There are over 28 million small businesses in the United States today, about 25 percent of which are owned and operated by people of color or Hispanic whites. Another 36 percent are owned by women, which means that minority and women-owned businesses make up over 50 percent of small businesses in the United States.
Unfortunately, the sad truth is that the vast majority of these small businesses won’t survive. According to the Small Business Administration, about 50 percent of new businesses fail within the first two years, and only 30 percent make it for 10 years or more. A dismal one in four are still operating after 15 years.
The reasons why small businesses fail vary. But as a rule they can be narrowed down to a few key areas:
- Poor planning
- Insufficient capital
- Inadequate marketing
- Scaling too fast
To help your business avoid these pitfalls, let’s go over each one in a little more detail.
If you want to succeed in business, you’ve got to start in the right place. This means first investigating the market to determine if a business like the one you’re planning to open can survive. You’re not likely to be successful as a realtor in an area where the housing market is in a slump. Nor is it likely that a high-end French restaurant will thrive n a neighborhood frequented mostly by college kids.
The key to successful entrepreneurship is to identify a need that you have the ability and desire to fill. Ask yourself: What can I do with the resources at my disposal that will serve the community where I want to set up shop? What do people need or want that no other business is currently providing them? What can I do better than anyone else? Once you have those answers, you have a place to start.
Step two in the planning process is one that many minority and women-owned business owners ignore: a well-developed business plan. Sure, some entrepreneurs have gotten lucky with a business plan scribbled on a napkin over lunch. But most successful businesses start with a solid business plan that includes market research, realistic goals, and an analysis of the resources needed to get the business off the ground and keep it operational for at least the first year.
Insufficient Start-up Capital
One of the No. 1 reasons why small businesses fail is insufficient capital to deal with inevitable ups and downs. Let’s face it, if you’re struggling to make ends meet when you start your business, even a minor setback can leave you scrambling for cash. And a new business with cash flow problems or a large amount of existing debt is unlikely to qualify for a new loan.
Given that access to capital is particularly challenging for minority and women-owned businesses it’s all the more important that MWBEs have adequate financing when they first open their doors. Push back your launch date if necessary, but make sure that you have the financial resources you need to keep your business going until sales are strong and cash is flowing in. (Read this article for some tips on getting a small business loan.)
Unless you’re the only company in your area providing specific goods or services, differentiating yourself from the competition early on is a must. And that means you need well-planned, multi-channel marketing strategy that gets your message out to potential customers efficiently and effectively. In today’s marketplace, that typically includes both traditional advertising, an engaging website and a strong presence on social media.
If you can’t manage multiple marketing channels at once, think about your target market and where they typically go for information. Just about everyone uses the internet these days. But Millennials and Gen-Z are more likely to use social media than Baby Boomers are. Similarly, a direct mail campaign is more likely to reach customers who are 65+ than those who are 18 to 25.
Scaling Too Soon
Another way to sabotage the success of your small business is to try to expand too soon. Many small business owners fail to grasp the reality that expanding a business is, in many ways, like starting over from scratch. In their zeal to reach new markets or expand to new locations, they don’t do the research and analysis required to learn if the venture can succeed.
To avoid this pitfall, approach every expansion, no matter how small, with care. Whether you are thinking about hiring a few more employees, expanding your warehouse space, or investing in a new advertising campaign, do a cost-benefit analysis so you can more accurately predict how expanding will affect your ROI.
The Carmoon Group, Ltd. is a minority-owned insurance brokerage headquartered in Hicksville, New York, with affiliates in various locations throughout the United States. We offer customized risk management and insurance solutions for businesses of all sizes across numerous industries, and we would be happy to meet with you to discuss your needs. Please give us a call today to set up an appointment for your insurance review. Or if you prefer, reach out online and we will get back to you at a convenient time.