Is your business failing, or are you failing your business? Starting a new business is an exciting endeavor, but it comes with many hurdles that trip up entrepreneurs. In fact, 20% of small businesses fail within the first year according to the SBA. And 99% won’t make it past a million dollars in sales. But why is that? What mistakes do new business owners make that causes them to go under so quickly?
So why do businesses fail so fast? What does it take to be successful?
Two important aspects of owning a business are being patient and being a realist. A lot of new business owners were employees of someone else’s business prior to owning their own. They have big dreams, big ideas, but they don’t have a concrete vision for how the business should operate and they dive too deep, too quickly. Renting an office space, buying furniture, business suits, maxing out the company credit card and they haven’t even made one sale yet. Because that’s what they think an entrepreneur looks like. Compared to meticulously planning out your business model, long term and short term goals, building up a clientele first and making some money. Focus on making the business successful and sustainable first before worrying about any material things. Let’s look deeper into some more specific reasons as to why businesses struggle and ways to combat that.
Overcoming Financial Struggles
Lack of capital is one of the biggest reasons new businesses close up shop. 78% of small business owners use personal savings to initially fund their company. While bootstrapping with personal funds works for some, it can be risky and limiting. Does your business even need much money to operate? Mark Cuban said, “If you take out a loan you’re a moron. There are so many uncertainties involved with starting a business yet the one certainty is paying back that loan”. Perhaps you can create a budget plan that maps out your expenses and shows you ways to save money that you didn’t realize before.
About 99% of small businesses can be started with next to no capital. It’s more about effort than the money put in. If you’re a small business that operates digitally such as a service based business or even an e-commerce business, focus more on analytics, your niche, and content creation. Content creation is free and gives you large audience potential to market your business and it doesn’t cost a thing!
Don’t Get Scammed
And on the subject of finances.. You need to get paid up front! A lot of businesses do work and don’t collect any money. There’s a lot of people out in the world that want your services. For example, logo design, web design, home design, building something, but you need to get paid first. That's how you know the job is real. Because otherwise it's just all talk. It seems obvious on paper, but the amount of businesses that are scammed out of pay is too high to ignore. So, how to avoid this? Obviously you can’t ask for all the payment upfront without doing any work. Put together a proposal and get 50% upfront. You are essentially only risking 25% which is your profit margin. Because the last thing you need is to book a big project just for them to go bankrupt, and now you're stuck holding the bill.
Creating an Effective Business Plan
Many new businesses kick off operations without a thorough business plan in place. This lack of planning and strategy invariably leads to failure. A solid and realistic business plan is the basis of a successful business. In the plan, you will outline achievable goals for your business, how your business can meet those goals, and possible problems and solutions. The plan should figure out your short and long term goals, figure out the costs and inputs needed for the business, and it will outline strategies and timelines that should be implemented and met.
Once you have the plan, follow it! If you start doubling your spending or changing strategies randomly, you are asking for failure. And the planning phase is a continuous procedure. You should always be spending a little extra time on any new facets of your business. Just because something worked in the beginning doesn’t always mean another will work just the same.
The more mistakes you make, the more expensive your business will become and the greater the chance of failure. You will start to fall behind and could become more erratic and desperate with your decision making to try and pull yourself out of your hole.
If market conditions drastically change from your initial business plan and negatively impact the chances of success, then revisit your plan and edit it accordingly. Don’t continue down a path that isn’t going to keep up with industry standards.
And most importantly, be flexible and realistic! Don’t set goals for yourself that are so clearly unattainable just to try and push motivation. Keep realistic expectations and start out slow in regards to your business plan. Start simple and scale bigger when the right moment comes along. Doing one job at the highest quality is better than doing three jobs at average quality and potentially losing those customers for repeat business.
