I love small business. Nothing is more innovative, flexible or nimble as a small business. It transitions you from being a corporate employee to fulfilling your entrepreneurial dreams. It supports you through the tough times. It’s your “baby” that you build and cultivate with your own two hands. And it’s the most powerful driving force of the economy…when done correctly. The problem is, many times, it’s not. According to Professor Scott Shane of Case Western, there are two main messages that everyone considering entrepreneurship should take away:
1. Half of the businesses started in the United States live five years or less.
2. Starting in a recession won’t affect your business’s odds of survival.
But did you know that your odds of failure increase if you don’t snap out of the “small business mindset“? You can be a small business with a big business mentality. Now that we’ve gotten that out of the way, let me explain.
There are four major reasons why small businesses either fail or make revenues that rival a salaried employee. These are not insurmountable obstacles, but if you don’t recognize the issues and course correct, you’re doomed to remain in the poorhouse.
1. You target other small businesses as your client base. I think it’s admirable that people want to service small businesses. Without small businesses we wouldn’t have innovation and a whole lot of jobs. Did you know that small businesses do the most hiring and job creation? But here’s the catch. The one or two man/woman company don’t usually add much to those stats. Not all small businesses are meant to be your customer! Think about it. How many times have you, as a small business owner, said “I can do that cheaper on my own”. Or “No need to hire staff, it’s just an expense”. How many times have you found yourself not able to accept projects or clients because you don’t have the budget to deliver? For every high revenue generating small business, there are at least 100 others who just get by. Small businesses have the capability to bring in a lot to the economy if they step out of the small business mindset. Doing business with other small businesses who are cash strapped will not generate any real revenue for you. Sure, bartering is good on some levels for a few things. But it’s not a way to run a business. If you’re constantly bartering and swapping services, (or worse: giving massive discounts) how are you making any money? Most people who get freebies/deep discounts will never become a full paying client. Stop targeting small business and focus on a niche within the group that can deliver revenue. You have to make sure you focus on the niche that is generating revenue and profits! You can’t do business with broke people! It’s mathematically illogical.
2. You refuse to raise your fees according to your talent and the value you provide your clients. Costs go up. It’s a fact of life. Just look at the nearest gas pump to get that message loud and clear. The cost of production is an unavoidable reality. You are in business to deliver top notch service and products, but most of all to make MONEY. So why shouldn’t you raise prices to allow you room to make a profit? Even non-profits need to make money to survive. Don’t you want to feed your family? The biggest fear many of my clients share with me is they are afraid they’ll lose business if they raise prices. But if you’re providing value, clients will be willing to pay for it. If you don’t place value on your services or products, neither will they. And they’ll see you expendable. When you quote your prices, you better do it with confidence. If clients smell fear, they will try their damnedest to negotiate, and you usually come out on the losing end. Many of you would probably make more money in a salaried job with the rates you’ve set! Know your worth, understand the value of what you offer, and set those prices with confidence. Make sure clients understand pricing up front. You’ll also want to put some safeguards in place like payment terms and clearly written agreements (complete with penalties for breach). Stop setting your fees like you’re negotiating a salary and start putting out some real figures!
3. You don’t plan for when you get bigger. Unless you have no intention to ever grow, you always need to plan for “what if”, or as I like to say “when it happens”. We all have our definitions of what a small business constitutes. For the purpose of this article, I’ll say a business with fewer than 20 employees. But you can have 1 employee or 20 employees who are great at what they do and sales go through the roof. So why is it that small business owners don’t plan into the future to accommodate growth? Client demand can turn at any moment. Look at the people who have appeared on Oprah. They were small businesses who faced an avalanche of customers and attention from being mentioned on Oprah. Many of them did not get the desired effect because they were not prepared to handle it. You should always plan for growth because you never know when your “Oprah Moment” will happen. Logistics, staffing, production, distribution, manufacturing etc all have to be planned no matter what size your company is. Small businesses have to think quickly and be able to handle an influx of orders or clients. Without strategies in place, they end up losing out on business opportunities and major dollars. You leave money on the table by not being prepared. You have to be forward thinking.
4. You’re not adequately staffed. Stop trying to do it all yourself. If you don’t want to hire people to handle the “other tasks” then you might as well call yourself an independent contractor. I’ll say it again, you’re in business to make money. You, as the owner, shouldn’t be doing every task. You need to focus on your talent and how you can add to the bottom line. You shouldn’t be scheduling appointments, marketing or running to the post office. Hire staff for that! Even if you bring a person or two on part time, get that help. You can’t be all things to the business, and it’s not a wise idea to do things that are out of your skill set. Picture me trying to do the payroll and bookkeeping? That’s not what I do so why would I take that on at the risk of making major (costly) mistakes? Hire professionals to do what they’re best at. Stop being cheap. If budget is a concern, then you need to figure out why you’re not generating enough revenue. Perhaps you need a seasoned salesperson to boost sales. As long as your hire is justified and can translate into more revenue, you should be planning your staffing needs.
There are many other reasons small businesses are broke, but these are the ones that I see most common today. Forget about the economy or what Washington is doing. Focus on fixing those four areas and you’ll be on your way.
Til next time,
I run a business, not a charity
*Cross posted on Empower Me! Blog*