99.9% of UK Businesses in the UK are SMEs
In the private sector alone, small and medium-sized businesses (SMEs) make up 60% of all employment. Furthermore, they have a combined annual turnover of £2.0 trillion, which is a significant contribution to the UK economy. By all accounts, startups and small businesses are vital to the economy, but how can startups succeed? Continue reading for startup business advice for entrepreneurs or if you’d like to read about how to choose a Business Advisor.
At the start of 2018, the Department for Business, Energy & Industrial Strategy (BEIS) reported that there are 5.7 million UK businesses. A staggering 99.9% of these are SMEs and 96% of them are micro-businesses, employing 0-9 employees. This isn’t to say that startups aren’t without inherent risks and challenges, but clearly, starts-ups succeed. Before looking at how can startups succeed, let’s firstly explore what ‘success’ means.
What does success mean?
The archaic definition of ‘success’ referred to the outcome of an undertaking being good or bad. Nowadays, this is more commonly defined as accomplishing or achieving an aim. In business, success means different things to different people and organisations. For example, is it about achieving strategic goals, whether that is turnover, profit, sales, product development, growth or something else? Alternatively, social and economic factors, like adapting to change or surviving a financial recession.
It’s easy to jump to an initial conclusion, whereby we assume start-up ‘success’ is defined by whether or not they survive. In statistical terms, this tends to focus on years 1-5. At a basic level, startup success equates to their survival, especially given 50% fail within the first 5 years. That’s a large number, but then there are a number of factors that influence business failure and for that matter, success.
Why do businesses fail – some startup business advice for entrepreneurs?
Every year, determined and hopeful entrepreneurs bring their ideas to life and set up a new business. Whilst the ratio of survival is evenly split 50/50, the reasons behind success and failure are crucial to understanding how can startups succeed? One of the single most important factors that entrepreneurs need to consider (and my startup business advice), is risk. For example, what are the risks and what is the likelihood of those risks occurring? Then, if those risks are likely to occur, how severe could those risks impact the business? If an entrepreneur fails to acknowledge the risks and make a plan to avoid them, how can startups succeed?
There are several reasons why small businesses fail. In January 2018, Factworks surveyed 537 SMEs to understand the challenges SMEs face. These challenges contribute to success and failure. At the top of the list, with 79% of those surveyed, ‘attracting customers’ was the biggest challenge. This isn’t surprising because in the last 10 years, the way businesses market their products and services has changed considerably. i.e. digital marketing, social media (e.g. Twitter, Facebook, LinkedIn, Pinterest, Instagram etc.) and Search Engine Optimisation (SEO).
Revenue and Profit
Attracting customers is one thing, but increasing revenue is a close second. 59% of those surveyed, raised this as a challenge. 51% stated that maintaining profitability is another challenge. Without being able to effectively attract customers, how can startups succeed and increase revenue and profitability?
Interestingly, securing finance received 13%. Whilst some may consider this low, with options and availability of funding, it isn’t surprising. For example, crowdfunding and Angel Investors, particularly with the demand for Tech Startups and digital transformation.
27% of those surveyed raised economic uncertainty. With Brexit uncertainty and continued delays with a deal or no deal, this remains an open question.
Startup Business Advice for Entrepreneurs – How startups can succeed and the impact of Digital Marketing
The impact of digital marketing, including social media and how startups can reach potential customers is challenging. If you’re not online, it’s a struggle to say the least and even then, as a start-up, keep in mind that even a new website domain has no domain authority until after 1 year. This means your online visibility and ability to attract customers is already compromised.
The online world has been monopolised by the likes of Google and search engine algorithms. Without a domain authority and a sound SEO and marketing plan and strategy, how can startups succeed? SEO looks at on and off page requirements, including keywords and key phrases as well as relevant articles and blogs. During the first year, potential customers can’t even find startups through online searches, without having a reasonable level of paid online digital marketing / advertising.
It’s a mind field and one that links with your website domain name, so choose carefully because it’s all about keywords, phrases and what your potential customers will search for when they’re looking for products and services online. Google’s algorithm and consequential points and ranking system cannot be underestimated. How can startups succeed? Make sure you have a good SEO and marketing strategy and research service providers with care and caution. SEO isn’t as complicated as some may lead you to think!
CBInsights Analysis on why startups fail and thus, how can startups succeed?
