Rich Preece, VP, Accountants for QuickBooks, highlights just two of the ways you can make sure you’re not in the 50% of businesses who experience failure in their first five years of trading. Part 1 is below; we’ll be sharing his second set of tips in a later post.
Having worked with them for a while, I’ve seen first hand the commitment and the passion that entrepreneurs and small businesses have to growing their organisations, and it’s been genuinely thrilling to see the rise in startup companies, especially in the last few years. However, the statistic that continues to concern me, one that you’ve probably heard a few times by now – the one that continues to be the cloud that fills in the silver lining – is, according The Telegraph, that 50% of new businesses in the UK experience failure within their first five years, remains.
No matter how many times we hear it, it doesn’t become any less surprising. Fortunately, there are some crucial steps businesses could be taking to ensure their survival beyond year five.
Now, I will go through some of the reasons behind why I think that businesses experience failure in this period and offer my suggestions to ensure you’re in the half that will still be around in 2020.
Failure avoidance Suggestion #1: A good idea on its own just isn’t enough.
If you’ve decided to start a business because of a fantastic idea you’ve had, its only ever half of the story. Despite the saying, something being “too good to fail” is hardly ever true. The idea you have might be so great in fact, that you believe it to be incredible that no one has thought of it before, and that it’s bound to sell well, because after all, it’s a brilliant idea.
However, without understanding the customer you want to serve your product or service or the market you want to operate in, you’ll have no idea how the big the opportunity is, regardless of the idea. For example, say you wanted to build an app that helps you find a hairdresser, making it easier and more convenient to get your hair cut. Before hastily uploading it to app stores, consider the following questions:
- How big is your market? Using the app example, how many people use apps to assist them with their personal appearance? If you’re only thinking about the wider group of people who use any apps (in this case, known as the total available market without “drilling down” and not considering those people who would specifically use your product, then you could be massively overestimating your total addressable market. These are the individuals who you’ve identified as being potentially interested in your product or service. Unsurprisingly, having up-to-date competitor information is essential. You’ll need to know who your competition is, what they charge, as well as what makes them different to your offering. Once you have the answers to these and other questions, you’ll be in a great position to understand where you fit in the industry and how you can really stand out.
- Who is your customer? What sounds like a really simple question has layers of hidden complexities, as without a fully realised answer here you could be wasting precious time (not to mention a lot of money) chasing the wrong customer in the wrong market.
How do I find out who my customers are?
- Who are they? How old are they?
- What are their challenges? What problem are you trying to solve for them?
- Where do they shop? What do they read?
- How do they relax?
- Why do they need your product or service?
Knowing who your audience and what your total available and addressable markets are is essential to become and remain successful. You’ll put yourself in a great position to create an effective business plan that drives revenue.
The questions you have to ask yourself are tough and there will probably be a number of improvements you might need to make to your product or service in order to cater to your audience. You could set up a small focus group and ask participants about it, although be prepared for total honesty from your attendees. Friends and family will only tell you what they think you want to hear, so it’s a good rule of thumb to step out of your comfort zone and their opinion.
Failure avoidance Suggestion #2: You’ll need to have a clear value proposition
A value proposition will be critical in keeping you clear on how you best serve your customers and how you communicate to them. It has regularly been defined as “ a promise of value to be delivered”. The key word here is “promise”, as you’re reassuring your audience that they’ll receive a certain level of quality and service from you.
Your value proposition should include:
- A clear approach to solving your customers problems
- A way of delivering unique benefits to those customers
- A way of telling them why they should buy from you and not the competition
It should be:
- Easy to read, using everyday language
- Under 140 characters (so it’s easily shared on social media)
Above all, your value proposition should be the solitary reason as to why your customers will buy from you. It will explain why you’re different from your competition and how you demonstrate that difference.
How do you go about creating a value proposition for your business? One of the first things you’ll have to do is make sure you’ve thoroughly researched and understood your market, competition and audience. This has been covered above, but it’s worth reiterating, as without this fundamental knowledge, your business has a very real chance of being in the wrong half and failing in its first five years. Spending time getting this right is crucial, so don’t rush it and as always, get feedback.
Want more tips like this? Visit our Small Business Centre.