We’ve heard it said over and over again that the small business is the lifeblood of the American economy, right? If that’s true, then why are so many small businesses struggling to make money and keep their doors open? Is it due to the business owner’s lack of know how? Or maybe it’s due to the bigger corporations eating up the smaller company market-share?
As a business coach, I’ve had the opportunity to work with many small to mid-size businesses over the years. What I noticed is that around 50% of all businesses fail within their first year of operation due to one or more of the following reasons:
1. Under capitalized business model & poor money management – many business owners didn’t plan for the future outlays of cash that is needed to grow their business. Let’s face it, it’s difficult to find money when you are a smaller business with no or little credit and a minimal sales history. What do you do? This is where the use of other people’s money comes into play. I’m not talking about borrowing money from a major financial institution but instead, developing a network of private lenders and investors who have deep pockets. One of my favorite tools for doing this is LinkedIn. I can network with people who know people and can refer me. This process takes a bit of time to develop but if you focus on building a new network that includes equity partners and investors, you’ll have the capital you need to grow.
2. Lack a team – many business owners are not true business owners. What I mean is that they are self employed. They opened a business and bought a job. As a result, they try to do everything themselves. The longer they work without a team of professionals, the more they adopt the mentality that if they want it done right, they need to do it themselves. If this is you, make a commitment to break away from this mentality by building a power team. Who you need on your team is dependent upon your business type. I realize that you may not be in a position to hire someone internally but you’ll for sure need some external team members. For example, you’ll need a good accountant, attorney, and mentor. Other possible team members may include an insurance agent, financial planner or advisor, business broker, and bookkeeper. If you have a well laid out business plan and can get the proper capitalization for growth, you can also begin to build your internal team. This will remove some of the workload from your shoulders and give you the opportunity to expand your business through more selling and marketing.
3. No written business plan – most people have a quasi plan in their head but are not clear on the future direction of the company. Take the time to jot down some thoughts about why your company exists and what you’d like it to accomplish through its lifetime. Over the course of a few weeks, just make some bullet points on paper and then bring those points together in the form of a business plan. It’s important to remember that a business plan need not be a large number of pages filled with marketing fluff. Instead, stick to the basics: your mission, your team, your leadership, cash flow / financial projections, sales plan and projections, marketing plan, and an analysis of your competitors. Don’t create a plan and then let it collect dust. Your plan should be a living document that helps guide you in building your company. It will be modified as needed along the way.
4. Inability to effectively market, brand, and sell their business – if you can’t sell, you’re one step closer to being out of business. On a scale of 1-7, with 1 being novice and 7 being expert, how would you rate your ability to sell and market? If you rated yourself less than a 6, you should consider getting some sales and marketing coaching or enroll in a structured program that allows for you to not only learn but also role play to simulate real life experiences.
5. Insufficient experience and/or lack of continued education – being a business owner and entrepreneur is a life-long commitment to education and learning. This means that you should have your nose in business books such as learning how to read and interpret financial statements, how to sell, market and brand your business, how to build effective teams, leadership related materials, etc. Consider plugging into your local small business administration for workshops and seminars. Also, you can consider being part of your local entrepreneur networking group or business incubator. These groups are full of entrepreneurs and possible mentors!
If the reasons listed above are so basic and simple to implement, why aren’t more businesses heading the advice? Like anyone, small business owners are limited by what they know and the time they have available. After all, time is the great equalizer of all men and women. We can lose money but make more of it. We can't make more time. Incidentally, if you figure out a way to make more time, look me up! I'll be your first investor!
What they need is a mentor or a personal coach who can help them plan, push them to take action, offer them constructive feedback and challenge them to develop new habits and grow exponentially. As human beings, we’re not good at seeing ourselves as others see us. This is why a professional that offers a neutral, unbiased perspective is good for your growth as an entrepreneur and your businesses longevity. My hope is that you will take something away from this article and implement it in your business to make you bigger, better, and stronger.