Small Business Failure Rate: Avoid the Hazards Ahead
The fifty percent small business failure rate in this country is the fate of nearly half of businesses during their fifth year of operation. But the good news is that half don’t fail! Interestingly, these rates are consistent over time, so current economic conditions probably won’t affect your success or failure rate as much as you might think.
With some sound understanding of why these failures happen, small businesses can thrive in the economic environment of today and far beyond.
Why Do Businesses Fail?
Clearly, there are many reasons why small businesses fail, but a few continue to repeat themselves. According to a poll of 100 startup founders, the top reasons for failure included:
- 42% A lack of demand for the product or service
- 29% Cash flow issues,or running out of money
- 23% Failure to attract and hire the right team
- 19% Failure to research the competition, resulting in out-competition
- 14% Poor customer service or lack of customer understanding
- 14% Weak marketing strategy
How Can You Avoid Those Pitfalls?
Charting a course for the first five years….and then for the future…takes research and solid strategic planning.
Is there still a demand? Even if you’ve done your initial research to determine if there’s true demand for your product, be aware that this process won’t end after the first year. Markets change, customers change, and very little stays stagnant in the world of business. Given the changes we’ve seen over the past few years due to COVID, it’s possible your market has changed a great deal more than you realize.
Talk to your customers and your potential customers. Really listen. Just because you have a wonderful product doesn’t mean that your customers are ready for it! Conversely, they may be ready, but will need a specific pitch in order to prove you truly understand their pain points.
Crucial Cash Flow Tips
Cash flow and good credit is always important. You may have gotten your business through the first years, but it’s important to continue to:
- Make sure you have good credit
- Keep expenses low
- Use your own network of contacts
Additionally, you’ll want to:
- Make sure you have a good team in place. Many entrepreneurs are tempted to try to do everything themselves, or bring in family and friends to help out. That may be ok in the first year or so, but it may not be a good long-term strategy. As a young business grows, you’ll need to consider finding the right people for the job.
Research your competition. It’s vital to know what your own strengths and weaknesses are. But, it’s also extremely important to know the same about your competition. After you have completed your own SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis, do the same for your competitors. You may find there are areas in which you excel, but knowing what your competitors do well can give you some insight into where you need to focus your efforts. This will give you a competitive edge in the market and allow you to stand out.
- Provide outstanding customer service. Retaining a good customer is far more profitable than going after new customers. HubSpot notes that good customer service is essential to succeed. After all, this function is the direct connection between you and your customers.
Think about this: an increase in customer retention of just 5% can mean an increase of 25% to your overall profits. Part of that is due to the fact that repeat customers spend far more with your company than new customers. They know you, they trust you, and your great customer service will keep them coming back for more.
- Creating a strategic marketing foundation will support you. A solid marketing foundation is more than just a competitive analysis. And many business owners are so involved in day-to-day management that they fail to take the time to plan an achievable, actionable marketing roadmap that will help them move forward.
- Refine your brand story and messaging. Many entrepreneurs find it difficult to define their message. They know where they want to end up, but they don’t know how to get there. The best place to begin is looking at where you are now. In an earlier post, we discussed how to evaluate the strength of your marketing foundation. Doing an assessment of your current situation gives you the basis to figure out where and how you want to go forward.
How To Chart A Course For Success For Five Years And Beyond
If you are one of the 31.7 million small businesses in the U.S., you know that strong planning and execution are not just “nice-to-haves.” They are essential to your success.
No matter where you are in your marketing journey, having a strong marketing foundation is key to your success. Don’t know where to start? First, you’ll need a marketing roadmap, which is simply a document that outlines your marketing goals and the steps you need to achieve them. The best way to get started is to create a custom marketing roadmap and begin your journey. We can help!
If you are curious about how strong your current marketing foundation might be, jump into our free, 10-question quiz for an evaluation. We’ll get back to you very quickly with our assessment so you can start working on your own marketing roadmap. If you want to know more about our process, head over to Discover redMAP for some great resources to help you on your way.
Tomato Fish Is An Indianapolis Consulting Company Focused On Helping Small And Midsize Businesses Make Good Strategic Planning Decisions.