In 2014, CBInsights polled 101 startups to see why they failed. Of those surveyed, 42% of small businesses failed because there wasn’t a market need for their products or services (i.e. poor market research and planning), 29% ran out of cash and 23% because they didn’t have the right team in place to run their businesses properly. Another 19% failed due to competition, 18% because of pricing/cost issues, 17% due to their product offering, 17% because of their business model, 14% because of poor marketing and another 14% because they ignored their customers.
Startup Business Advice for Entrepreneurs – Factors that influence whether or not startups succeed
There are several reasons why small businesses fail, but what factors influence start-up success? First and foremost, entrepreneurs need to carefully research and plan their start-up before bringing their idea to life. The sad thing is, so many entrepreneurs have great ideas, but often lack the business mindset and know-how to ensure stability, sustainability and scalability. So, how can startups succeed? It’s all very well to have a great idea and believe in it, but startups take time, hard work and careful planning.
In years 1-2, startups rarely make enough money to breakeven, let alone the dream of hundreds of thousands of pounds or even, millions of pounds to provide a comfortable living. That’s not to say that some startups don’t breakeven or make a profit earlier, obviously some do. With this in mind, how can startups succeed? Startup Business Advice for Entrepreneurs; reduce risks by completing thorough research and careful planning, which takes into account short-term and long-term risks.
Cash flow – Planning and Forecasting
Another risk that entrepreneurs need to consider is cash flow. Any new business has a certain degree of capital outlay, regardless of whether it is for a service or product. This can vary significantly and depends on whether you start small. Equally, whether you need resources and an from the beginning etc.
Planning and cash flow go hand-in-hand, since if you carefully plan your forecast and actual costs, you limit the financial risk. That’s not to say that unexpected costs don’t come up as well as unforeseen challenges and problems. It’s good practice to create at least a 12-month forecast of your forecast revenue (if applicable in year 1) as well as committed (e.g. already contracted), actual costs as well as other costs you will be aware of from your research and planning that may not yet be finalised.
It’s important to research your competition before going ahead with your business idea. What is the competition and what are they already doing? What can you do differently to attract customers? How will you keep ahead of the competition to maintain revenue and increase profitability?
With every idea, it is vital to carefully consider the timing of your start-up. You will want to avoid selling a product or service if the competition is very high and there is little room for anyone else in the market. This would be a tough market to enter, let alone sustain. Equally, are you ahead of the game and the market isn’t yet ready for your idea?
Structure & Management
Then there’s management, which also links with planning and cash flow. Entrepreneurs need to think about and plan how their business needs to be structured and managed. For example, the type of business entity (sole trader, partnership, limited company) and the associated pros and cons with each of these. Being a sole trader/partnership means all the financial risk rests with the individual(s), but with a limited company, the financial risk is limited to business assets.
Consider whether or not you need a structured IT network and system in place. What business processes can help your start-up be operationally fit and efficient? How can you automate manual tasks, which mitigates risk, reduces waste and duplication (including things like manual workarounds, unnecessary process steps etc.)? Think about how will you juggle the financial, legal, marketing and sales + customer service side of things as well as delivering your product or service?
Hiring People & Leadership
The majority of startups don’t have the luxury of hiring a complete workforce. In fact, they tend to start out with just the owner(s). With this in mind, startups can facilitate their success and survival through establishing efficient and effective business operations. Entrepreneurs need to prepare for the unexpected and be ready for when business begins to ramp up as much as future growth.
Once you’re ready and financially able to hire people, do you have the management experience to ensure your workforce are motivated, feel appreciated and have job satisfaction? Have you thought about job descriptions and how your team will be managed and structured? As the owner, you need to be able to make the best decisions possible and often very quickly. Fast decisions can often lead to mistakes, but as entrepreneurs, we can learn from the mistakes we make. If you’re prepared, with a solid plan that includes detailed cash flow forecasts, you will be more prepared to make better faster decisions.
In part, starting a business requires a leap of faith. It’s not for the faint hearted because it not only involves an unimaginable amount of hard work, but risk too. Startups require time, bright entrepreneurs, who carefully research and plan their business ideas before they go ahead and put them into action. They need the cash flow and management/leadership that is experienced and skilled enough to make them a success. For entrepreneurs that have great ideas, but lack the planning and leadership, there are resources out there to help you succeed. With some specialist, professional, expert business advice and or business coaching, you can put your start-up firmly on the road to success.