The real reason so many small businesses fail

Starting your own small business can be an exhilarating and rewarding adventure, but many entrepreneurs find the road to success is a rocky one.

Many people dream of being their own boss, but very few actually are able to do this on a scale that warrants a real income either for themselves or their staff. Yet now more than ever, we are seeing a focus on start-ups in Australia, with funding from investors, incubators and even banks backing small business ideas. Starting your own business can be an exciting, scary but rewarding process, but a fantastic idea without the right strategies or underprepared data can leave a potential business owner with broken dreams and a large amount of debt.

People always blame the climate, technological advancements and a crowded market, but there is always room for profitable new concepts, businesses and services if executed well.

Having been involved in both successful and unsuccessful start-ups, I have found that there are two key reasons why many small businesses don’t seem to work.

The first is about expectation. Many of us are guilty of this: the business plan is decided upon and there’s a strong vision of exactly how the business will roll out. It is exhilarating and friends and family think you are brilliant. Six months in, things may not have gone to plan and it may be much harder to get customers, reach your audience or secure investment. This is where many bail; it is confronting and stomach-churning when there isn’t a safety net of cash injections waiting.

Part of successfully running a small business requires maintaining the balance of big vision while working on incremental milestones. This allows you to be fully aware of the potential of the business to expand, while acknowledging the small steps and achievements required to get there.

Some are boring tasks and others are worth celebrating, but being able to deal with all aspects well is crucial. You must address the nitty-gritty realities such as taxes, structures and even hiring people: will they be on the payroll at first or will they be contractors? All these factors impact heavily on cash flow and, if not managed well can quickly put the business in a vulnerable position unintentionally.

Careful and conservative forecasts are required and, although you may not be a trained accountant, work out how to become educated before making any major decisions if you don’t have the budget to delegate this task to a professional. 

The second is about quantifying the idea you have. People continually come up with great ideas but have no data to back it up. Nowadays, a business doesn’t even need to do extensive costly research because quality data analysis is available at our fingertips. Researching why the product is needed, how people will find out about it and the likelihood of the market embracing it is a lot easier than it was 20 years ago.

If you can’t do this (or can’t be bothered doing this), you will find that potential investors will lose interest. Worst of all, you will likely miss important aspects required to build the business. It’s all about asking the right questions and also having the ability to make fast changes to strategies when required -- quickly and with minimal loss. Too often small business owners are so emotionally tied to their original concept that they ignore what the customers or market are saying. They soon find themselves having to shut-up shop.

The biggest shame is being too afraid and underprepared, particularly if running your own business is what you feel so inclined to do. However, it’s imperative to do so with strategic discipline and full awareness of what is required to do so successfully. It is a risk, it is competitive and it is exhausting, but armed with solid knowledge, vision and calculated awareness, it’s a brilliant climate to launch a small business.

Alexandra Tselios is the co-founder and publisher of The Big Smoke, Australia’s newest opinion site and a business start-up consultant.