They say that in business the winner isn’t the fastest runner, but the one who keeps running at the same pace when everyone else slows down. The truth is that the percentage of businesses that fail in their first year is quite small, although the failure rate in the second year is astonishingly high.
Only 2 in 10 businesses survive five years, which means an 80% failure rate over five years. Let’s not fool ourselves: the business that goes under in its second year was already wounded. In other words, it had really fallen during its first 12 months and simply dragged out its agony a few more months.
Starting a business isn’t easy (though it isn’t hard either). It’s not true that an entrepreneur has to be a long-distance runner. An entrepreneur has to be a long-distance runner and a fast one, who mustn’t doze off or trip at the start of the race, or a clear advantage will be lost. They also need to be an all-terrain runner, able to handle the flat stretches (no problems) and the rocky ones (difficulties). See the mindset of an entrepreneur.
It’s also said that a business succeeds or fails even before it opens, because the knowledge, resources and strategy the entrepreneur planned before opening have already set the final outcome. If you start a business with a product or service you know nothing about, don’t expect to win.
Here are some steps to at least avoid failing in your first year. If you manage to make your business profitable in the first year, and you follow some other advice, you’ll probably have better than a 90% chance of making it past five years. That said, remember how important accurate accounting is, because having a profitable business in the first year doesn’t necessarily mean you’ll have positive cash flow.
1. Test your business idea
There are a great many points to focus on, but I invite you to pay attention to two of the most significant: the viability of the project and your capital reserves. Viability is easy to find out, since you only need to answer these 15 questions to evaluate your business idea. As for capital reserves, it’s as simple, or as complicated, as making sure you’ll have enough capital to get through the “launch” or start-up phase of your business.
Expenses will come and pile up. We’ll invest in advertising, unexpected taxes will arrive, and so on, and almost certainly all of this will come before the business turns a profit, because customers don’t show up on their own (you have to go out and find them) and our business won’t always go viral quickly. That’s why you need to make sure you have enough money so you aren’t forced to close a future success because you couldn’t keep it going while it grew. Still, we know that these days having capital for 12 months is a tough task.
2. Learn from other people’s failures
There’s no better way to learn how to succeed than to look at the path taken by those who failed. They may not be able to tell us how to achieve success, but they will show us what we must never do. “To get different results from everyone else, we have to do different things from everyone else.” Once we know what not to do, we’ll more or less reduce the chances of making those mistakes by process of elimination.
See also: A profitable business opportunity with a future and current demand
3. Start fast, but wisely
Don’t make any of the mistakes Spanish business owners commonly make. Give sales management the importance it deserves. You can have a great product or service, but if you don’t know how to sell it, or you don’t have the capacity or the right people to sell it, you really have nothing, unless your product is so innovative and good that it sells itself.
Don’t start big, and avoid unnecessary expenses.
4. Be persistent
Success takes time to arrive, and part of success is persistence. You may lose small battles, and things may not go as you expected at first. When that happens, it’s no time to lose heart. It’s time to keep being persistent: analyze where you’re going wrong, look at new strategies, or figure out what you could improve to make yourself known.
5. Don’t fall asleep
Ironically, one of the worst things that can happen to you is for your business to start working with minimal effort, because you tend to think the rest of the way will be a bed of roses. Some businesses struggle to survive however they can, others thank God for reaching €100,000 in annual revenue, and others fight to break the threshold of one million euros a year in revenue.
Today you’re either a small, unknown business or you become a big one; if you stay in the middle band, you’re exposed to all kinds of circumstances. If your idea was good and your product or service was original and innovative, your model will quickly be copied by someone more ambitious, until they put you out of business or take a large part of your potential market. That’s why you have to innovate continuously and create new lines (diversification). Look at artists. Some achieve quick success and know they’re in danger of going out of fashion, so their managers squeeze their momentary fame for everything they can get right now (in case tomorrow there’s nothing left to squeeze).
In business the situation is different: once you have “fame”, it’s time to make the most of it so you don’t disappear.
Further reading
- How to attract your first customers
- Why new businesses fail
- 7 body language techniques that will help you in business
Featured image: Unknown author, Public domain, via Wikimedia Commons.
