Bringing a small business from “I have a great idea for a business” to generating revenue and sustaining profitability is no small task.
According to Bureau of Labor Statistics (2022) data approximately 20% of new businesses fail in the first two years, 45% in the first five years and 65% in the first 10 years. These statistics haven’t changed much over the last 20 years.
So, why do new businesses fail?
No need. Both market and customer needs are not researched adequately. You have a great idea and that is it. If you don’t research the market to understand what drives it and what are the dynamics in which you will be competing, you are setting yourself up for failure. You might be entering an already saturated environment. Today there was an announcement of a coffee shop/bakery in our town. There are four already in existence within a 2-mile radius. Is there a need for another? Understanding customer needs is also another “pothole” a newly minted business can fall into if their offering is not satisfying a need, want or desire on the part of the buyer.
None or poor planning. Businesses that fail have not laid out a plan to get from “idea” to “launch” to “profitability.” What is the business’ value proposition — the need, want or desire that is being fulfilled? Who is the target customer, whose need, want or desire is being satisfied? Communication channels — how will you reach the targeted customers to build awareness? And that is just the beginning of the planning process. (www.strategyzer.com)
Downplaying the importance of creating a work culture. What values will you and your team demonstrate in meeting and satisfying customer needs? Businesses that fail just open the door with invested inventory and hope for the best. Hope is not a strategy. Do a values inventory. Ask yourself what image do you want to position in the mind of buyers when they see your name, engage with your staff or drive by your place of business.
Running out of cash. The #1 reason small businesses fail is inadequate financing. They don’t create proforma statements (projections) of revenue and cash flow in their planning process therefore have no vision of how much cash they need to run their enterprises. When they plan their cash needs to get them through the launch and into a period of steady-state profitability they have a better chance of not running out of cash. They spend money too fast on things that are not necessary. Successful small businesses stretch their investment dollars and are lean in their operations.
Downplaying the role of marketing. They fail to market themselves. They fail to build brand awareness. They don’t keep the four Ps of marketing in mind: Place, Price, Product and Promotion. When choosing a location, they don’t look at all the elements of how their customers buy and then locate accordingly. They don’t consider marketing or building brand awareness as a necessary investment. In prior columns, we have talked about the Buying Continuum. Awareness begins with buyers being unaware, then they become aware of the brand. They then understand what the brand stands for and eventually believe in the brand. They then try the product/service and either move or buy again and refer. These steps are mandatory for small businesses to succeed.