The data is in: this is what separates successful entrepreneurs from average business owners

Have you ever wondered why it is that some people in business become successful, while others seemingly struggle to go beyond the struggle?

We decided to find an answer to this question by conducting a reflective analysis of 18 individual, unrelated business owners we have worked with over the years. In this analysis, we have decided to come at this question from an individual mindset, behaviour and trait perspective. The selected businesses and their owners are representative of the business success spectrum, covering:

• Successful, profitable, growth focused businesses operated by successful entrepreneurs, including joint owners.
• Inherited businesses.
• Profitable small businesses that lack drive from their owner, these businesses just tick along.
• The startups operated by the entrepreneur.
• Micro businesses struggling to get ahead.
• Unethical business that barely survives.
• Failed businesses that were once fast growing, profitable ventures.

Now, for ease of reading and to get to the interesting bits, we will skip the ‘how we measured and analysed the data’ section. If you do want to understand our research method, simply scroll down to the last section of this article which discusses this.

What did we measure?

• 7-core categories consisting of:
  • Energy
  • Entrepreneurialism
  • Financially astute
  • Personal development
  • Strategic
  • Structure
  • Values
• 32 sub-categories – this list can be found in the ‘how’ section of this article.

It is obvious that anyone who owns a business can be called a ‘business owner’. What most people don’t realise however is that there are actually two different business owner personas. There is the ‘entrepreneur’ and the ‘self-employed’. You can read the definition of these, along with a handful of other terminologies used in this article, under the ‘definitions’ heading found towards the end of this article.

So, what did our analysis uncover?

Table 1. Determinants of Business Success – CLICK THIS IMAGE FOR A LARGER VERSION!

As you can see in Table 1:

• Successful, profitable, growth focused businesses scored the highest across all categories.
• Micro businesses generally scored the lowest on most categories, apart from values.
• The unethical business scored low on most categories (not surprising).
• Profitable but lack of drive type businesses scored relatively mid-line on most categories, with the exception of strategy which was low, and values which was higher.
• The startups landed as expected, especially when it comes to entrepreneurialism which was the highest amongst all business types.

If we draw a horizontal line right on the halfway mark (0.50 mark), we can see that an interesting story emerges. If we take out the failed businesses for now, there is a clear pattern that splits our business types into 3 groups:

Group 1 – Led by Entrepreneurs:

• Successful, profitable, growth focused – these are excellent businesses owned by highly entrepreneurial individuals. All of these businesses turnover millions, are worth millions, and can operate without the owner/s.
• Startup, huge potential – they have not yet ‘made it’, but these business owners scored high, indicating that they have the potential to ‘make it’.

Group 2 – Led by the Self-Employed:

• Micro mindset, micro businesses – these businesses are stuck in a loop and will most likely fade away with time. Sadly this is where a large portion of Australian Small to Medium Enterprises fit in.
• Unethical, barely operating – we can see the correlation between low values and generally low scores with this business.
• Profitable but lack of drive – not much separates them from the micro business, except that these businesses started with entrepreneurial enthusiasm and drive which faded out over time as comfort set in. This is another common category that a significant number of Australian Small to Medium Enterprises fit into.

Group 3 – The grey area:

• Inherited businesses – they belong in their own category, for the future of these businesses is grey. The lack of entrepreneurialism, energy and personal development from the owners indicate that troubled times are ahead for these businesses. 

Discussion

In a nutshell, we can see that entrepreneurs are more likely to become successful in business than the self-employed business owner. They tend to build more profitable, competitively better positioned businesses that can operate without their involvement. Entrepreneurs also tend to take a portfolio approach. That is, they tend to have more than one business interest, and they tend to diversify their asset portfolio by using the funds generated by their business/es to acquire properties, shares in other companies and other asset classes.

Having said this, when entrepreneurs fail, they tend to have much bigger falls than the self-employed business owner (at times in quite a spectacular, sudden fashion). The risks that entrepreneurs take are at times more aggressive than they should be, hence the drastic falls.

Self-employed business owners are typically risk averse, conservative individuals. These business owners are quite often more than happy with where they are at with their business and have little or no interest in achieving anything beyond their current levels. We can see that these individuals scored low on all scores except values.

