Most of the small businesses I’ve dealt with have been started by people with drive, vision and a hunger for success. Very often however, these qualities are simply not enough to ensure that the business grows and flourishes. This is reflected in the damning statistic that reveals over half of new businesses fail within the first couple of years.
I’ve worked quite a bit with restructuring businesses that have become insolvent and in almost all cases the same pattern emerges. There are a number of key things that the business owner has failed to do.
This isn’t a reflection on the entrepreneur who very often has no idea why the business has failed, generally the business owners have been hard working and conscientious and have been distraught as they watched their business slowly decline.
Being committed, being busy and working long hours doesn’t guarantee success. Let’s take a look at the top five reasons why small businesses fail, If you aren’t already doing these things then make it your priority to do so.
1. Failing To Monitor Costs
This may sound obvious but it’s so easy to let costs spiral bit by bit. The lease on a photocopy machine at £20 per month doesn’t sound a lot but it is if you are only doing 10 photocopies per month. Quite often, small monthly outlays that seem good value when you sign the contract can often add up to £100s or £1000s of pounds per month. The common culprits for these kind of costs are things like photocopiers, key man insurance policies, telephone systems, software and IT leases, directory advertising, premises leasing and even inefficient staffing levels.
When entering into a new agreement for anything that will add to your monthly outgoings regardless of how little the monthly monetary cost is, ask yourself the following questions:
- Does my business really need this?
- Will this add value?
- Is there a less expensive solution?
- Is this an investment ( it will make more money) or a cost ( it won’t make any more money)
Monitoring costs is closely linked to the next reason that small businesses fail.
2. Failing To Collect And Analyse Data
How many of you were tempted to skip past this section because it sounded too complicated? It’s ok to admit it, lots of business people think that data analysis is too difficult for them. The truth is, collecting data and analysing it doesn’t mean that you have to wear a lab coat and have the same IQ as Stephen Hawking. Data collection and collation simply means recording key information that you can then look at to spot trends and make decisions based on those trends.
Let’s look at a simple example. Let’s say you have a beauty salon and that you employ 2 staff. You may want to keep daily and even hourly records that show the number and type of treatments given to clients every hour of every day. You may notice for instance that the third week of the month is the busiest for nails and that Tuesday and Wednesday morning is very quiet.
If you have such detailed information you can then either create a spreadsheet if you’re a bit tech savvy or even use a pen and paper to spot trends. This will then enable you to make staffing decisions. You may realise that you only need one member of staff in at certain times of the day or that you need to train your second member of staff to do nail enhancements as you’re turning down appointments for these on the last Friday of the month.
Another example could be that you own a bakery. Maybe you make wonderful pies, the collation of data might show the sales opportunities that you’ve missed. Maybe you bake equal amounts of steak pies and pork pies but the analysis of the data may show that you sell out of pork pies most Wednesdays at 1pm. This would signal to you to make more pork pies. Maybe you can spot why that trend exists. Maybe the local model aircraft club meet around the corner on that day and stop off at your bakery for pies on the way home.
Analysing data on a regular basis is one of the most important things any business owner can do. Putting things in place to help with collecting data is vital. Maybe you’ve tried a local leaflet campaign. If so, include an offer code or redeemable voucher so that you can monitor the success of it. If you’re trying a new marketing campaign then consider routing the calls to a special telephone number so that you can monitor the response. Setting departments on your till is another simple way to collect data. Get inventive, decide what you’d like to monitor then set up ways of collecting the data. Compare one metric with another. Question absolutely everything!
This isn’t a one off exercise. You should put time aside at least once a month to sit down and study the data behind your business. Don’t be tempted to wear rose tinted spectacles during this exercise, be realistic, even ruthless. Compare costs, revenue, staffing levels, sales, order values, cancellations, new client enquiries, deliveries made, delivery costs, number of telephone calls. Find ways of accurately but easily recording as much data as possible. Once you’ve done this for twelve months you can then also use this data to plan for the future. You’ll be able to spot trends, and then adjust stock levels to take advantage of busy periods and even plan promotions to subsidise annual quiet periods.
3. Failing To Embrace Change
One of the lessons that we learn throughout life is that nothing is forever. The same applies to business too. Depending on what industry your business operates in, change can happen quickly or over a long period of time.
