According to the U.S. Small Business Administration (SBA), over 80% of small businesses fail in the first year and 95% fail within the first five years. And, only about half of small businesses survive pass the five-year mark, ranging from 45.4% to 51% depending on the year the business was started.
Beyond that, only about one in three small businesses get to the 10-year mark and live to tell the tale. Unfortunately, our community is similar when it comes to small businesses facing obstacles to success – as shown by the vacancy signs on main street Woodland Park.
As discouraging as this may sound, there are still new businesses starting up here in our community and elsewhere. We know from our client experience if a business identifies the primary causes of small business failure, adjustments can be made to allow that business to place the odds in their favor.
So, if you are a new business owner or are planning to start a business (home or otherwise) here are the primary obstacles to success to be mindful of:
Insufficient capital (money).
The math just doesn’t work. If you don’t have enough cash to carry you through the first six months or so before the business starts making money, your prospects for success are not good. Consider both business and personal living expenses when determining how much cash you will need for investment in the business (employees, equipment, marketing, etc.) and be prepared for a “business emergency”, i.e., theft, natural disasters or a competitor who sets up nearby. Additionally, you may feel like you cannot afford to give your customers something free or at a discount. But in reality, you can’t afford not to.
Believing you can do everything yourself.
One of the biggest challenges for small business owners is to let go. Let go of the attitude that you must have hands-on control of all aspects of your business. Let go of the belief that only you can make decisions. Concentrate on the most important challenges facing your business. Let others help you out. Give trusted advisors responsibility and authority.
Failure to clearly define and understand your market, your customers, and your customers’ buying habits.
Who are your customers? You should be able to clearly identify them in one or two sentences. How are you going to reach them? Is your product or service seasonal? What will you do in the off-season? How loyal are your potential customers to their current supplier? Do customers keep coming back or do they just purchase from you one time? Does it take a long time to close a sale or are your customers more driven by impulse buying?
Failure to anticipate or react to competition, technology, or other changes in the marketplace.
It is dangerous to assume that what you have done in the past will always work. Challenge the factors that led to your success. Do you still do things the same way despite new market demands and changing times? What is your competition doing differently? What new technology is available? Be open to social media; online tools (website, EZ-texting and Geo-Fencing) and the explosion in the use of smart devices. Experiment. Those who fail to invest in the new tools to attract and retain customers end up becoming pawns to those who do.
PR and Marketing Mishaps.
Business owners often fail to prepare for the public relations needs of a company in terms of capital required, prospect reach and accurate conversion ratio projections. When companies underestimate the total cost of early PR and marketing campaigns, it is often difficult to secure financing or redirect capital from other business departments. Because PR is a crucial aspect of any early-stage business, it is necessary for companies to ensure they have established realistic budgets for marketing needs.
“In life, you may have forgiving friends and relatives, but entrepreneurship is rarely forgiving. Eventually, everything shows up in the soup. If people don’t like the soup, employees stop working for you, and customers stop doing business with you. And that is why businesses fail”. — Jay Goltz owns five small businesses in Chicago.
Michael B Perini, ABC, is president of Perini & Associates, a full-service public relations and marketing firm based in Woodland Park. Best of Teller Award 2021 and 2020. Reach him at email@example.com.
NOTE: This article first appeared in Woodland Park Living magazine, September 2021)