In my last post, I discussed the varying views on how many small businesses don’t make it. There is debate on the rate of survival but not on the difficulty. Many experts have theories, and, while I’m not an expert, I have helped over 100 people start a small business and watched some of them fail. Here are some of my observations about why.
Lack of planning. I see a lot of business plans. Most of them are too vague and nonspecific. The ones that most often succeed are highly detailed in terms of how they will attract prospects and convert them into customers in a given period of time.
Lack of capital. Stories of starting a business with virtually no money are legion. I started mine that way, but, in a small business, the founder needs to identify how he and the business will survive the inevitable financial challenges that come in a new business. It can be spousal income, savings, investors, or other sources, but very few businesses and their owners can survive the time period required to establish regular cash flow with only the income from the business. A realistic assessment of this is almost always lacking in failures.
An unrealistic marketing plan. The number one job of a founder is to create revenue, but many budding entrepreneurs way underestimate the number of prospective customers that will be required to get to a certain level of income. In addition, they have no certain means identified to produce those prospects in necessary numbers. Most insurance agency startups are created by sales people. Many of those don’t understand how to make the phone ring. Before you hang out your shingle, make sure you do.
No Unique Selling (value) proposition. The failures I see think that a lower price than the next guy is enough. It isn’t. It never has been. It won’t ever be. Especially in a day in which customers can easily shop many sources quickly, being cheapest isn’t enough to stay alive. Since virtually all agencies tout “service” as their USP, that doesn’t work well either, unless it’s really true, and it usually isn’t. What is your USP?
Inadequate work ethic. How much time should a founder expect to invest in their business on the way to success? I’ve heard a lot of theories. My answer is: all of it. To be successful in starting a business, the founder needs to be ready to commit all of their time to it, except the time required to eat, sleep, and eliminate. I’m not kidding. Look at those who made it, and that’s what you see. Yes, starting your own business should (eventually) allow you freedom of time, but it won’t for the first few years.
Wheel reinvention syndrome. There are many startups who invent a new product and become fabulously successful. Legions more who don’t, but in the small business arena (like insurance agencies), usually success involves following well established paths to success. When involved with companies like mine who have a well charted set of success strategies, follow them.
This is the land of entrepreneurs and the “overnight” success story that often takes many years. There are lots of paths to success and some pitfalls. The ones I’ve listed here are common and 100% preventable with some effort. Good luck to you if you head down the path to independence!