For the last 25 years, entrepreneurship has been widely heralded as the path to fame, fortune, and following your own vision while avoiding working for “The Man.” It’s nice when it works. More times than not, it doesn’t.

Some 70 percent of businesses fail within seven years, according to the Small Business Administration. In the worst cases, the result is not only business failure but also complete financial failure. What I have learned is that the damage doesn’t stop there. I share this with you as an attempt to bring some reality to the conversation about entrepreneurship. It is not just about passion and innovation and bringing your dog to work. It is also about risk, tenacity and fear. It is also about the repercussions of bad luck, bad decisions and bad economies. I know of four business owners in Chicago who have taken their own lives since the economy turned.

The following story is not that bad, thankfully, but it does offer a counterpoint to the hype. It started many years ago with a friend of mine, John Baumeister, getting an electrical engineering degree and developing his passion and expertise for audio and video systems. He created a company called Baumeister Electronic Architects, and 20 years later, it was a leader in installing high-end audio and video systems in Chicagoland. His staff grew to 40, and it looked like nothing could stop him — until a combination of the housing and the economic crisis resulted in the delay or cancellation of many of his orders. I have known him for several years, and he called me for advice.

He knew he was in trouble when he realized he had no money to pay for the equipment he needed to finish jobs. The funny thing was, his financial statements suggested that his cash position wasn’t that bad. But when I looked at his financial statements, I discovered the problem. Hundreds of thousands of dollars for jobs that hadn’t been completed had been booked as receivables. That’s not proper accounting. I was surprised to learn that Mr. Baumeister had been using an outside accounting firm. But the accounting had been obscuring just how precarious his financial position had become.

Good accounting isn’t a luxury in business. It’s a necessity. Once the numbers were in the right columns, Mr. Baumeister was basically insolvent — and in shock. He owed the bank, his suppliers and his customers money that he did not have. After several days of talking to family, friends and lawyers, he decided to close the business.

Pressing on seemed too difficult. And perhaps it would have been — this is never an easy decision. A company was hired to dispose of all assets in an attempt to make the bank “whole.” Unsecured creditors would get what was left. But if he thought his troubles were over, he was mistaken. Closing your business isn’t like quitting a job. It’s too big a part of your life. It can be very hard to separate the two.

For my friend, the “fun” was just beginning. It started with telling the employees, many of whom had been with him for years. The business had failed, there was no severance pay because there was no money, and they were all out of work in an economy that was spinning out of control. Some cried, most were sympathetic, a few turned bitter.

Next, he gathered his three children, his wife and his in-laws for a family meeting that was even more painful. The two younger children, 9 and 11, were concerned that the creditors would take their beds and they would have nowhere to sleep. They offered to move in with their grandparents if that would make it easier.

Then came the finger-pointing. Mr. Baumeister’s wife and mother-in-law were angry. They blamed much of the situation on a second in command, who had been with him from the beginning and who also happened to be the godfather of their daughter. His father-in-law recognized that the family had no money and suggested they apply for food stamps and welfare. Mr. Baumeister says it really hit him when his 85-year-old mother had to pick him up at the auction site where he’d gone to turn in his car.

Then the calls started at home. A collector for the gas company wanted to know why they weren’t paying their bill. When his wife explained that they had used their house as collateral for the bank loan, the woman responded, “I’m sure you won’t be doing that again!” It kills me how many people think business owners recklessly put their homes up against loans because they want to; they do it because they have to. No one’s ever happy about it.

In all of the darkness, there were some acts of kindness. A neighbor came over to see how Mr. Baumeister was doing and to offer support. When Mr. Baumeister asked how the neighbor was doing, he replied that he’d been diagnosed with terminal cancer. That brought some perspective.

Another casual friend and former customer — not a wealthy man — asked if Mr. Baumeister needed money. He said he could not accept it. The next day a FedEx package arrived with $3,000. Another friend asked Mr. Baumeister’s wife if she would help out at “market day” at their kids’ school, collecting food for those in need. His wife helped out, only to learn that the event was for her own family.

Six months after their ordeal began, I went to dinner with Mr. Baumeister and his wife. He had taken a job with a former competitor, Automated Lifestyles, and he was back to doing what he does best — designing state-of-the-art, home electronics systems. He was trying to make amends with customers that had been left in the lurch. His financial problems were far from over, but at least he was doing what he loved and had a steady paycheck with the potential to make a good income as the economy rebounded.

I asked his wife how she felt. She said she was still mad at her husband and his second in command. She had worked at the company in the beginning and felt that if she had stayed on this wouldn’t have happened. I told her that I thought it was great that she had such a clear view of the situation from her armchair in the living room.

I asked her why she wasn’t mad at the accounting firm, which, as far as I could see, didn’t do its job. Mr. Baumeister nudged her: “Tell him why!” She explained that the accountant had been her friend’s brother.

I am confident that in the long run, my friend and his family will be all right. He has accepted responsibility and had the courage to forge on. He is no longer a business owner, but I suspect he is doing what he should be doing.

And he doesn’t have to worry about looking back and regretting that he never started his own business. Was it worth it? It comes down to deciding what horrifies you more: the possibility of waking up one day and realizing you never took a shot at your dream or the possibility of losing your house.

That’s what entrepreneurship is really about.

Source: http://boss.blogs.nytimes.com/2009/07/08/the-dark-side-of-entrepreneurship/

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