In a nutshell: Starting a business isn’t a sure thing. Here are some tips for improving the odds.
Starting a business is not something you do on a whim. While 75% of small-business owners say they are confident in their business, 70% of all small businesses fail by their 10th year, according to InsuranceQuotes’ “Why Do Businesses Fail?” infographic. Top reasons include cash flow problems, no market need, not having the right employees and being outcompeted.
Risk is inherent in starting any business venture, but there are ways you can reduce risk and increase your chances of success.
Determine the Need
Sure, your passion is there. But is there a need in the market for your product or service idea? If there’s an abundance of competition in the industry or a lack of interest in your niche, you should reconsider your business plan. Just because you love it, doesn’t mean it will be successful. According to Time’s “3 Ways to Figure Out If There’s a Market for Your Business Idea,” conduct market research before you dive in – delve into recent research reports published within the industry or conduct your own surveys. In fact, another piece of Time’s advice is to ask existing or potential clients if they’d be interested in your product or service. There’s nothing like hearing it straight from the horse’s mouth. Lastly, seek out an expert. If you have a mentor or investor (especially one familiar with the space) you can brainstorm with, this may help you determine market needs and how your offerings can fulfill them.
Know Your Lenders
You may only think about seeking out investors and building relationships with lenders when you need money, but Harvard Business Review’s “Startups Need Relationships Before They Ask for Money,” suggests meeting investors when you aren’t actively raising money. This not only gives you the chance to build relationships with potential future investors, but you should be requesting business advice from these experts in the industry. Just by asking advice, you may even raise money without even inquiring. If the investor loves your ideas or has contributed significantly to your plans, he or she may offer you money to get started. You never know!
Without customers, your business doesn’t exist. So, make them top priority – especially in starting your small business. Continuously seek out the opinions of your customers, asking them about interest in products or services, pricing, breadth and depth of offerings, their overall satisfaction, perception of value – the list goes on. A conversation that is always happening will build more trusting and closer relationships with customers. This keeps them loyal and makes your business successful. According to Entrepreneur’s “5 Key Ways to Build Customer Relationships,” small business is all about relationships, relationships, relationships. And building trust with customers pays off exponentially, because loyal customers actual become salespeople for you. Consider a rewards program from the start of your business to show customers how much you appreciate their continued patronage. Research from Bain and Co. has found that a 5% increase in retention yields profit increases of25-100%, so the effort is worth it.
Take IT Security Seriously
Even if your business offering has nothing to do with the technology space, you’re using a multitude of technologies (e.g., payment systems, marketing technologies and customer relationship management systems) to operate your small business every day. And a data breach can cost in more than just downtime. Lost trust leads to a tarnished reputation and lost sales. Besides updating computer systems, applications and programs as necessary, and backing up data frequently, there are a few other things you can do to be cyber vigilant. We’re often rushing to log in to our computers and get work done, but when that reminder pops up (every 90 days, ideally) to change your password, do it. And make sure your employees do. Everyone should also be careful to avoid clicking links or opening attachments that are suspicious. This seems obvious but even the most tech-savvy people get duped all the time. A VPN, or virtual private network, is also essential for a small business, especially if you’d like to be able to work remotely. It will protect your company resources by allowing you to securely access them from anywhere.
Consider Business Interruption Insurance
Most of us don’t want to think about the destruction hurricanes, wildfires, earthquakes and tornadoes can cause. But when you’re starting a small business and risking your livelihood, business interruption insurance is a smart consideration to make. It will protect you if you are forced to temporarily close your doors during disasters and through the recovery period. Business interruption insurance can cover expenses associated with running your business, like payroll and utility bills. It may also help pay for additional expenses that may be incurred. Be aware that some policies have a waiting period, so make sure you have sufficient financial resources to hold you over for that time as well.