The Bank of Canada decided to leave its overnight lending rate at the current level of 1%. This is the rate that the banks base their prime lending rate on. This is good news as the cost of borrowing will remain stable for small business loans based on prime at least until the Bank of Canada’s next meeting on May 31st. The Bank noted that the economy is growing slightly faster than expected. Trying to predict the future is a bit of a fool’s errand but it seems to me that rate hikes are likely as the economy strengthens.

I’m an engineer by trade, and while I don’t do much “engineering” anymore, I still think like one. One apt lesson for entrepreneurs is to plan their business with the care and rigour of an engineer.

The number one priority for an engineer is to protect public safety. It is the reason why engineers are licensed. The iron ring that engineers in Canada wear is a symbol of the oath to protect public safety above all other considerations. It’s easy to see why. Mistakes in engineering cause catastrophes like collapsed bridges, crashed airplanes and factory explosions.

To avoid these disasters, engineers use safety factors. When specifying a material for a structure, an engineer will use a factor that will provide three to four times as much strength as is required by design calculations. Bridges, levees and other water structures are designed to withstand beyond one-in-100 year flood levels. This is due to the high danger of failure compared to relatively low cost of increased safety. In addition, engineers know that real life will never be the same as the drafting table (for those younger readers, that’s what engineers used before computers). Flaws in materials, workmanship, and design as well as changes in usage and wear and tear all eat away at these safety factors. Finally, regardless of the skill of the engineer and tradesperson, things will happen that nobody anticipates.

This isn’t to say that planes don’t crash and factories don’t blow up. It’s impossible to eliminate risk totally. Even if you could, your project would become so expensive it wouldn’t be feasible. The best engineers balance risk and cost. They provide the safety required while not destroying the budget.

So what does this mean to an entrepreneur? A failed business doesn’t kill people or do widespread environmental damage. It can, however, destroy personal wealth for the entrepreneur, investors and employees. Much of the risk in business failure can be dealt with in the planning stage. For instance:

• In the design phase, the engineer will rely on measurements in the field. This is like basing the sales and marketing assumptions on research. Yes, it’s possible to start a business on a hunch, but the success is due more to fortune than skill.
• An engineer will sometimes specify a material with properties that exceed requirements. This is because of things like fatigue and corrosion. An entrepreneur does this by building a management team with skills beyond what appears to be immediately necessary.
• The engineering safety factor is like the amount of cash the entrepreneur has to invest in the business. Our plans come with a standard level of three months cash on hand at all times. This means that there is enough cash retained to cover payroll and all fixed costs for three months.
• When an engineer discovers a flaw in the design, it’s back to the drawing board. Nobody dies or gets hurt. When an entrepreneur finds a flaw in her plan, she can rework it to get it right. Nobody goes broke.

In summary, using the engineering method will not guarantee success in business. No plan can totally eliminate risk. However, using these methods will help you build your business to be strong and durable enough to protect your time and investment.

There are many reasons people look at going into business for themselves. It could be that they hate their current job and yearn to be their own boss. Maybe a tradesperson feels that he or she could run a better business than the company they work for. It’s important that people go into business for the right reasons. Failure lurks around every corner and if someone is in business for the wrong reasons, he or she is much more susceptible to it.

There has been some research on what makes an entrepreneur successful. One study found that the entrepreneurs they interviewed had the following characteristics in common.

• A propensity to take risks
• A need for achievement
• A belief in one’s ability to control the outcome of a situation
• A tolerance of uncertainty
• Self-confidence
• Innovativeness
• A need for autonomy

In my experience, these characteristics are useful in running a business. Different people have them to different degrees. Some of these characteristics are developed in the business owner as he or she becomes more experienced. The Business Development Bank of Canada, a federal crown corporation, has an online quiz that will test you in the attributes above.

It is important to have a passion for the industry the business is in. If someone starts a business based solely on where the best possible financial returns are and without passion for the space, it will be very difficult to succeed. Things will get tough, so tough that only a passion for the business can carry the business person through. A person without passion in this situation will quit before they become successful. Very few businesses become successful without experiencing a period of adversity.

It is important to have the right foundation in place before getting started. Most new businesses won’t be able to pay a predictable salary to the owner right away. If a business owner has an expensive personal lifestyle, he or she needs to be prepared to reduce that lifestyle to one the business can support.

A person starting a business also needs to be able to contribute cash towards the start of the business. Every business needs some cash to get started. The amount can vary widely depending on the nature of the business, from a few thousand for a home based business to millions for a manufacturing business. Some of this needs to come from personal savings, while the remainder can come from borrowing against personal assets or through business loans.

Family support is essential. Starting a business takes a lot of time and financial sacrifice. Starting a business without complete, informed buy-in from your spouse and family will lead to a lot of stress when things become difficult. This will compound the problems the business is having. While it is necessary to put some money at risk when starting a business, a business owner should never take a risk so large that failure would wipe his or her family out financially. Sure there are those stories of the plucky entrepreneur who maxes out his credit cards to start what becomes a billion dollar business. Unfortunately, the guy who did the same thing but had his business fail and push him into bankruptcy, costing him his marriage, never gets any press. He represents the vast majority of people that try this move.

Starting a business is difficult and requires a lot of hard work, but it can be very rewarding for those who prepare themselves well to accept the challenge.