Related: The 5 Stages of the Customer Journey
You Don’t Need To Do It All Yourself
And transitioning into our next topic, don’t try and do everything yourself! You’re not accepting that maybe there are people who could help, and potentially do it at least as good as you. Use resources out there, use other people’s time, use services. Because as a team, albeit a small one, you will grow much faster than if you try and do everything on your own.
Avoid Growing Too Fast
Now that your business is established and successful, it's time to expand, but you need to treat your expansion like you're starting over again. Many entrepreneurs are so eager to scale, they sacrifice stability for rapid growth. Expanding quicker than infrastructure can support is one of the number one reasons a business fails before year one and beyond. If you're expanding the reach of your business, make sure that you understand the areas and markets into which you'll be reaching now. If you're expanding the focus and scope of your business, make sure you understand new products, services, and intended consumers as much as you do with your current business. Strive for smart, sustainable growth.
Here are some tips to keep your business on a steady, healthy path towards growth:
Only offer new products or services once current ones are running smoothly to avoid spreading yourself too thin.
Don't hire more staff until current teams are self-sufficient and trained. Customer experience suffers if understaffed but an uneducated staff can be just as bad.
Secure funding needed for each expansion phase before moving forward. Grow in financially manageable chunks.
Look for automation and outsourcing opportunities to increase output and efficiency without the overhead of full time employees. You might want to look for overseas employees to minimize costs when they can do the work as efficiently as someone in the states.
Set revenue, customer and other benchmarks for each growth stage. Only progress once KPIs are hit.
Monitor customer satisfaction and operational metrics. Pull back if quality slips as you scale.
While rapid growth may seem alluring, disciplined incremental expansion is less risky and more sustainable. Don't compromise your startup's stability in pursuit of speedy scaling.
Lack of Effort
This sounds obvious but it’s something that’s overlooked with many new businesses. You need to put in the time and effort. You need to assume that your competition within your niche knows your business and your customers as well as you do when you get started. Learn more about your industry, keep up with new trends. Put yourself in a right now mindset, now a tomorrow one.
Your Product or Service is Outdated
Sometimes the product or service you’re offering is no longer the best fit or best solution for the market because things have changed. The tech industry especially is constantly evolving, keep up with the latest trends to stay relevant and keep your hold of the market share. Update your messaging to show consumers that yours really is the best solution. And to counteract this point, there’s a possibility that you aren’t doubling down on the strategies and things that worked well for you in the past. You have seen them as boring, outdated, and uninspiring so you left them behind.
Become a Better Closer
You need to be able to close. Getting clients into the door is only half of the effort, being able to close deals and get business from potential clients is your income and how you move your business forward. Sell your value to your client. even if your client doesn't commit to a sale at first, they should leave your meeting feeling like it's 100% their best option. Maybe it's a price concern, maybe it's a timing concern, but it should never be a concern about your business or your product/service. You're the best! Sell yourself on that!
Avoiding Marketing Mistakes
And finally, one of the most underappreciated keys to growing your business is marketing. Sales are everything and without a good marketing campaign it could be tough to generate leads that could turn into sales. Robust sales leads to bigger budget projects, which in turn allows you to fund a new company. So many new businesses fail within the first year because they don’t know how to get traffic via SEO, and content marketing. Marketing leads to more eyes and traffic on your business, and more eyes on the product leads to more sales. Without marketing, a large majority of people won’t know you exist. You might have an amazing product or service, but no eyes on it.
But that is an easy fix! If you need any marketing help to boost those sales and increase cash-flow, Open World Digital has you covered.
By laying the proper marketing foundations and executing proven campaigns, you can reliably generate interest and sales. Marketing fuels growth, so invest early and often.
Let Your Business Be It's Best Self
Avoiding common missteps like under-capitalization, trying to be superhuman, lack of planning, marketing mistakes, and uncontrolled growth vastly increases your odds of not becoming a first year failure statistic. Remember your strengths as a business. With diligent preparation and commitment to continual learning and improvement, your entrepreneurial dreams can thrive.
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