If you had told me a week ago that nearly a trillion dollars comes from the self employed I probably wouldn’t have believed you (Nazar, 2013). Specifically, that non-employer small businesses are producing somewhere in the neighborhood of $989.6 billion a year, since 2011. That figure does not include small businesses that are employers. When we talk about small businesses in general in the world we tend to emphasize the small part, which couldn’t be further from the truth.
According to the Small Business Administration, 99.7% of employers in the United States are a small business (SBA, 2014). The small business administration defines that as any company with less than 500 employees. That certainly covers a large number of companies. About half of working Americans currently work for a small business by that definition.
Here’s the sad fact though, after 5 years, half of every new business founded will fail. Many will go on to start new enterprises, and find work in other companies, but in that wake is often left financially broken families, workers, and entrepreneurs. Over 540 million new businesses are started each month, with somewhere close to that going under. Imagine for a moment the cost to all the vendors, owners, and employees of that business failure, and a subsequent restart. In many cases a single small business is replaced by many new small businesses (Nazar, 2013).
As a small business ourselves, we have a unique insight into this problem, and its potential solutions. CloudLink as a company has been around for several years, but our software was originally created over 15 years ago. In 15 years of business we’ve experienced the ups and downs associated with success and failure and have learned what makes business work, and what heads you to sure-fire failure. Though it isn’t a perfect science we’ve collected personal and business data that can help a business move in the right direction and avoid pitfalls.
For 2015 we’ve set a business goal. We want to be a big part of the growing number of companies that have recognized the need to make small businesses succeed. We want to be a company that helps reduce the number of restarts and do-overs an entrepreneur faces in their lifetime. The real question for us, was where do start? Over the course of 2014 our staff attended several events, trade shows, courses, and gatherings that talked about this problem, and suggested solutions. Some of them were specific, and others were lofty unclear goals.
We’d like to put our best foot forward and not just hang this out there as a set of unclear goals. We have specific plans. We understand what we plan to do to help small businesses stop the cycle of failure, and help people create, keep, and thrive in the small businesses they start. Since we respect Forbes as a source for great business and financial information we thought we’d start with an article about 5 reasons businesses fail. We crafted our own six reasons as a part of an infographic, and we’ll address those as well, but these five are a great place to start (Wagner, 2013).
In his 2013 article, Eric Wagner suggested the five reasons business fail are (Wagner, 2013):
- “Not really in touch with their customers through deep dialogue”
- “No real differentiation in the market”
- “Failure to communicate value propositions in clear, concise, and compelling fashion”
- “Leadership breakdown at the top”
- “Inability to nail a profitable business model with proven revenue streams”
In his article, Eric Wagner suggests solutions to these five problems, but we’d like to add our own comments and suggestions from our experience. We’ll tackle these five problems first, and then move on to the six that we’ve outlined as well. By the time we are done, we think that any small business will recognize our expertise, experience, and want to go with us on this journey of helping more small businesses “make it” every year.
The first problem is companies not really being in touch with their customers. This can happen for a number of reasons. The most often one we see is that companies take on too much and become overwhelmed. They manage to give some customers the personal touch, and others fall through the cracks. The worse the problem gets, the larger the group of customers this affects. After a while, the end result is getting completely out of touch with your customers. More importantly though, there is an immediate problem. Your customers will sense and see the distance and you will never develop the deep relationships that result in a lasting customer that loves your brand.
So how do we plan to help companies fix this problem? The first part of this is helping them to organize communications. Our software has been specifically written to give companies and edge with automated communications and notifications. This is one of the easiest places that a company can help their customers still feel in touch. If they understand where they are at with you, and the communications continue, then they can feel like you are paying attention, even when most of your communications are on auto-pilot. On top of this, we’ve enabled our solutions to have access to systems that have even better communication tools than we offer. This introduces people we come into contact with to tools they may have never heard of.
As a part of this we’ve geared our consulting services toward helping companies implement internal processes around our software and free to use software that can help them keep better track and become more efficient in their communications. This keeps the costs down and lets a small business do more, when they often have less to work with.
The second problem real boils down to understanding their product, how it sells, who buys it, and what is important to them. By giving customers better tools to use regarding product usage, inventory, and business intelligence on product and service sales we create an environment where tweaking your product to find the most profitable niche becomes easy. By categorizing your customers, and tracking how inventory moves, or even how services are delivered you can quickly see what is profitable and what isn’t and be agile about changing how things work, long before it becomes a business failure problem.
The third problem, a failure to communicate value goes hand in hand with the first problem. At CloudLink we understand one thing, we aren’t a marketing company. There are hundreds of companies that do it better than us, and we’d rather help companies find that best option for them, and tie them together through an integration. So that’s how we’ll help. Our 2015 goal for solving this problem is to focus on integrating with software packages we feel bring real assistance to improving your ability to communicate your value proposition. This ranges from CRM solutions, to E-Commerce platforms, to CMS systems. By gaining knowledge about your product, and who is buying it the only missing piece of the puzzle is your ability to focus on delivering a great message to your audience.
The fourth issue, leadership breakdown, is our real sweet spot. Business management solutions really fly when we start to talk about getting to know your business better. Many small companies run on spreadsheets and have some logic. Some businesses have developed these spreadsheets into extensive tools that automate their process. What they forget about is the intelligence that can be gained by compiling all of that data into one place.
