Stats from Bloomberg say that 8 out of 10 entrepreneurs fail. Startups and small businesses are the ones who are pushing the boundaries of innovation. They go where no one has ever gone and dreamed to fulfil a need in the market that hasn’t even been created.
Yet, Canada has a high business failure. In 2008, there were over 30,000 bursinesses that existed and only 51% of business survived for more than one year according to the Statistics Canada.
Which brings us to the question – why do so many small businesses fail within 5 years of starting operations?
The biggest small business killer is not bankruptcy, but poor management. In fact, only approximately 11,000 businesses file for bankruptcy in a year in Canada.
New entrepreneurs don’t have experience in running a business, managing people and demarcating responsibility. So it’s important not to go with the ‘flow’ when building your organization. Plan and build a management structure early on.
How do you not have poor management?
Well, the answer is simple – take help. Read books, enrol in a management course, hire a management consultant and hire someone with management experience. From the moment you start the business, set a management structure in place that the organization can build on.
Expand Too Slow or Too Fast
Expand your business too fast and you will find that you fall short of finances and resources. Expand too slowly and you’ll find that the buzz you created will die down. You need to expand at the right pace.
How do you do this?
Expand as fast as you can, especially when the product or service is generating a buzz in the market and everyone else wants it. But, expand only as fast as you can according to what the numbers tell you. Whenever you’re contemplating expansion, always check if the organization has sufficient funds, human resources, infrastructure in the specific market, and sufficient products. Research, analyze, review – rinse and repeat.
This point also applies to another common issue – uncontrolled growth.
Are you grounded in the financial situation of your organization?
Today, many businesses follow Amazon’s business model, where the aim is not to make a profit but to capture the market. Such businesses depend on investors to generate funds, and it’s not unknown to lose control, or not know your own financial situation.
How do you not be financially negligent?
Know where the money is going, how much taxes are being paid and how much profits are being made – be aware and don’t let the ‘other partner’ handle it. It’s best to hire an accountant to help out.
No matter how good or ‘mindblowing’ your idea is, don’t expect it to market itself. The only thing worse than misdirected marketing is poor marketing. Without marketing, your audience won’t be aware of the product and your business won’t be able to make a sale. Know:
a) Who your audience is,
b) What problem you are solving, and
c) How you are solving it.
When vacuum cleaners came out, the household market didn’t know they needed them. Then vacuum cleaner companies told consumers that cleaning their home with a dust and pan took too much effort (the problem) and using a vacuum cleaner made everything easy (the solution).
Running a business is anything but easy and it’s even more difficult to cross the 5 year line. But, by dealing with the above problems early on, you ensure that your business won’t collapse because you ignored one of them.