I recently came across this incredibly inspiring article in the Idaho Statesman which describes how Rob Roberts, the founder and owner of R&M Steel in Caldwell, ID, built an incredibly successful small business over the course of a lifetime.
What built R&M Steel? What transformed it from a mere dream to a business with more than 60 employees, 90,000 square feet of work space and office space, and an 80 acre campus?
Many business owners might point at some lucky breaks or to some clever decisions. Roberts gives credit to one thing above all else: frugality.
From the article:
Rob Roberts said he hasn't sought a loan or credit of any kind since his first year in business in the late 1960s. Forgoing credit is a business and lifestyle philosophy that may seem foreign in these times, when individual and business borrowing has buried the U.S. in debt.
The prevailing notion of small business success is that you have to leverage yourself up to your eyeballs in debt to be able to swing the big expenses you need to really grow your business. Thanks to that kind of risk, the vast majority of small businesses fail. Roberts succeeded, not by borrowing up a storm, but by being conservative with his money and his choices.
Roberts isn’t alone in this. The article goes on:
A study by the Small Business Administration released in June says that from 20 to 25 percent of small businesses in the U.S. are "non-borrowers," meaning they do not use any credit.
"These firms have received virtually no attention from academic researchers," according to the study by Rebel Cole titled "Bank Credit, Trade Credit or No Credit: Evidence from the Surveys of Small Business Finances."
That one sentence really shocked me. These firms have received virtually no attention from academic researchers.
In other words, the reason so much small business advice revolves around going into debt is because the people writing that advice are ignoring the 25 percent of American businesses that succeed by ignoring that debt advice.
I’m not arguing that freedom from debt is the best solution for every business. However, I do think that leveraging yourself into a tremendous hole of debt isn’t the best solution, even if that’s what all the advice tells you.
Rather than expanding your business immediately, wait a few years and save some of the money for expansion.
Rather than buying everything on credit from your supplier, pay cash for as much as you can and find a source of credit for the rest that supports your small business in a useful fashion.
Rather than expanding like crazy into an uncertain market with borrowed money (and borrowed time), expand slowly and pay the bills with cash.
In other words, take it slowly. Small business success is very rarely a race. We only get that idea because the people that study and report on businesses focus heavily on businesses that jump into the race.
Think a little less like the “hot” and soon-to-be-bankrupt entrepreneur of the week and think a little more like Rob Roberts.