Here’s our approach to solving this problem. In 2015 we will focus on developing better and deeper reporting that can give a business the real answers it needs to make great business decisions. A company that can understand where decisions need to be made can avoid major pitfalls, and someone who has limited leadership skills can excel.
We all know that is only half of the equation. To solve the other half, we’ve added a new service to our line up that we call Success Consulting. This service gives customers access to our top leadership and the years of experience they have in working and running small businesses. It gives our customers access to the mistakes and wins that this team has made, and does so in such a way that is affordable for any entrepreneur or small business.
Finally, in this group of issues we address the inability to find a profitable model. It is surprising how many businesses we’ve come across that don’t know if a particular sale, customer, job, or project made them money. They can look at the books at the end of the month and see profit or loss, but they can’t do the same thing for a job or for a customer. Without this ability developing a model that works will almost always stay out of reach. By adding this ability you can shift your efforts to finding more of the jobs, projects, and customers that produce the most positive revenue for you. You can seek to build your own relationships with the right types of customer.
While discussing the problem, we devised our own set of six problems that we see. Though there is some overlap, we believe these problems can be solved for every company, and can teach a company how not to fail. Though we won’t solve them in this article, we will explain how we plan to solve them with our products and services, and our work within our communities.
First up, is when a business starts for the wrong reason. This can be solved easily, but it means connecting with entrepreneurs early. Some companies have really started to grasp this, like GoDaddy. On top of domain registrations and website hosting this company is starting more and more to offer services that are geared to the early startup.
As a part of our 2015 initiatives we’ll be doing some of the same. We’ll focus on offering our services and some free products to early entrepreneurs that are either in the startup stage of the business or have not started it yet. We’ll help guide the companies to start for the right reasons and to create real achievable goals, and to get started on the right foot.
Next, we highlighted bad management decisions as well. This can not be repeated enough times, access to better information will result in management making better decisions more often than not. Our 2015 goals will be to create more informed managers, and more involved staff at the operations level so that less is swept under the rug, and so that losses are no longer hidden from sight, but able to be dealt with swiftly.
Not having enough capital is a recurring problem we saw, and really something that can be solved creatively. There are a few reasons for this problem:
- You don’t sell enough
- You don’t make enough on what you sell
- You don’t understand your company well enough to seek investment
- You don’t know where or how capital growth could occur.
An anecdotal story is good place to start for how we will address this issue. One of our clients last year had a revenue source available to them that they didn’t see. As a light manufacturer they make a product that is attractive to one market. One of the materials they use expires at about a six month interval. Based on the amount of product they order to keep costs down, they were regularly left with expiring product. Here’s the interesting part, many companies sell that material at retail for crafters. This company had normally been marking the product as waste, using as much as they could before the expiration, and throwing the rest away. By recognizing this problem through the application of good software and processes, they were able to open another channel of sales, selling this material at retail prices. This increased their revenue streams and even kept them from losing money in months where they’d been in the red before.
As you can ascertain from the story our way to solve this will be to help companies solve all four of the problems we mentioned. For companies where making is a constraint on selling, we’ll help them become more efficient producers. For companies where delivering is the constrain we’ll help them become more efficient deliverers. For those that don’t know when they are and aren’t making money, we’ll help them get to those answers quickly and intuitively. As a result of that we’ll help them know their business better, and be able to communicate that better with potential investors and other capital sources like banks, all backed up with elegant reporting and business intelligence that can be shared to overcome this hurdle.
The next problem is part of an old adage that is shrinking in the brink and mortal sense, but seems to be growing online. We’ll help with this problem by helping companies to better understand their markets and learn where they should put physical locations, as well as helping them to become part of a large community of small businesses. We’ll be sharing resources throughout the year as part of our social media feeds:
Bad or no planning is a problem often related to lack of access to good information, or information that can be used to create a plan. The other reason is most typically that the entrepreneur has not had success with planning, and often doesn’t see the purpose. Our goal for 2015 will be to teach people we come into contact with what the benefits of creating business budgets are and forecasting for the future. This will help with financial decisions and understanding before you take on jobs or projects if they will make money or not. We’ll focus on improving the tools in our software and finding free tools for our customers to use that can boost this capability.
Finally, we’ll tackle the problem of growing too quickly. Last year we watched a company attempt to open 30 new locations, only to stall on the first one. There were so many moving parts, and both a lack of planning and a lack of finances caused the stall. We’ll help customers overcome this problem by giving them the tools they need to understand when growth is possible and necessary. By solving the other two problems we’ll help them know where the money will come from, and to plan before they leap, to ensure their new venture will be a profitable, or at least stands a chance to be so.
We look forward to working with you in 2015. If you’d like more information please browse our website, or inquire about how we can help you from our contact page.
Nazar, Jason, Forbes http://www.forbes.com/sites/jasonnazar/2013/09/09/16-surprising-statistics-about-small-businesses/
SBA United States Small Business Administration https://www.sba.gov/content/general-business-statistics
Wagner, Eric, Forbes http://www.forbes.com/sites/ericwagner/2013/09/12/five-reasons-8-out-of-10-businesses-fail/