Everyone has one of those great business ideas in them. For most people it never becomes more than just an idea.
For some the idea takes shape and becomes a business. A few, maybe 10%, move on to grow and become successful.
Success is different for every business.
Over 90% of business start-ups fail in the first two years.
That is an ominous statistic but unfortunately true. Failure, just like success, is different for every business. It is very unusual for a successful business person not to have failed at least once and sometimes multiple times. It is important to understand why the failure occurred and learn from those events.
Why did the business fail?
Businesses fail every few minutes in Australia and often no one knows why. When businesses fail there is rarely an evaluation to determine a cause. It often is put down to the skill of the business owner or bad advice. In Australia there are some strict guidelines and legislation that can force a business in administration and then liquidation. Directors of businesses have an obligation to abide by the insolvency provisions in the Corporations Act.
Some start up failure can be linked directly to those that should be there to support.
Large enterprises see start-ups as a nursery but often expect too much from the developing company and the added corporate stress and red tape causes failure.
Banks provide funding via loans and credit cards. But small business finance comes at the highest interest rates that can be crippling when combined with credit cards maxed out to pay the bills.
Business customers (especially larger corporates) might see a small business invoice as 90 or 120 days to pay adding undue stress to receivables.
So why do start-ups fail at such a staggering rate?
There is no short-cut!
Although there can be a determination that there might have been a systemic failure in the business such as insufficient working capital or excessive aged debtors, it does not always explain why the business ultimately failed.
Could it be that most start-ups are so focused on the end result (the success goals) that they forget that they have to run the race?
Tom Eisenmann in the Harvard Business Review last year looked at why start-ups failed. In the article, which is an easy read, he puts forward the idea that “it’s not always the horse or the jockey” that cause the failure. Wise words indeed.
Failure can be the perfect step up to the next great opportunity.
If you go to popular forums or many of the "pitch" type functions then you very often hear people looking for, or unfortunately spruiking, the short-cut or magic bullet for success.
Advice for Start-ups that want to Succeed.
Concentrate on the basics and treat short-cuts with caution!
Remember that first and foremost, what you are doing is building a business.
Great images on Instagram and specialised Google marketing strategies can be important factors in your business’s success, but, unlike what many of the less scrupulous vendors in the market will tell you, they will mean nothing if the business fundamentals aren’t there to support and sustain your business through the ups and downs that inevitably come for all start-ups.
Even having the best product in the world is no guarantee of success unless there is a logical and considered plan for bringing that product and your customers together profitably.
Get a business plan
It is important to spend some time and understand your mission and your strategy so that you have a clear vision of what both winning and the journey to get there might be like. This doesn’t need to be complicated or lengthy, but any successful business will have and know their plan.
What should it contain to be relevant?
For businesses selling online, and largely applicable for any business in this day and age, the strategy and business plan should include:
Business & Personal Aims - what is your business's mission? What value are you seeking to provide or problem are you looking to address?
Business Objectives - what do you want to achieve?
Business Model - how will you achieve those objectives? What structure/capital will you need? Who will support your growth?
Execution - what do you need to do to achieve those goals? How will you measure success?
Marketing Requirements and Goals – Who is your market and how will you reach your target customers?
Financial Management and Payments - including security management
Social Media - strategies to engage with your customers
Platform & Technology – what technology requirements does your business have to achieve the goals above?
Maintenance & Management – what will be required to keep your business growing?
While missing, or failing to properly account for, some of these items may not immediately be a problem. We often hear stories of businesses finding themselves at the brink without a clear understanding of why they’ve got there or what to do to step back from the edge.
Know your customer and market
If you keep your target market front and centre then you will be able to see opportunities more clearly. It will also allow you to be agile when opportunities or challenges arise, as you should see them coming.
Be first off the blocks
Too many start-ups fail because they fail to launch. Once you get into the market you start to learn the reality of the business and opportunity. Philosophising will not get you there. There is infinitely more value in customer and market feedback than in pre-launch brainstorming.
You can create core focus groups (or early adopters) that are engaged in the start-up process but are also customers. Finding these early adopters may not be simple but having these customers onboard and contributing real user knowledge can give you a head start.
Trusted service providers
Accounting, legal and business advice is essential to protect yourself, your investors and your potential customers. Find people you trust and that are willing to learn and grow with you.
Manage cash flow and be thrifty
The biggest challenge for most start-ups is cash. You need to find it and then nurture it. Limit expenses to the essentials but be honest about what you need to succeed. Understand how much you really need to survive and still be growing the business. Cutting back on marketing to pay other bills might seem like a short term victory but sacrifices growth for survival. Ensure you consider the flow-on impact of all spending and saving decisions.
You’ll be hard pressed to find any entrepreneur that doesn’t have a few stories of begging customers to pay early to keep suppliers at bay or even eating lean for a few weeks to put money towards a new marketing campaign.
Know your product and its value
Too often start-ups price their product out of the market by over-valuing the benefit that it delivers. Understanding the real product value and price is essential. Honestly, what you think your product is worth isn’t important, what matters is what people are willing to pay you for it.
Market research can be surprisingly easy to collect if you are smart about it, in our experience most Australian business people are happy to take a few minutes out of their day to help a fellow Australian business get going. The benefits of a few humble phone calls and a dozen cups of coffee can return a hundred fold early on when it allows you to understand and refine your value proposition.
Also, going to your trusted advisers (discussed above) and asking them for introductions can be a simple way to meet your potential audience without having to do too many cold calls.
Take your family and friends on the journey
You will need a shoulder to cry on and an audience that will applaud you. These are your family and friends so do not take them for granted.
Remember, whether you intend to or not, they are coming on the journey with you. Whether it be picking up the kids so you can spend more time at work or buying the first bottle of champagne when you sell your first product, they will be there with you through rain or shine.
Will doing all this guarantee success?
The short answer is no. But it will take you in the right direction and ensure that you have all the information that you need to operate and grow the business.