Building a business is an inherently risky proposition, so much so that 70% of companies fail within the first ten years of operations. How do you build a business that stands the test of time? Here are four key ideas that will help your business make it to ten years or more.
Prefer to read instead of watch? Here’s a rough script I used for this video.
Running a small businesses can be a somewhat risky proposition. They require a lot of work. You should expect to work at least 50 hours of solid work each week minimum. They take a lot of capital to get going. And there’s no guarantee that your business idea is going to work. You could find yourself three years into your business being out of cash and minimal revenue, but that’s the risk you take if you want to build a successful business. The reality is that most businesses do not last. They do not stand the test of time. 20% of small businesses fail in their first year, 30% of small business fail in their second year, and 50% of small businesses fail after five years in business. Finally, 70% of small business owners fail in their 10th year in business. MarketBeat has been a company since 2008, so we’re a relatively young company but already doing better than 70% of small businesses. If you want to build a small business or your startup is going to stand the test of time, I’ve identified four tips that will help you achieve your goal.
1. Be the business designer, not the business operator. When you go into McDonald’s, Burger King or Culvers or whatever fast food you like, how often do you see the owner of the franchise frying french fries or working the cash register? The answer is probably never. They are more than likely working in a back office somewhere analyzing financials, working on marketing or planning their next store. They’re not working the cash register or making sandwiches because they have employees that do that. They’re not even overseeing the work of the cashier or the fry cook because they have a manager that does that. Ultimately you have to be the person that designs the systems and the team that will run your business for you. If you’re the person trying to design the business and you’re the labor that operates your business, eventually you will get burned out and you may quit. Early on, it’s unavoidable to the person doing the day-to-day of your business, but your long term goal needs to be designing systems, processes and a team to run your business for you. Most people that work in their businesses as employees work too much and live unsustainable lifestyles. To eventually get to the position where you can take a step back from the day-to-day now and then and go on a vacation, you need to build a team and give them systems to follow.
2. Become the best at exactly one thing. Focus is critically important in a small business. If you try to do too many things at once or move in too many different directions, your business will be unfocused and ultimately unsuccessful. One of the key reasons that people will come to your business and keep coming back to your business is because you’re the best at the one thing you do. Here in Sioux Falls, Stensland Family Farms makes the best locally-produced milk, ice cream and other dairy products. That’s what they’re known for and that’s all they do. They stay focused on the one thing their brand is known for and work to be the best milk producer and ice cream producer in the region. If you want regular milk, you go to Hyvee. If you want the best milk, you go to Stensland. They aren’t trying to branch out of dairy and sell cage-free eggs, organic beef or who knows what. They stay focused on dairy, and by doing so, they make the best product they possible can and have developed a brand around their expertise of producing dairy products.
3. Develop a war chest of cash. If you’re in business, unexpected bumps in the road are bound to happen. You could get hit with a lawsuit, as I did within the first year of running one of my businesses. You could face an economic downturn and have half of your customers disappear overnight. Perhaps a fire will ravage your business and you’ll have to rebuild from the ground up. You could say something unfortunate and have it blow up on social media causing your customers to revolt. A key vendor of yours could suddenly decide to not pay their bill. I have no idea what kind of bump in the road your business will face, but it will face some kind of unexpected event or catastrophe that interrupts your regular customer flow. The only way to survive and thrive through these business interruptions is to have cash on hand so that you weather the storms that inevitably will hit your business. Your first goal should be to have 3 months of operating expenses in the bank. As you run your business over time, set aside a percentage of revenue for retained earnings (basically another word for savings), and you’ll begin to build a buffer over time that protects you.
4. Be willing to change with the market. Most industries are constantly evolving. What worked 20 years ago probably won’t work today. As patterns and trends in your industry, you have to be willing to change with them. If you’re a taxi driver in 2019 and aren’t willing to drive through Lyft or Uber, you’re probably not going to continue to be a professional driver for very long. We saw this in my industry in 2008 and 2009 during the Great Recession. Since the stock market had basically fallen in half, the appetite for financial news and information was decimated. Everyone in the industry knew they had to cut costs dramatically to weather the downturn, and the companies that produced print newsletters that they mailed to their customers and couldn’t cut their costs by making the leap to digital weren’t able to survive. The market had shifted from print newsletters and magazines to digital and the companies that were able to shift with the market are largely still here. The ones that couldn’t move with the market no longer exist.
So, those are the four ideas. Be the business designer, not the business owner. Become the best at exactly one thing. Develop a war chest of cash and be willing to change the with the market. If you have ideas about how to build a business that stands the test of time, feel free to comment below.