This article was originally published in 2017. It is updated to reflect our current environment.
If you have just started your own business, or are thinking about starting one, this article may save you light-years of mistakes, false-starts, and missteps. “Success Leaves Clues.”
Business Start-up Success
According to the Bureau of Labor Statistics’ Business Employment Dynamics report, small businesses created 10.5 million net new jobs between 2000 and 2019, about 65.1% of the net new jobs created since 2000. More businesses than usual closed due to the coronavirus, but new business applications were on the rise in 2020. (1)
That’s the good news. However, around 20% of new businesses close within a year, according to data from the Bureau of Labor Statistics. While most businesses will find short-term success, only a handful have long-term staying power. Just 34% of businesses make it to their 10th anniversary, according to the BLS data.
While that’s a vast improvement over past history when almost 80% of all new businesses failed, it still leaves a lot of room for improvement.
Here’s why a lot of businesses still fail
#1 Reason: No Money
Very few businesses (or even families) still “save for a rainy day.” When business slows down, whether it’s seasonal or due to a business cycle, most businesses don’t have the cash on hand to bridge the gap. They haven’t built their cash and credit reserves. They don’t manage for the long-term.
If you’re a start-up, you need to anticipate your “burn rate.” That’s how much money you must spend every month to get to revenue. Remember, it always takes longer and costs more!
#2 Reason: No Market
Many businesses are started because the owner “invented” a product. But often they haven’t really taken time to do the market research to see if anyone actually wants to buy their product. Big companies succumb to this as well – like the famous Chevy billboards for the new Nova that were used in Puerto Rico. Of course NoVa means “doesn’t go” in Spanish.
I read recently about a software company that spent $1.5 million developing Avatars for early instant messenger systems, only to find out that no one knew what they were or wanted to pay money for them. They finally grabbed some 17 year old kids from the neighborhood, sat them down in front of a computer, showed them the Avatars and got their feedback. They then redesigned their products and were completely successful.
#3 Reason: No Plan
One of the biggest issues I see is that businesses tend to be completely reactive to the market place. They don’t have a plan to help them focus on success.
A business plan is so much more than what you put down on paper to get investors to say “Yes”. For me, a business plan, or a strategic plan is like a dowsing rod to keep you on track while you execute to build up your company according to your blue print.
Three Keys to Business Success
Let’s first take a look at some successful entrepreneurs today and see what made their companies successful.
- Steve Jobs, the founder and success behind Apple Computers was a product genius
- Mark Victor Hansen, co-creator of the famous “Chicken Soup for the Soul” series, was inducted into the Sales & Marketing Executive International’s Hall of Fame in 2004 for his marketing genius
- Warren Buffett, CEO of Berkshire Hathaway, a successful investment company, is well known for his financial genius.
The point of this small digression is to point out that there is no single approach to business success, but, again “Success Leaves Clues.”
How to make your business work for you!
The answer is simple. Find your genius. Go with your genius! Surround yourself with people whose “genius” area support and complements yours. Let me break it down for you
KEY #1: find a need and fill it!
70-80% of all business owners start from the product/service aspect of business. The key here is to let your customers tell you want to sell them. You do this by listening to your customers and analyzing lots and lots of market feedback. The key here is “sell aspirin, not vitamins.” In other words, fill needs, not wants.
KEY #2: Niche your market
15-20% of all business owners start from the marketing perspective. They know how to build relationships and create customer loyalty. They can basically sell anything! If marketing is already your genius, you know that people buy from people they know, like and trust. People get to know you through repetition, whether that’s in person, or an online presence. People like you when they recognize something of themselves in you. People trust you when you make small agreements and keep them.
KEY #3: Know your numbers
5-10% of entrepreneurs start from the finances. Numbers are a language. Financial projections are a way to quantify the result of your decisions. To manage from the financial perspective is to focus on metrics of your success. For example, what percentage of gross revenue should you spend on marketing? What’s your Cost of Goods Sold? How big is your overhead? What are you lead conversion rates? All of these numbers show you the effectiveness of your product and marketing choices and give you feedback from the marketplace.
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(1) Small-Business Statistics: By the Numbers as of 2021. Kelsey Sheehy May 14, 2021. https://www.nerdwallet.com/article/small-business/small-business-statistics.