Opening a business is relatively easy; keeping it open can be extremely challenging.
According to a Forbes article from October, 2018, the old adage that most small businesses fail in their first year is more of an urban legend than an objective fact. In reality, most small businesses fail somewhere in the 5-10 year range — but why?
It’s curious that many small businesses do indeed hang in there for so long before calling it quits.
When asked to imagine what a failing business looks like, the mind — for me, at least — is quick to create an image of a store in a dodgy part of town with no one inside, save a bored owner waiting behind the counter, wondering if today will be the day he finally makes his first sale.
But given the data, this can’t be accurate.
The truth seems to be that most failing businesses do have people coming and going, just not enough — or with enough.
This makes you wonder how well the businesses that do survive past 10 years are really doing. Probably, a lot of them are getting by, but are not really succeeding either: they aren’t growing, profit margins are flat, and maybe even headed for a slow decline towards bankruptcy.
Perhaps you even own this type of business.
And if you do, there is hope.
Realize Your Growth Potential: Moving from Breaking Even to Real Profit
When businesses struggle, it’s often because they don’t have a strategy for growth and profitability.
No matter how large or small your business, such a strategy usually revolves around the same four principles.
1. Increasing your volume of ideal customers
One of the most common mistakes that new business owners make is that they try to appeal to everyone in order to get the largest possible customer base.
However, this tactic is shortsighted, as it does nothing to attract the kind of customers who would be willing to pay more for things because they support the way you do business, your values, personal style, etc.
People tend to support organizations they identify with, which is why branding your business is key. It is one of the best ways to acquire new customers of the sort you actually want to do business with. This is because your brand becomes the way you communicate your business philosophy to like-minded clientele, drawing them into your network.
2. Increasing repeat-business frequency
Customers only need so much stuff. This is a classic obstacle that all businesses face, and to overcome it, they need to find ways to encourage customers to return more often.
The most important factor here is building customer loyalty: you need them to choose your business over another that offers similar products or services. Rewards programs for referrals or repeat business are ways of encouraging this sort of loyalty, but so is providing exceptional customer service. If customers genuinely enjoy going to your business, they are likely to stop by more frequently.
Loyalty, though, is really only half the battle. The next step is expanding your product or service offerings to better meet the needs of your specific clientele. That is, finding ways to provide more of the things your customers need to buy.
You help them and they help you.
3. Increasing the size of your average sale
There is definitely some overlap between boosting the size of your average sale and the number of products you offer, as the latter means that there is a much greater potential of a customer buying more items at once.
But let’s look at the issue another way.
What do your customers value? Whatever it is probably aligns pretty well with the things you value. That’s why they choose you over your competitors.
Put some effort into better understanding your clientele and the things they are willing to pay more for (e.g. fair-trade ingredients, product warranties, service guarantees, etc.), and you might find that by changing some of your suppliers or partners, you might be able to offer a more valuable product or service and thus be able to charge more for it, knowing that your clientele will appreciate the extra care that goes into your products and offerings.
4. Increasing business-process effectiveness
This is the only one of the principles for increasing growth and profitability that does not require action from the customer.
Increasing process effectiveness is about looking inward and making sure that all of the things your business does — from how staff answer the phone to how leadership approaches project management — are helping to support growth and profitability.
More specifically, all business processes should support the business’s goals laid out in the first three principles.
Some processes may only have an indirect effect, but it’s important to look at all processes, even very small ones, because they might reveal another opportunity to act on one of the three principles above. McDonald’s up-sell line, “Would you like fries with that?” is a classic example of a small process change that has big results.
While improving process effectiveness can have major benefits, they can only materialize once leadership knows where they would like the business to go: they need a mission statement that clarifies business identity and purpose. After this is established, the business has a clear direction and can make sure that all processes serve those aims.
Move from an At-Risk Business to a Business with Calculated Risks
What do these four principles tell us about the at-risk businesses we considered at the beginning of this post? It’s pretty obvious that a lack of strategic vision around those four principles is a major factor.
Yet while this true, it is a simplistic conclusion that doesn’t really expose the heart of the issue.
To bring a business in line with these principles, owners have to do things they are not presently doing. In other words, they would have to take a risk, and risk scares a lot of people because it means things might get worse.
You might now be expecting me to insert a cliché, noting that without taking a risk things also won’t improve. However, fear of taking such risks is legitimate: when your business, and thus income and livelihood are at stake, it can be very difficult to make tough decisions. If at all possible, it is best to enlist the services of a professional who can objectively assess your business and see opportunities that fear blinds you from.
Your first thought might be that such services are not in the budget. Yet weigh this upfront cost against the potential profit you will continue to miss out on, and you might notice that the stakes are a little more even than you thought at first glance.
As it happens, the professionals at Davies and Associates are well versed in helping businesses move from stagnation to salvation through growth and profitability.