According to Innovation, Science & Economic Development Canada statistics, thousands of businesses exit the marketplace every year in Canada. Business failure statistics show that about 96 percent of small businesses (1–99 employees) that enter the marketplace survive for one full year, 85 percent survive for three years and 70 percent survive for five years (Key Small Business Statistics). Approximately 7000 businesses go bankrupt every year in Canada.
There are several reasons small businesses fail, but the good news is a lot of these reasons can be avoided by simply researching ahead of time and having a firm plan on how you are going to grow your business with your long-term vision/goals. Here are some surprising warning signs your small business could be headed for disaster, along with solutions for how you can ward off trouble.
1. You grow very quickly
While this seems like a nice problem to have, it is possible to grow too quickly, especially if you don’t have the infrastructure and systems in place that will be necessary. These systems will need to be scalable as the needs (like human resources, for instance) of a 2-person start up are much different than the systems needed for a multi-million dollar business.
2. You think everyone is your target market
This is a mistake many small businesses make. However, if you don’t define the niche you’re looking to fill, it’ll be very difficult to stand out from the crowd of competitors. If you think you can appeal to everyone, you’ll actually appeal to no one. Take the time to think through who your ideal customer is and why (profit margin, use of repeatable processes, etc.). Then think through the questions that the customer has at every stage in the sales process. Position your company as filling the exact, specific need for that exact, specific person.
3. You work 18-hour days and never go on vacation
Obviously getting a business off the ground takes a lot of time and attention, but look for ways to work smarter rather than harder. If you continuously put your personal life on hold for your business, both will suffer. Look for ways to create processes and systems out of the things that live only inside your head (and therefore require you), replace yourself where you can, and delegate often.
4. You are well funded- with money that’s not your own
Starting a business with someone else’s money is kind of like winning the lottery. If you didn’t earn it yourself, you will likely lose it. Do you remember Samuel Langley? Probably not, but he was the well- educated, well-funded frontrunner in airplane development and Secretary of the Smithsonian Institution. Based on earlier successes in aerodynamics, the US War Department (now the Department of Defense) gave him a grant of $50,000 (nearly $1.5m in 2019, when adjusted for inflation). On launch day, October 7, 1903, the press was ready to herald the venture a success. Instead, it was sadly reported that the aircraft dropped “like a handful of mortar.” Shortly thereafter, the Wright brothers’ better designed aircraft, costing about $1,000 of their own money (about $25,000 today), flew into the air in Kitty Hawk, NC and history was made.
The moral of the story? Plan to bootstrap your business and grow as you can, leveraging small successes against each other to gain momentum. According to the SBA, most small businesses actually start with less than $5,000 capital.
5. You have a 30-page business plan
Simpler can be better, and many long-term business owners champion a clear, succinct one-page business plan. While a 30-page business plan will likely get you an “A” in school, focus and adaptability will get you further in the real world. A one-page business plan forces you to condense your thoughts and clarify your focus. Include brief sections on: business concept and success factors, market analysis, competitive analysis, strategy including key competitive strengths, products and services, marketing and sales, operations, and an overview of financials. If business plans aren’t your strong suit, hire a company like Phoenix Management to write up a professional business plan for you, which will also help you get financing.
6. You get a ton of press
Media exposure can increase pressure and create a microscope on your business. This can also be like winning the lottery in the sense that lots of people will be knocking at your door. There’s a reason why 70% of lottery winners go bankrupt. Aim for slow and steady media attention and work out the kinks in the early stages of the business model before you seek out too much attention.
7. You think your business model is set and aren’t open to making any changes
A successful small business always needs to evolve with what’s relevant in the marketplace. Invest in regular strategy-planning sessions with your key advisers and employees to intentionally survey what’s going on in the industry and market and how you can position your company to best serve the current need. Creating a habit of this will make your business more resilient as times change.
8. You feel like you know everything there is to know about your industry
A growth mindset and attitude will get you further than a know-it-all attitude. The Neuro-Leadership Institute (NLI) describes a growth mindset as having the continuous belief that improvement is possible and failures are opportunities to learn. If this doesn’t come naturally, make it a point to highlight learnings from challenges and new experiences. Regular debriefings with your team can help you focus on what went well and what can be done differently next time. This is also a great way to role model this kind of mindset with your team.
9. Failure is an option
If it’s no big deal if you move on to something else in a few months, that’s a problem. Small businesses are hard to launch, make profitable, and maintain profitability, but attitude and commitment is everything. There is no failure, only feedback.
If any of these signs seem familiar, there’s hope. Connect with a group of fellow like-minded, growth-minded business owners to brainstorm with and bounce ideas off each other. Encourage one another and share candid feedback. If you can’t find a group like this, start one.
If you notice any of these 9 signs starting to manifest in your own small business, don’t stress. Now you know what problems to look for early on and how to fix them, so get out there and build your business!