I have a client who has a strong desire to open a retail business. According to Michael Gerber, author of the E-Myth books, many business owners were once employees who thought they could do it better if they were on their own. He argues that there are three main “hats” a successful business owner must wear. The first is the hat of a technician, and most who venture out on their own wear that hat comfortably since they are skilled at their particular craft. The second hat is that of a manager. They have to be able to manage the inventory, people, processes, etc. The third and perhaps the most important hat is that of an entrepreneur. This role requires someone who can see the big picture and steer the ship.
Now let’s get back to my client. He is an excellent technician, in fact, one of the best at what he does. I honestly don’t know if he’s good at management or if he could function in the entrepreneurial role. Even though you can grow into these other two roles over time, you should possess some aptitude for it. As an advisor, I can analyze this decision from a numbers standpoint. I can forecast the probability of making a profit in a particular month using Monte Carlo simulation. What I may not be able to determine is if he will be able to manage and steer the business. Businesses that fail do so for a variety of reasons, but I suspect one major reason is because the owner wasn’t good at “running the business.”
So how do you advise a client in this situation? A lot depends on the circumstances, but I think if you can be realistic with the numbers, they will point in a particular direction, whether to go forward or not. If the numbers don’t look favorable but the client wants to go ahead anyway, to protect yourself you may want to have the client sign a document indicating your position for the record. I hate to sound paranoid but at least this will provide you with some protection if the business should fail. And who knows, it may work out well and you’ll learn a valuable lesson….trust the gut.