When I say changes, I’m not referring to just changes in products or technology but also economic changes. Customers change the way that they shop and these changes are influenced by many things. Let’s take for example the famous retailer Woolworths. This is a company that was established in 1878 and although a worldwide retailer it finally closed it’s doors in the UK in 2009. Woolworths was a household favourite for many years but was threatened first of all by out of town retail parks and then it’s failure to harness the power of the internet. Instead of recognising the change in shopping habits of it’s customers the company diversified into other areas such as specialist footwear outlets under the name of Footlocker.
Another household name that was killed due to failure to embrace change was Blockbuster. As the trend of home video rental changed thanks to satellite tv and then businesses such as Netflix, Blockbuster withered and died. The management failed to see the changes that were happening in technology and with their competition and paid the ultimate price.
Keep yourself up to date with changes in your industry. Keep a check on what your competitors are offering. Subscribe to trade magazines and read them thoroughly. Take some time out and visit some of your competitors as a customer and experience their service. It may give you some great ideas that you can implement or even improve on.
4. Failing To Listen To Your Customers
When I say listen, I mean failing to communicate. Listen to any comments that you may receive on social media, via questionnaires and on review sites. Share the positives with your team and don’t take criticism personally. You should welcome negative comments or reviews. People don’t leave these for fun, they generally leave bad comments because they feel that your business has failed them in some way. Try to look at things from a consumers point of view and use what you learn to change things.
Your customers are the ones who see the best and worst aspects of your products and services. Find ways to reach out to them. It’s easy to set up free online surveys. Offer an incentive for them to complete it, maybe enter them into a competition to win a voucher. The data collected is collated for you and you can spot popular answers and trends. There are several online survey tools such as https://freeonlinesurveys.com which as the name suggests is free to use.
Use your imagination when creating a survey. Maybe you’re looking at which new products to launch or maybe you’re looking to drop some old product lines. You might just be wanting to know what aspects of your business your customers like and which things you could improve. Keep each survey short and snappy and you’ll find that a lot of people are willing to participate.
5. Failing To Plan
Every business or enterprise needs a plan, even a vague plan is better than no plan at all. A business without a plan is like a cruise ship without an itinerary, an aircraft without a flight plan or an actor without a script.
If the steps 1 to 4 are followed then a plan should be easily put into action. a plan doesn’t necessarily have to involve growth. Remaining profitable needs a plan, downsizing needs a plan. Essentially a plan is a blue print for the management and staff to follow. It should involve targets, time constraints, procedures and regular monitoring.
As a business owner it is your responsibility. You arm yourself with data, as much of it as you can and from there you decide where you business needs to be, how you will achieve getting there, what targets you need to meet and how you will communicate that to your team. You then need regular data feedback to check your progress. As you meet each goal then set new ones. Your business should move towards these goals daily.
If you don’t meet all the targets then don’t be down hearted. The idea of having a plan is that you move in a direction that you have chosen, sometimes you’ll smash your targets and exceed your own expectations, sometimes you’ll fall a little short. Either way you’ll have been moving in the right direction, a direction that you have chosen through planning. That has to be better than drifting along day by day!
Will Your Business Fail Or Succeed?
There are plenty of outside influences that can affect the success of a business. Nine times out of ten however the success of the business is directly affected by the actions of the owners or directors. Think of your business as a ship and you as it’s captain. Do your research, analyse the data that you have, decide on a destination and then set a course. Once on that course keep making checks, Occasionally enjoy the fair weather and plain sailing but don’t become complacent.
Being in business is always going to be tough. Don’t be a follower, instead arm yourself with information and become an industry leader. Occasionally it’s good to stand back and be proud of your achievements, it’s more productive however to stand back and ask yourself, how can we be even better?
The biggest problem that most business owners have is finding time to do any of the above. Let me just point out that if you haven’t got enough time to devote to doing the above then ok, that shows that you’re busy at the moment. It also shows that you’re guilty of not having enough staff, not organising your time efficiently and falling into the same trap as Woolworths, Blockbuster, La Senza, Comet, need I go on?
Make the time, you’re the captain of the ship remember, not the deck hand! It’s your responsibility. If your business succeeds then take the glory, if it fails then take the blame. It’s that simple.