Editor's Note: Learn from a panel of experts and entrepreneurs who have successfully financed their own ventures and are helping others do it at the Thought Leaders Live 2013 event May 29, in Long Beach, Calif. Event and ticket information can be found here.
The latest statistics from the Small Business Administration show that new businesses have a 50 percent chance of surviving five years or more. While this dispels some longstanding beliefs that 95 percent of businesses fail within five years, the odds of success are still a coin toss.
Common factors contributing to business failures include insufficient capital, poor management and lack of planning, just to name a few. However, a stealth enemy can also doom business success. This enemy resides in our own psyche--our money beliefs.
Our beliefs about money spring from our deeper beliefs. Our self-image, perception of value and experiences all influence our money beliefs. Gaining insight into one's money beliefs can offer some clarity into one's way of thinking.
Unhealthy money beliefs can destroy a successful business. Some of the warning signs of an unhealthy money mindset might be excessive discounting, a strong need to be all things to all people and operating in a constant state of fear. Here are some sample behaviors that might indicate an unhealthy money mindset.
The Fear Money Mindset
Fear in and of itself is not a bad emotion to posses. The ability to feel fear is innate in all of us and serves a valuable purpose. Fear warns of danger--real or perceived--heightens our awareness, and triggers our fight-or-flight responses. Fear is an important asset when confronting a lion in the wild, but perhaps an inappropriate emotion when giving a sales proposal.
When people operate out of the fear, they are coming from a perception of weakness and scarcity. This mindset manifests itself in a variety of behaviors. Salespeople, for example, may give away the farm for fear they will lose a deal to a competitor. What you really do when you're too quick to dramatically lower a price is devalue your product or service. People are sometimes persuaded by their own perceptions, and the resulting fear can betray their own financial interests.
The Desperate Money Mindset
The desperate money mindset is a close cousin of the fear money mindset. When we operate out of the desperate money mindset, we are operating at a disadvantage. A person with this mindset might try to be all things to all people. While going the extra mile in business or customer service is a wise idea, going too far to either obtain or maintain business has a detrimental effect. When we appear needy or desperate to a customer, our credibility is injured. When we operate out of this money mindset, customers can sense the desperation, and it evokes the question "Why does this person need my business so badly?" The result is likely to be client or customer trepidation, thus perpetuating an individual's heightened sense of desperation.
The Gambling Money Mindset
The gambling money mindset is self defeating; it can take a business down faster than a sea of icebergs can cripple the Titanic. The gambling money mindset can stem from many places but can commonly be traced back to someone's need for action. I have witnessed many once-successful stock and commodity traders blow themselves up purely because they needed action. I once knew of a successful business owner who consistently wanted to take wild risks on speculative ventures unrelated to his core business as a way to bring excitement into his life. He ultimately over-leveraged himself on some rental properties and finally destroyed his business.
Keys to Success
One of the keys to understanding our limiting money mindsets is to uncover deeply rooted beliefs and question their validity.
Here is a simple exercise to help uncover and combat some of your unhealthy money beliefs.
The key to success is identifying some of our closely held beliefs. A very good technique for doing this is to ask yourself what your beliefs about money are and give yourself one minute to write down every answer that pops into your.
Your answers may surprise you. I have seen people fill up sheets of paper with all kinds of conflicting and unhealthy beliefs. Here is an example of what one person had on their piece of paper after completing this exercise.
- "I believe people with a lot of money are greedy."
- "I believe people with a lot of money are successful."
- "I believe people with a lot of money are arrogant."
- "I believe people with a lot of money are formally educated."
There was a host of other conflicting beliefs this person uncovered, but these were some of the stark conflicts. If you hold the belief that formally educated people have a lot of money and you yourself are not formally educated, do you see how it might be difficult to have a lot of money?
Entrepreneurs who look at the viability of a business's potential to make money without first understanding their own money beliefs are potentially setting themselves up for failure. Since money is the fuel that drives every business, people's money beliefs, for better or worse, are going to reveal themselves within every business structure.
A lot of businesses fail for a variety of reasons, but you can enhance your probability of success by developing positive money beliefs.
Marc Pearlman specializes in behavioral finance and is the author of the Positive Money Mindset and host of the popular radio show Your Money Matters! For more about Marc please visit MarcPearlman.com. Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Marc Pearlman, Representative. Your Money Matters! radio show is not affiliated with the Securities America companies.