According to the US Bureau of Labor Statistics, 20 percent of businesses fail in the first year. Only half survive five years of operation. These can be sobering statistics to face as a new business owner. The good news is that there are strategies that you can deploy to enhance your chances of success. In this article, we’ll cover 5 critical components to establishing a solid business model.
1. Start with a Plan
Benjamin Franklin is quoted as saying “By failing to plan, you are planning to fail”. This couldn’t be more true for building a business. While it is difficult to predict the future, you should at least have a high-level strategy to create your business model.
Your business model will outline how your business will operate, what needs you are filling in the market, and how you plan to attract customers (and lock in sales). Once you have a model in place, a business plan can be created that is a critical component if you plan to take on investors or need a business loan.
- Keep your business model concise. It’s unlikely that you will have all the answers in the beginning. You can always expand on your business model later.
- Support your business model with numbers and research. This will validate if your assumptions are correct and instill confidence in creditors and investors.
- Always keep your “why” in mind when writing your business model. Use it as a compass to ensure you are on the right track.
2. Narrow Your Focus
Trying to chase too many things at once is a recipe for disaster. Some of the most successful businesses in the world are great at what they do because they focus on doing just a handful of things perfectly. You should take the same approach. Carefully examine your product options and target market. Are you aiming too broadly?
- Companies often make the mistake of trying to sell to everyone. Narrowing down your target audience will help you be more effective in your marketing efforts as it becomes easier to target these specific groups.
- Consumers love options, but there is such a thing as too many options. Reduce the number of options (colors, materials, models, etc.) and focus your efforts on the most popular ones.
3. Establish and Document Business Processes
In the beginning, you will likely be performing a lot of the business activities yourself. Eventually, as you scale your company, you will need to hire additional employees. Having well-documented processes will allow you to easily hand this work off to others. It also helps maintain consistency if a key member of your team has a family emergency or quits. The rest of the team can easily jump in and support.
- Keep all process documents and job aids in a central repository that is accessible by all employees.
- Schedule an annual review of all of your business processes to make sure they are up to date.
4. Be Smart with Your Money
New business owners are especially vulnerable to financial pressures. They will often underestimate how much the business will cost to operate, fail to set aside funds for unexpected expenses, or be overly optimistic about sales expectations. It’s best to remain frugal until you are confident that your sales are coming in consistently.
- One of the highest expenses of running a business is office space rental. Consider establishing your business with a virtual office or coworking plan and upgrade to a private office as your business grows.
- Be conservative with your income projections. Plan for your sales to be only about half of your projections in the first year or so.
- Keep an emergency fund of at least 6 months of business expenses or more, if possible.
5. Continue Innovating
It doesn’t matter how great your product is, you should always be looking for ways to improve. Apple is the global leader in smartphone technology. Their product is second to none, but they consistently look for ways to take their iPhone even further. Why? Because Apple understands that if they rest, their competition can unexpectedly launch a new feature or product that could cause them to lose market share.
- Create a mechanism for customers to provide feedback (surveys, focus groups, social media chatter, etc.). Even negative feedback can be used to improve products.
- Track and evaluate your sales data to understand what products are hot sellers and which should be discontinued.
Monitor your closest competitors regularly to see what audiences they are targeting and what new products are being added to their lineup.
New businesses need to remain lean to stay competitive. Leasing high-quality office space can be extremely expensive. At Lakeside Workspaces, our goal is to provide our clients with professional and flexible spaces that are sure to impress new customers without the financial burden of a long-term lease. Contact us today to find out how our team can support your new business.