According to the SBA Office of Advocacy, about two-thirds of businesses with employees survive at least two years, but only 50 percent make it to the five-year mark and just one-third celebrate their 10-year anniversary. Those rates have stayed consistent over the past 20 years and include almost all industries.
So, why do companies fail?
- Wrong people on the bus with some of the key seats being empty
Gallop reports that only 10% of the workforce has what it takes to be effective managers. Many people are good at their craft and because of that they want to go into business for themselves and hire others to do the work. Two things happen, they lose their best craftsman, themselves) and there is a 90% chance the business will not have good management.
Most new businesses fail to calculate the needed capital to start a business, Hiscox’s 2015 DNA of an Entrepreneur, reports that 21% of starts ups do so on credit cards. Slow paying clients, unforeseen expenses, underestimated start-up costs all have an impact.
I met with one small business owner that was struggling to make more than he needed but defended his need to drive a truck with a $700 a month payment as a necessity. (Btw, he did not use his truck for his business)
- The Lack of Planning
Money cannot be the goal, if it is, failure is much more certain. The plan should not be geared around money, the basic metrics should never be your checking account, but the small actions and reactions that drive your business.
- How are you going to get your phones to ring?
- What are you going to do if they don’t ring?
- Know your margins on every aspect of your business
- Know your expenses
- Management and Leadership
Today over 60% of all employees are not fully engaged in their jobs. The effect is that everything will cost more to get done than you plan, unless there is effective leadership. Leadership is a real job, not just a title.
- Growing too Fast
A home builder that has built a few homes a year, decides the key to more money is to build more homes, Not always the case
- Increased capital and risk, both have a much higher cost
- Increased need for supervision of the product, adding a level of management, not previously there.
- Finding more buyers, increasing the marketing budget and adding an additional layer of sales
- Planning, finding the raw land to keep up with the increase of production, adding a new planning department
The idea of growing beyond a few homes, adds 3 new key positions that the builder could have done himself beforehand. Increasing his over-head and risk substantially. The result is an increased list of business failure risk potential.
- Failure to Advertise
It was once said; “When business is good, it pays to advertise; when business is bad, you have to advertise.”
Budgeting money on marketing is not going to mean you will succeed. Treat your marketing dollars like your cost of product expenses, what did you get as a result?
I met with a small business who was spending $20,000 a year on Yelp, when asked if it was a good investment he said, “I have no idea”. Not all marketing is created the same.
- Set a budget
- Measure everything
- For Example: a retail store should measure how many people walk through their door each week. Then when you change your marketing, did the number of people coming in go up or down.
- Find some good people who can help
- Set yourself Apart
Why should anyone do business with you and not one of your competitors. That reasons has to be compelling and distinct.
- Service level, as reporting on google
- Business Model
Most small business owners measure their business by how much has gone into their checking account. The more money that went in, meant more profit? But that is just not the case. Taxes, delayed expenses, employee expenses, and countless unseen issues can take a business model from profit to loss.
Know your numbers
- Every business should have 3 to 5 key measure that they review every day
- Make them visible
- Manage by them
- Make them leading measure as much as possible
There was a time when you would need to shop your competition to know what they are all about, but today with everything on-line, you are able see reports on your competition and how you compare with them. These tools are incredibly valuable and if used can give you a huge advantage.
SBO advocated is dedicated to success of small business.