' mistakes -- by learning which recipes have worked for others, and which ones haven't.

This challenge is particularly critical for coaches, counselors, healers and other service professionals. In fact, most practice builders have a hard time even admitting that they are a business owner. And when push comes to shove, they find they'd rather do just about anything other than actually sell their services.

If this resonates with you, here are three key questions to ask yourself.
1) Do I really want to be a business owner or an employee?
2) What challenges are standing between me and the business I want to own?
3) How can I get support with those challenges?

During the boom times, many people with employee mindsets managed to keep their small businesses and service practices afloat, without having to really learn how to own their businesses. That's no longer working.

The good news is that there are tremendous resources available for small businesses and practice builders, to help you take this challenge and turn it into an opportunity. Here are two.

  1. The E-Myth Revisited, by Michael Gerber: Required reading for small business owners.
  2. Selling By Giving: Conscious practice-building for service professionals.