50% of Small Medium Entrepreneurs shut down during their first 5 years. A big number isn’t it? If a business survives this time, it will have more chance to grow. But, how many SMEs can last 10 years and more? The truth is, only 1/3 of SMEs (based on researches of the US and Europe markets) survive this long.

Now you see all these numbers matter to you? If you are a want-to-be or already a business owner, you will want to read this post and hopefully, you find it useful.

Learning from past failures of different businesses, I suggest that there are four main factors that contribute to a business failure, which are: Owner factor, Company Strategy factor, Finance factor and Marketing factor.

Owner factor

First of all, let’s talk about the Owner. Well, no doubt that the Owner is the first factor that affects a business. Many people may think being an Owner is as easy as counting from 1 to 3, as long as you have an idea and funding. It is true that if one day you wake up and realize that there is a great demand for fresh gifts from the local people, you can naturally create an idea of supplying flowers or plants to your neighbors in return for cash. You will be so happy that you immediately sit down and brainstorm the idea: what types of flowers you will sell, what services you will provide along with selling flowers, where to buy flowers, where to open a shop, from which source you can get fund, etc.. Let your imaginary go far and you will find lots more beautiful dreams.

The ugly truth only show off its side when you actually put your finger into opening a business. Tons of work, yes, I mean TONS of work will burden you everyday if you didn’t have a plan of how to run a business from the beginning.

You may love your business so much that you decide to do everything by yourself. It’s OK, in fact, not a bad idea, but it works only when your business is a newborn. Of course you hope to grow your business, but holding all the work to yourself doesn’t help in this case. It is good to know everything of your business but hire staff and share works with them so that you have time to concentrate on more important tasks, for example, managing, or tasks that you are not yet willing to share with other people. In addition, no one can be expert in every field. For instant, you cannot be an excellent IT man and a qualified accountant at the same time. Hence, doing works with little or no skills/knowledge is such a quick way to bring your business to an end.

On the other hand, if you cannot manage staff below you, you fail, too. Human is such a complicated creature and working with them is not an easy job. Nowadays, being a Manager is no longer a trend but being a Leader. So what’s the differences between a Manager and a Leader? Let’s have a look at the picture below:

Source: blog.startwithwhy.com

Source: blog.startwithwhy.com

Yes, a leader doesn’t just asking you to work but also contribute his/her effort to guide you towards a common goal of whole team. A good leader is the one who has voice in a team and make whole team willing to listen rather than force them to listen. Hmm, not easy to be a Leader isn’t it? But trust me, if you want your business to expand, you need to have tactics to manage your people. On the same hand, having a strong human foundation is vital in growing a business healthily, too. “Strong Human Foundation” here could be talent people, hardworking and truthful staff, determined workforce, etc. There is no exact standard of workforce quality because it varies between company’s characteristics. You will have to think of your own business and find out what kind of workforce you need to grow your business. However, there are too many options of work environment for people to choose from so they become more demanding and tend to choose to work for a person/organisation who appreciate and treasure their talents. As a result, you may have lots of different options of staff to choose from, but real talent people knows their value so you’d rather spot and collect them or your competitors will!

Company Strategy factor

You can’t argue that Company strategy is important, can you? The first and most common reason why a business fail is the owner doesn’t know where his business is heading to. No, you’re hearing it right! It may sound unbelievable because setting a goal should be the first thing to do before running a business. I don’t say people don’t set goals for their business, but they rather forget their own goals while busy managing their workload, not mention changes in the market and stakeholders may also redirect the original goals. For example, using case of the florist above, the business goals can be donating market share of this neighborhood  and becoming a brand name that everyone will mention whenever they think of getting fresh gifts. Goals are set, question “where to” is answered. Now it’s time to answer question “how to get there”. To make plan more detailed, you can break down the process. For example, in order to hold the biggest market share of the local, you may need to:

  • Have a USP (Unique selling point)
  • Have 30% new customers and 70% old customers every month
  • Generate a revenue of £15,000 after 6 months
  • Meet break even point after 6 months
  • And so on…

From the small goals mentioned above, you can then making a plan of how to achieve these goals, and so on. By breaking goals down, you can make sure to cover any possible risks of miss-planning.

Secondly, if you ever read a Marketing book, you may know rule 80:20, which means 80% of a business income is contributed by 20% of your customers. In other words, you only need 20% of your customers (but must be the top ones) to grow your revenue. Besides, customers are cheaper to maintain than retain. Along with regular repurchases, value per order should rather increase and this is when your profit comes. Now you understand why building customer loyalty is important in every business. In the first place, you provide products and services in order to satisfy your customers  so there is no reason why should you change your strategy after.

Thirdly, the market and stakeholders are changing everyday, yes, everyday. You may wake up one morning and your local people no long want to buy flower as a gift but they rather buy something more realistic like clothes or home supplies. What should you do? Close down your business? Try to hold on for a while and wait for people to change their mind? Provide different products that meet their requirements? Convince people that your product is still a good choice? There are many different ways to cope with this problem and it’s your choice to decide your business destiny. Except for closing down your business, any other options will require changes in strategy. So, you either change, or you die.

Last but not least, technology opens a new era of running a business. No matter whether you’re a business owner or a customer, do you want convenience. If you’re a customer, you want to shop wherever you are without going to a store, you want to make a payment via your phone, you want to set a date and time to get an order delivered, etc. If you’re a business owner, you want to have a system that help you see insights of your business just by clicking and/or tapping, you want to sit at home and know level of inventory and top up if needed, you want make sure your staff working hard even when you’re not looking at them, and most of all, you want your customers to experience the most convenience and fast services. No doubt technology changes the way things work, right?

Finance factor

Here comes a big burden of any business owners. At the end of the day, you work to earn money, and your work needs money to survive. All the numbers and paper works become nightmare and you have to stay up late to work out expenses and profit? No joking, but if accounting is not your major then forget about it for now and hire a person who is expert in accounting. It saves you time, doesn’t it? Then, use your time to manage costs. There’s no exact thing to do but here are some points to consider when you work on your cost management:

  • Set budget for each of your department/asset, eg: Human resource, Production, Marketing, etc. as well as budget for office rent, electric, stationery, etc.
  • Allocate budget for smaller activities of each departments
  • Consider product price to cover expenses and make sure your business meet break even point in the shortest time.
  • Manage sales value
  • Keep track of finance every single day and prepare a solution if there is a financial risk.

I understand it is a headache to control cost while generating revenue, but never let your expenses get close to your revenue and problem occurs when your business operate a margin of less than 10%. It is very easy that expenses exceed profit due to an unexpected event.

Marketing factor

Last but not least, believe it or not, there are many business owners underestimate the importance of Marketing. Sometimes, they also mistake Marketing for Sales. In fact, you can expect a salesperson to generate your sales immediately but you can’t expect a Marketer to increase sales in a night or two. Marketing is a long-term strategy that used to slowly build up your business name and image. And in order to get your business name known, you’d better provide your customers what they need and want with the right amount at the right time, or at least you need to create needs and wants for them. You know the 4Ps, or even the 7Ps in Marketing? Implement it, step by step! Obviously, when you run a business, you would expect it to last long for years. You now should expect Marketing activities to last as long as your business survive.

Above are the key factors that cause a failure of a business as well as solution for each problem. I hope you find it helpful and please leave comments below to let me know what you think.

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