Why would so many who had failed willingly put themselves through the fire again?
Some say it's because entrepreneurs tend to share certain characteristics. They're achievement-oriented, optimistic, creative, and able to delay gratification, says Bala Cynwyd (Pa.) management psychologist David Weiman. "They have an ability to keep going even when they don't have others standing shoulder to shoulder with them," he says.Take Phil Holland. In 1970, he had personally guaranteed a string of restaurants that went under, leaving his family broke. A friend offered Holland a high-paying management position in a prestigious corporation. "I turned him down in a heartbeat," Holland recalls. "I knew I couldn't go back and work for somebody else." Instead, he borrowed $5,000 and opened his first doughnut shop in Los Angeles, happy to be independent. Holland's Yum Yum Donut Shops chain grew to 138 stores before he sold it in 1989.
Of course, not everyone is as successful as Holland, and there's a flip side to such confidence. George Cloutier, whose Waltham (Mass.) American Management Services counsels about 500 on-the-skids businesses annually, says entrepreneurs' excessive optimism can take the form of denial. One result: Finances don't get enough attention.
Indeed, while undercapitalization historically has been cited as the leading reason for business failure, turnaround experts now lay the blame more on poor financial habits than on a simple lack of cash. "If I ask 100 small-business owners how many of them do monthly financial statements, 90 of them will not raise their hands," says Gene Fairbrother, president of MBA Consulting in Coppell, Tex. Entrepreneurs also get into trouble by obsessing over sales rather than learning to operate efficiently and improve margins. The fix might be as simple as installing a controller to cut costs, increase prices, and hound deadbeat customers.
Unfortunately, financiers are often wary of entrepreneurs coming back for seconds. "When someone tells me their previous business was 'a great learning experience,' I assume they've gotten whomped," says Miles M. Stuchin, founder and president of New York-based commercial finance company Access Capital. He tells them, "I'd rather earn than learn." To win over backers, Stuchin suggests a more forthright attitude -- explaining what went wrong, pointing to specific shortcomings and detailing how they'll be handled next time. Luckily, entrepreneurs, too, would rather earn than learn. By Karen E. Klein