Have you ever wanted to be your own boss?
According to Fortune Magazine, an astonishing 9 out of 10 new businesses fail. And at first glance, it’s a disheartening statistic. After all, why put all your hard work and money into a business when you only have a 10 percent chance of success?
But a closer inspection of the numbers shows a different story. What differentiates the business successes and failures is what the business owners did and did not do. In fact, according to the study quoted in Fortune, the top 3 reasons for the failures are:
- No need for the product. (42 percent)
- Ran out of cash. (29 percent)
- Didn’t have the right team (23 percent)
A quick glance at these areas of failure highlight an important fact: you must invest in some planning before you launch your business.
Planning is Good, But You Also Must be Able to Pivot
Planning is a key component of a successful business launch, but problems can occur if you over plan. Joe Lawrence, owner of Business Credit Workshop says “Many business owners over plan and over analyze when starting a new business. Actually starting the company is more important than over planning. Most people never get around to starting their company because they get stuck over analyzing things.”
But that doesn’t mean entrepreneurs should just jump in without some planning. When asked if planning is important, Lawrence says, “Absolutely, you better have a marketing plan in place to acquire clients and sales, and a fulfilment process in place to deliver the product or services sold. But a lot of business plans change dramatically as the business evolves and owners learn what works and what doesn’t.”
He cites video game giant Nintendo as an example. The company originally sold playing cards, and as the public interest waned, they got into the taxi business, television network industry, and even hit a low point as they entered the “love hotels” market. In the end, the company became a leader in the gaming industry after one of its employees brought a personal project to work, which Nintendo took on and marketed.
No amount of planning could have given them the same path to success.
We hear a lot about the need to pivot in startups these days. It simply means that even if you have your business plan completely nailed down, you must be aware of the market, and if you see a shift in direction like Nintendo did, you must have the ability to pivot your business and go in a more profitable direction.
So, which areas of a new business require planning in order to achieve wild success? Here are four areas you should pay attention to if you want to be in the top 10 percent.
Be Certain There’s a Market for Your Business
It sounds really simple, doesn’t it? But 42 percent of businesses in the above study failed because the owners launched a product or service that consumers didn’t want. To prevent this from happening, you should take a few steps before you open your doors.
- Conduct a survey. Ask your target consumers how they feel about your product or service. Do they have a need or desire for it? Would they purchase it? By conducting an online survey or interacting with a focus group, you’ll reap helpful information that will help steer your launch plans.
- Test it. Also called a soft launch, you should put your product or service into the hands of target customers and ask for feedback. This can be done by launching on a limited bases, or by asking people to beta test your product for free and then give you feedback once they’ve experienced it.
Plan Your Finances Carefully
Running a business almost always costs more than you expect. That’s why 29 percent of the businesses in the survey failed due to a lack of cash. “Without financial planning,” says Lawrence, “Business owners can expect to hit a lot of road blocks and hinder their ability to get their product or service to the market. Even a lemonade stand needs to have a plan for buying the lemons, having the pitchers available, building the stand and putting out signs in the neighborhood.”
In order to understand how much capital you’ll need to run your business until it makes a profit, you’ll need to plan for your projected monthly expenses, capital expenditures, assets and cash in the bank to get an estimate. Use this handy calculator to make the task easier. It’s a worthwhile endeavor if you want to achieve success. Lawrence says “If you have some financial planning behind you and some startup capital, it makes it a lot easier and the business a lot more likely to succeed until it can turn a profit.”
And remember the 29 percent who didn’t take financial planning seriously? Lawrence says it’s important to pay close attention to your finances when launching a business because “Without financial planning, a business could have the greatest product or service in the world, but the owners wouldn’t be able to mass produce the product or get the word out to the market. You need to be able to support the financial obligations that come up when launching a company, and if you limit every decision to the small amount of capital you have as a new business owner, you’ll face the risk of blocking the ability to get things done.”
Get the Right Team in Place
Can you image a franchise winning the Super Bowl without the right team in place? It’s no different for business owners—it takes the right people with the right experience to guide your business to success. For example, before you decide how to structure your business, you should consult with an attorney specializing in the various options. And a good accountant will help keep your finances in order so you can concentrate on other aspects of your business. Depending on your skill set, you may also need to hire a good marketing specialist, tech person, or logistics expert.
Build Your Credit
Finally, before you ever open your doors, you should think about building your business credit. A good credit history will help you negotiate better deals with your suppliers, get reduced interest rates on loans, business credit cards, and lines of credit, and make things like inventory purchasing easier. “Business Credit plays a vital role in a successful business, from having the funding to support marketing and expansion to providing short term inventory financing,” says Lawrence. “Some businesses need to fund the purchase of inventory until it is sold to their clients at a profit. Without business credit, the company would be limited in their sales and revenue potential.”
And in addition to the day to day practicalities, whether or not you have good business credit will determine your ability to grow your business. “Having business credit allows a business owner to expand their company by increasing their marketing budget or sales team. An owner could grow at a very slow pace without an infusion of capital, but in business, the objective is to grow as fast as possible while remaining a sustainable business.”
Here are three quick steps to build your business credit fast:
- Set up your profiles on Dun & Bradstreet, Experian, and Equifax. These three credit report agencies will follow your payment history and issue reports to potential creditors about your ability to pay invoices on time.
- Apply for business credit cards. A business credit card will help build your credit because the payments are reported to the credit agencies every month. Once you have your card, be sure to make the payments on time. You can also take advantage of the various reward programs, such as cash back on gas or travel, to help reduce your monthly business expenses.
- Ask for trade credit accounts. Rather than paying for your inventory up front, ask your suppliers to grant you trade credit with terms. This will free up valuable cash flow and is yet another way to build your business credit quickly.
With a little proper planning and an eye to financial matters, there’s no reason why you can’t join the 10 percent of business owners who are profitable and successful. Start by concentrating on the four areas listed above, and you’ll be well ahead of the game.