The self-employed individual who is keen to build their business but unable to fully embrace the entrepreneurial mindset and associated behaviours tend to be their own worst enemy. They may achieve some growth in the early days; in fact, they may even manage to build a multi-million dollar turnover small business that is profitable (in our case these are the ‘profitable but lack of drive’ business types). However, this usually comes at a cost such as being severely being tied to the business or overworked or over stressed or unhappy or any combination of these. Letting go is hard for these people; the business is all about them in many cases, even if they have staff and turn over one or two million dollars.

Inherited businesses are interesting; they can go either way, really depending on how the individual taking over perceives their inheritance, combined with their own entrepreneurial drive. In this case, both business owners considered for the analysis were setup for life as a result of their inheritance; a level of comfort was seen by the advisors working with these business owners that attributed to malaise and general lack of passion for their businesses. Due to the size of each business they had enough market share to just keep on going forward despite the lackluster leadership, however, things can quickly change in the unforgiving world of business.

Coming back to the failed businesses. We can see that these were led by entrepreneurs with high energy and quite a strategic focus, however, as we can see, their values were very low, as were the financially astute and personal development scores. These point to a correlation between success and the measured category scores, especially those of entrepreneurialism, values and personal development. It thus comes as no surprise that these businesses failed. Ego is a huge preventer of success…

Summarising this data analysis, scoring high across the 7-core individual trait/behaviour categories of Energy, Entrepreneurialism, Financially astute, Personal development, Strategic, Structure, and Values are keys to becoming successful in business from an individual owner perspective. There isn’t one single predictor, rather, it is a culmination of behaviours, traits, attitudes, and mindsets that are significant influencers on whether a business owner is going to achieve business success or whether they will be doomed to struggling for the rest of their business careers. Having said this, we can clearly see that low values are only attributed to either failed or unethical, barely operating businesses, so one has to pause and reflect on this, concluding that values play a critical role in the success of any business.

We trust you enjoyed reading this article and have gained valuable insight into what it takes at an individual business owner level to become successful in business. Reflect on this and consider where you fit in across the various categories and sub-categories. The future of your business is in your hands!

For those of you interested, the next two sections consist of definitions and the ‘how did we analyse the data sections’.

DEFINITIONS

• What do we mean by ‘become successful in business’: this statement refers to an individual who has built a business that is consistently profitable, consistently growing, evolving with the times, is desirable by others from an acquisition perspective (it has value and is sellable), which can operate without their daily input thanks to their team and the combination of systems and processes.
• Entrepreneur: an individual whose passion and vision drives them to building growth focused businesses that are not reliant on them, with the goal of turning these businesses into passive income generating valuable assets.
• Self-employed: an individual typically operating a business which in reality is a ‘self-employed’ job that they are tied to, which cannot function without them, and frequently (but not always) has little in terms of value. These individuals may be passionate about their business, but they lack the entrepreneurs drive and vision to make it more than a ‘job’.
• Micro business: a business turning over less than $500,000 per annum, and typically employing fewer than 2 people.
• Small business: a business turning over less than $20million per annum.
• Medium business: a business turning over anywhere between $20million – $200million per annum.

Important Note: there is nothing wrong with being a self-employed business owner. Not every business owner has entrepreneurial desires, some business owners are simply happy with the status quo and not having to worry about the headaches that come with being an entrepreneur. The definition of business success is varied and means different things to different people, this is purely our take on it.

HOW DID WE ANALYSE THE DATA?

To quantify our mental model of what business success looks like, we first created a list of positive and negative traits which we have observed for each individual in our list. We took these lists and combined them, creating an aggregate list. We then proceeded to rank each individual across these traits out of he 3 possible scores of 0, 0.5 and 1, where 0 was the lowest score and 1 the highest. These traits were then categorised and the scores for each category calculated, using an AVERAGE score calculation.

We then mapped the results, creating the chart we’ve referenced in this article. Microsoft Excel was used throughout this entire process.

Here is a snapshot of the categories and sub-categories:

This article was written by Peter Spinda, Principal and CEO, Benchmark Business Advisory. All contents are copyright Peter Spinda and Benchmark Business Advisory. Please contact Peter should you wish to use any of this data for your own purpose. Peter can also be contacted directly for media enquiries.