Small business is a major player in the US economy making up over 99% of US employer firms. Given what a big part of the economy they are, it’s in everyone’s best interest that they do well. According to the Small Business Administration, about half of all new businesses survive at least five years and about a third survive at least 10 years. So what goes wrong for the ones that don’t make it?
I’m a Certified Adviser with the Independent Business Alliance (IBA). The IBA recognizes the importance of the entrepreneur to our economy and works “to provide US entrepreneurs the same quality and depth of advisory resources that are available to larger firms thereby improving the entrepreneur’s competitiveness as well as the longevity and success of their businesses” (IBA mission).
The IBA cites seven common problem areas that can lead to business failure if not properly addressed:
- Lack of Planning
- Inadequate Funding
- Ineffective Marketing
- Ineffective Sales Efforts
- Lack of Employee Management
- Lack of Business Experience
- Lack of Outside Expert Advice
Any business can suffer from one or more of these problem areas, and they’re the root of pain and sleepless nights for many small business owners. Let’s explore the first four areas.
Lack of Planning
Planning is an important element to success in any endeavor and small business is no exception. Planning includes developing key documents (e.g., business plan, marketing plan, etc.) as well as concrete strategies and timelines (e.g., daily/weekly planner, communication strategy, etc.).
It’s very common for small business owners to avoid or put off creating a business plan. Many feel that it’s a waste to pour time and energy into what they consider to be a static document, however, this couldn’t be farther from the truth. First, a business plan shouldn’t be a static document — it should be a living document that’s revisited periodically. Second, the process of creating the plan provides a perfect opportunity for you to think about what your business is, how it serves, and what it needs.
In my first business adventure, once my partners and I decided to create a business, one of the first things we did was get together to write a business plan. That process got us clear and on the same page about what our business would be and what we needed to do to move forward. My second business was seeded when I gained my first adviser certification from the Organization for Entrepreneurial Development. As a part of the training and certification process, we’re required to submit a formal business plan.
Planning is also a key ingredient to every other specific business element from sales and marketing to finance to hiring. We’ll see that as we explore the other problem areas.
Inadequate funding comes in many shapes and sizes. Not investing enough at the startup phase, misusing funds, and not collecting on receivables are a few examples.
Businesses need cash to survive. Period. The amount of cash will vary from business to business, but they all require some level of cash. If you don’t bring in money, there is no business. If you don’t bring in more money than you spend, your business is slowly (or maybe even quickly) drowning. The key to profitability and sustainability is for your sales (income) to exceed your costs (expenses).
This doesn’t mean you have to be sitting on a wad of cash in order to start or continue running a business. It simply means you need to be mindful and wise about the need for money. For example, recognizing that obtaining a line of credit while things are good is smart business. If things are going well, you’re better situated to approach a lending institution about a line. But many won’t consider doing this until the business is on the rocks and they desperately need cash to stay afloat. Back to the first problem area…planning.
It’s good to plan for regular expenses and create a budget based on your projected income. I know life happens and unexpected things come up, but there are plenty of business expenses that you know you have to take on. I know I have to pay Maryland personal property taxes for my business every April, so I make sure I’m prepared to pay. Plan for the things you can.
As with funding, ineffective marketing can also come in many different flavors. Marketing encompasses a number of things including market research, advertising, product pricing, and public relations. As such, there are many ways in which marketing can go wrong. A couple of common mistakes are not knowing who your customer is and ineffective advertising.
If you don’t know who your customer is, how can you effectively market to them? It’s critical to understand exactly who your product or service is for. And no, it’s not for everyone. That’s a classic mistake. You need to get crystal clear on your target audience so you can set up a good marketing strategy.
In today’s technology dense world, there are tons of ways and mediums to advertise. You’ve got Google Ads, various social media platform ads, as well as traditional print/publication ads. If you don’t know who your customer is, how will you know where and how to advertise to entice them? And even if you do know who your customer is, do you know how to get in front of them in the maze of social media advertising options? Or what publications to advertise in to reach them? You can’t just randomly throw a dart at the wall and hope it hits the bullseye.
Effective marketing doesn’t just happen. It takes – you guessed it – PLANNING!
Ineffective Sales Efforts
Okay, let’s start by distinguishing sales and marketing. The marketing process is what you do to reach and persuade your potential customers (raise awareness and trust). The sales process is what you do to close the sales for the prospective customers that marketing brought you. The overarching problem with ineffective sales is not having enough sales to sustain your business, but as with the other areas, ineffective sales efforts have many looks.
One example of ineffective sales is not making an offer. Yes, it happens. You run a wonderful marketing campaign that gets prospective customers aware of your services…but you don’t make an offer. Yes, you’ll occasionally run into a proactive customer who may come to you and ask you outright about your products or services, but this is not the norm. You can’t expect someone to say “yes” if you don’t present an offer. Put yourself out there and make the offer!
Another issue is not having a sales process at all. Many people just market and hope that people will come (once again, no offer). But even if you do make an offer, it shouldn’t be done flying by the seat of your pants. You should have a clear process for when and how you make your offer. It shouldn’t be left to chance. You need a – what – PLAN!
As you can see with the first four problem areas, there are many ways that these problems can manifest, but a common and consistent theme is the need for planning. Have you had problems in these areas? Leave a comment to tell us about it. Community sharing lets us help each other!
In my next post, we’ll look at the remaining three problem areas: lack of employee management, lack of business experience, and lack of outside expert advice.