So here are some rather frightening Small Business Administration statistics that you may already know: 50% of small businesses fail in the first year and 95% fail in the first three years.
The primary reason cited by the SBA for small business failure is lack of management skills, followed closely by lack of funding (which is often indicative of a planning failure.)
If you didn’t know this already, then it’s good you know now – and don’t close the page thinking that you are automatically in the 5% that will make it beyond 3 years! Smart people recognize their strengths AND their weaknesses, and when you spin up a new business, you absolutely must acknowledge and address those skill gaps.
The inner workings of a business are separated into operations and management. Operations are the nuts and bolts of the business – the part that most new entrepreneurs excel at and have deep expertise in. Management is everything else, and can be a mine field for those who have not had experience working at the top of an organization seeing how all the various pieces must a) exist and b) fit together.
As a solopreneur consultant, I too am a small business owner. It took me a long time to move out on my own primarily because I had the experience, as VP of Risk & Strategy for a $450m corporation, to understand what it takes to run a business – even a micro business like mine. My strongest skills were in planning, due diligence, risk mitigation and strategy. Starting my own business meant that I also had to master marketing, networking, client relations and sales. I could be a rock star in business planning, but if I couldn’t reach potential clients and articulate my value, I would be dead in the water. So, I researched and studied these areas to develop solutions I thought would fit my needs, and then reached out to experts to validate my plan. It’s not always easy to admit what you don’t know, but admit it you must!
When we review the most-cited issues by SBA for small business failure, it’s clear that the operations component is not what causes problems for most folks, rather it’s the management piece:
- Inadequate Management / Doing Everything Yourself
- Inadequate Cash Reserves / Failure to Anticipate Cash Flow (or lack thereof)
- Failure to Define/Understand Market & Customers
- Over Dependence on a Few (or Single) Customer
- Failure to Identify/React to Competition
- Uncontrolled Growth (yes – this CAN put you out of business)
Here is where a good dose of reality just might save your business. If you know the most common issues that cause small business failure, and you can identity and admit which ones you can handle and which ones you can’t, then you have cleared your first hurdle! All the issues listed above can be addressed with thorough strategy development and thoughtful business planning that address ALL areas of your business – not just operations. This is what I mean by Big Strategy.
Start with being honest about your management skill weaknesses and get to work studying-up on the basics – there are lots of free resources available to help. If you choose to work with a consultant, make best use of your dollars by developing your strategy and business plan as much as you can first so the consultant is helping to refine and troubleshoot. Make sure the experts you hire are really experts (review resumes, background, education, experience and recommendations), and make sure they are a good fit for both you and your business. It takes work, but give yourself the best chance possible of being a 5%-er!