6 Ways to Avoid Small Business Demise - Black Enterprise

6 Ways to Avoid Small Business Demise

If you are considering entrepreneurship, your venture will likely fail.

That’s not a criticism or negativity, but rather a statistical fact. According to the Small Business Administration, about half of small businesses fail before they reach their fifth year in business. And even the most successful entrepreneurs have had failed ventures before they achieved success. John Bradberry, a veteran business consultant and author of Six Secrets to Startup Success says the entrepreneur’s passion for the product or service his or her venture provides can sometimes actually contribute to the business failing.

When I looked at why ventures succeeded or failed, I wondered if there was a relationship not only between passion and success but whether there’s another side of the coin that causes otherwise talented business owners to overlook things, he says. I found that most businesses succeed or fail based on fundamental laws.

Based on those laws, Bradberry recommends the following:

Check your founder readiness. It’s so much easier to start a business these days at a low cost particularly in technology, Bradberry points out. And so there is an argument where people say don’t wait, just jump in. However, he suggests first establishing why you want to start the business, and set goals and self-evaluating to determine your entrepreneurial personality and see how to leverage your skills, assets, resources and relationships.

Become attached to the market, not your idea. Entrepreneurs are often obsessed with the next big idea, but Bradberry asserts that it’s not a great idea until the market says it is by way of sales. When someone becomes emotionally attached to their business idea, they almost always assume there’s a greater market demand than there actually is. As a result, time and financial resources are invested assuming there’s going to be a ready and willing customer base. The solution for that is a market orientation where you have to become obsessive about your target market and understand it.

Don’t let your passion get in the way. Entrepreneurs tend to be optimistic when it comes to financial projections aggressive sales forecasts, low projected expenses and capital requirements. The solution is to make sure your math story is clear and compelling. Essentially, this means being sure that you can have a great product customers want to buy at a price that enables you to make a profit. You might want to have someone on your team with the personality to play devil’s advocate to provide that reality check, says Bradberry.

Stay flexible. Just because you’ve prepared and studied the market, you still have to be ready to turn on a dime. Because no matter how much you plan, you may be surprised about what the market says about your product. Market demands can change and you have to create a structure that enables your venture to change along with them.

Don’t let reality get distorted. Entrepreneurs are often so passionate about their product or service that the people involved in it automatically drink the Kool-Aid, says Bradberry. Though nobody wants to hear that their great idea won’t work, it’s important to cultivate integrity of communication where the entrepreneur can get valuable feedback from those helping develop his or her product/service.

Build up your staying power. Bradberry says the longer you give those first five principles time to work, the more dramatically your odds of success go up. Sometimes the danger in passion is you think the runway is longer than it is and your money will take you farther than it will, he says. And you end up at this point where you suddenly have money and no one will lend you money when you’re in a desperate situation like that and your startup dies. The trick is to try to raise more funding than you actually need and watch your costs from the start, before they spiral out of control.

Looking for more small business advice, attend Black Enterprise’s Entrepreneurs Conference in Atlanta May 22-25. Visit blackenterprise.com/ec for more details