For Entrepreneurs, the dream of owning your own business is exciting. You have great ideas, see opportunities to earn an income, have the time and courage to make your own decisions, and have a desire to make a difference in your community! No one starts a business thinking it will fail, yet according to the Bureau of Labor Statistics, 20% of all small businesses will fail in the first year, 50% will fail by the 5th year, and 70% will close by the 10th year. A business that closes is devastating to the owners and her/his employees, resulting in lost salaries, wages and owner invested funds. The impact of a business closure on a community includes lost tax dollars, additional stress on public health and an increase in poverty levels. In understanding why businesses fail, my focus will be on the 30% of businesses that have succeeded, and in doing so, we’ll outline what it takes to create and grow businesses that last.
1. Failure to Plan is Planning to Fail.
There is a wealth of business talent available to start-ups and existing businesses in our area. This talent can be found at SCORE and the Coastal Entrepreneurship and Innovation Center. We are fortunate to have a retiree base that has held executive positions throughout industries both nationally and internationally and is willing to give back to help others. It is not a sign of weakness to sit with someone to discuss your ideas and plans. Rather it demonstrates your commitment to doing everything possible to create a business that will defy the odds.
2. Who Is Your Customer and Who Are Your Competitors?
Before you open your business, be sure you understand why your product is needed by your customer. If a similar product or service is available at a competitor, are you going to compete on price, quality or other attribute? What makes your product stand out against the competition? Spend some time speaking with prospective customers about your product to be sure there is a need. It’s important to understand your competitors, know their strengths and weaknesses, retail pricing and product assortment. Competitively shop your competition’s stores and look for products that are missing in their inventory – that’s an opportunity for your business.
3. Businesses Fail For Lack of Cash, Not Lack of Sales
Translate your business plan into a 3 year financial plan by understanding the Sources and Uses of Funds – what it will cost to open your business (equipment, supplies, inventory). Determine if you will seek a loan and, if so, what amount. Next, create your budget and sales plan (items that you will sell and cost to purchase or manufacture); build 3 year Income Statements, Cash Flow Statements, and Balance Sheets. Creating these documents can help highlight any gaps in your financial plan. At the Institute, we create these documents for you. Spend time on pricing your product or service and be sure to allocate both your budget expenses to the products or services you sell. Failure to do so greatly overstates your profitability.
4. Develop a Marketing Plan
Some businesses view advertising as an expense, I prefer to think of it as an investment in your business. Marketing can be expensive so be sure that your monies are working as intended – evaluate every marketing campaign to ensure your marketing dollars are working for you.
5. Building Your Team
It’s your company and your Brand so be sure the people you hire reflect your values in engaging customers. The rule I’ve followed for many years is simple – Screen on Competency, Hire on Values. Your customers are critical to your business’ success so be sure that your team understands that good customers are hard to find but easy to lose.
6. Vision and Mission Statements
Vision and Mission statements are important documents in keeping the company and its workforce aligned with a purpose and direction. Mission Statements focus on goals and strategies while Vision Statements focus on the company’s future. These statements serve as a framework for how the business will operate. They provide clarity of purpose while focusing effort and execution on the business strategy.
7. Goals and Objective
Always remember that what gets measured, gets done! Goals define what is important to the business and outline a future state while Objectives are steps necessary to achieve the goal.
Starting a business takes knowledge and courage, while running a successful business requires discipline in everything that you do. It is this discipline that will ensure that your business has a better chance than most at having their doors open after 10 years. There are no shortcuts to running a successful business. As the owner, you don’t have to be an expert in Advertising, Social Media, Business Finance, Legal, Sales, Pricing or Website Design; however, your team will expect you to be an expert in knowing what is needed. Expect failures (something didn’t go according to plan or the outcome was less than expected) along the way, and when you find a ‘failure,’ celebrate it because it is a learning opportunity.
Whether you are starting a business or trying to grow your business, reach out to those who have experienced the failures and many successes. And when you ‘fail’ there is no one to blame because people don’t fail, it’s the business processes that have let you down!