If you’re considering starting your own small business but have yet to pull the proverbial trigger, it’s easy to understand why.
There’s much on the line…and much to lose. And, if we’re being honest, the odds of creating a successful small business aren’t great—according to a July 2019 report from the Australian Small Business and Family Enterprise Ombudsman, small businesses with zero employees have a 59.7% chance of succeeding over a four-year period. Businesses employing 1 – 4 people have slightly better odds of survival at 69%, but it is still a far cry from the 82% chance of succeeding enjoyed by larger businesses employing 20 – 200 employees.
Why Do Small Businesses Fail?
The good news is (if a failed business can be considered good news), there are a few reasons why some small businesses don’t make it and, if you know what pitfalls to avoid, you increase the odds your business will be a success.
So what mistakes are new small business owners making?
According to a study conducted by the University of Technology Sydney, a surprisingly low number of new businesses (3% – 5%) prepare a business plan in advance of their opening.
Other noteworthy findings include:
- Financial mismanagement accounts for 32% of business failures.
- Incompetent management due to lack of experience makes up 15% of business failures.
- Inadequate or inaccurate recordkeeping makes up 12% of business failures (in some cases, records were non-existent).
- Ineffective sales and marketing issues (including poor promotion and insufficient knowledge of competitors) make up 11% of business failures.
So, what are the secrets to running a successful small business?
The Secrets for Building a Successful Small Business
A Feasibility Study is a MUST
There’s a reason this is our number one recommendation—a feasibility study is non-negotiable. Why? Because it doesn’t matter how passionate you are about your business concept—if there isn’t a market for your idea, your business cannot succeed.
Conducting a feasibility study allows you to collect information that will tell you if your business concept is viable in the current market. Think of it as a fact-finding mission that will ensure you’re making the right decision. Some of the questions you’ll answer during a feasibility study include:
- Is there a demand for my service/product in the current market? And, if not, can I really create said demand?
- What does my competition look like?
- How will I finance my business?
- What legal requirements are involved?
- What is the revenue potential?
Conduct a SWOT Analysis
If you’ve taken any business courses, you’re likely familiar with a SWOT (strength, weaknesses, opportunities, and threats) analysis. It’s a tried-and-true technique that can help you build a solid business strategy by ensuring you’ve assessed the strengths and weaknesses of your business, as well as the opportunities and threats you may experience. The Queensland Government site is a good resource if you’re looking for a basic how-to format for conducting a SWOT analysis.
Strengths are those secret advantages your business model has over your competition, things like:
- A unique product or service
- Highly skilled employees
- Unparalleled quality
- Strong financial management skills
- Solid knowledge of the industry you’ll be working in
It’s important to put ego aside and take an honest look at those qualities or characteristics that could weaken your business, including:
- A lack of general business knowledge on your part
- A lack of understanding about the industry you’ll be working in
- A lack of experience managing people or finances
Opportunities are not synonymous with your business strengths. Rather, opportunities are just that—chances that for something positive to happen that could affect your business in a positive way, provided you are paying attention.
Opportunities can include:
- Technological advancements/changes within your industry
- Changes in governmental policy as it relates to your field
- Shifts in market trends
The key with opportunities is to stay vigilant so that, when opportunities present themselves, you are prepared to take advantage and turn them into strengths for your business.
Threats are anything that might negatively affect your business, and may include:
- A competitor slashing prices, which threatens your retaining current customers
- A shift in customer preferences
- A change in the rental agreement for your current space (increased rent, change in terms)
- An economic downturn
- An increase in unemployment
- A resource shortage
Once you’ve collected all the vital, pertinent information…do something with it. Transform the data into action items and create a strategy that will allow you to achieve the goals you’ve set for your business.
Develop a Business Plan
Now we’re getting to the main course. Setting up a plan for your business before you open your doors exponentially increases the likelihood those doors will still be open five years down the road, because creating that plan forces you to answer all those hard questions that enthusiastic but ill-prepared entrepreneurs try to save for later.
Your business plan will confirm that your business is feasible and capable of succeeding in the current market. It’s going to flesh out for you what your organisational structure will look like and how start-up funding will happen.
There’s Nothing Wrong with Starting Small
Some small business owners adopt the mantra “Go big or go home”, as if starting small somehow indicates a lack of faith in their business.
But there’s something to be said for taking a thoughtful, measured approach when opening a small business…and bigger isn’t always better.
Consider starting small…while planning for growth. Whether it’s launching products or testing a new idea, there’s no shame in using a measured approach—doing so gives you the time necessary to assess what’s working well and what needs to be modified, as well as planning for expansion as you anticipate hiring more employees or upgrading equipment.
Are you noticing a pattern here?
The truth is, preparing to open a small business is a labour-intensive endeavour but one that, with proper preparation and problem solving, can become a long-term revenue stream that you will one day pass down to your children.