No one starts their own business expecting to fail. Many start-ups get it right and go on to achieve successful growth and expansion in the long-term. But for many others, biting the bullet and accepting that it’s time to form an exit strategy comes way earlier than anticipated.
We noticed that what retailers often lack is a guide on what not to do, so that armed with this knowledge, they have the best chance to run a successful business.
We explored what ruins the chances for so many, by drawing on a number of trusted resources and validating them against our extensive knowledge of our customers' own experiences. Here are a handful of some of the recurring reasons causing retailers to fail, along with tips on how to keep these issues from damaging your business.
According to Hiscox, some of the most killer issues can range from lack of cash to lack of planning:
Lack of cash It is vital that any small business has a plan for how they will get paid, and in a timely manner. Even the most successful businesses can find themselves in trouble if their money is all tied up in unpaid invoices. Make sure your terms and conditions give you the right payment and debt recovery protections. No plan Business plans are a must for anyone hoping to succeed. Set some concrete goals and metrics for the next 12 months by which you will measure your success. You don't need to write a treatise. A well-researched and considered 1-page-plan can be more effective than lots of pages and charts. What matters is that there is a clear sense of direction, that you can visualise what success looks like and you have a coherent, realistic list of actions to get you there. Heavy reliance on one or two big customers Plan for continuity and business risk. Too often small businesses become complacent when they land one or two big accounts. What happens if one of those big customers goes away? And even if they don't, you may find your bargaining power with those customers reduces further the more your reliance on them is known by those customers. No marketing platform In truth, you must always be marketing yourself, but it's important to be realistic about the limitations that every business faces. Research which one or two marketing methods or platforms will be the most beneficial for your particular business, and commit to them. Neglecting market information Too often, business owners decide they know what their customers want — and neglect to listen to what their customers are actually saying. Listening properly to your target audience is something that businesses large and small often fail to do well. If you’re not collecting and then acting on market research, you’re setting your business up for failure. If you've got a website, track your visitor behaviour. Take time to observe customer behaviour in store. Run well-written surveys. There are lots of different ways to find out what your customer really values and wants. Invest in the time and effort to do this a it can only strengthen your proposition and give you the chance to stand out. Poor management Too many small business owners don't let go of the day-to-day minutiae of running their business, at the expense of focusing on the important, strategic growth tasks. At the start of your business, of course you don't have the option or luxury of delegation. But over time, you must build a team you can trust & delegate anything someone else can do, so that you can focus on what really matters. CMS Wire adds another implication for many retail start-ups:
Expecting Instant Gratification Many entrepreneurs overlook the need to build a long-term business and expect to make a fortune overnight without any effort. As a result, a lot of newbies quit early because they haven’t seen a huge profit right away. It takes time to build success. Even those entrepreneurs that we regularly see in the spotlights have had to graft hard and call in favours before their businesses took off. A recent Telegraph article on the topic signposts tax as the predominant reason why half of UK start-ups fail within five years: The UK tax system Research by British commercial insurer RSA suggests that the biggest growth barrier to UK start-ups is the UK tax system, with 44% of SMEs citing this as their main business concern. Growing too fast Rapid growth was noted by All Business as one of the top 10 reasons small businesses fail:
Of course growth is desirable for any SME, but over expansion is a serious error. Small business owners can get carried away with wanting to be the first to market with a new product, taking on added overheads, or trying to prove growth to anxious investors. This can all result in financially overextending the business so set realistic goals and expand only when it is right to do so.
One company that really stands out for being negatively impacted by rapid growth is Compaq. The Chartered Management Institute (CMI) included the demise of Compaq in their round-up of four companies that ‘spectacularly failed’ and the lessons to be learnt from each.
Compaq became the world’s largest supplier of PCs during the 1990's after breaking the record for the first start-up ever to hit the $100m mark so quickly in its second year of operation. However, in 2002 it came to an end with almost $2bn in short-term debt and stock trading at around $12 per share. The CMI says “Compaq wanted to dominate nearly every aspect of the computer industry, but its M&A activity seemed to distract company executives from the very successful business of selling PCs to corporations. Excess inventory and unexpected price competition in PCs saw Compaq’s profits wiped away.”
At Markel Law we regularly comment on SME related matters.
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“The UK is a great place to start a business, but survival rates are low. The recession has had an unsteadying effect on small and medium enterprises (SMEs) and we need to work hard to rebuild their confidence,” said David Swigciski, SME trading director at RSA.