According to the U.S. Small Business Administration, over 50% of small businesses fail in the first year and 95% fail within the first five years. For local retailers, this is important. To determine how to succeed, first, know why small businesses typically fail. In this article, we’re going to be exploring this issue for would-be retail entrepreneurs and new small businesses who power local economies.
To start a small business and sustain it at the beginning and scale and grow the business isn’t easy. You need a combo of management skills, business savvy, product-market fit, and access to the proper capitalization. You need to be agile and learn as you go, especially if you are new to the industry.
We know from startup lore that about 7 out of 10 businesses fail after ten years. The harsh reality of businesses is a survival of the fittest. If you think a tech startup is harsh, try being a retail startup — not all glamour and customers to be sure, however well worth the challenge!
Even surviving your first year of operation makes you a success story as a retail startup and retail entrepreneur. But it’s true for all new businesses, the beginning is the hardest part.
According to the Bureau of Labor Statistics, this has less to do with the economic climate, but numbers do vary according to different industries. The economic climate in the U.S. has been in decent recently, and this is leading to new retail startups coming into being in both cities and local areas. What does it take not only to survive but to thrive?
First, we must look at the most common reasons for failure.
1. Poor Management
Retail is a complex industry. Growing a small businesses doesn’t just take guts, it takes business smarts, organizational skills, time management skills, and a talent for dealing with people, product, and marketing. As a manager, you cannot just lead, but inspire customers, employees, partners, and possibly even investors that your brand has a unique value and what you are bringing to the world is truly exceptional.
Not everyone possesses these rare talents or passion that’s contagious and attracts profitability. Not everyone is able to grow their business fast enough to make the margins that are required to stay in business. Give the idea time to bloom in the real world.
2. Failure to Optimize Conversions
If about 50% of businesses with employees will survive their fifth year in business, they did a lot of things right but they may not be growing fast enough.
This means they aren’t converting their existing customers into better customers. They aren’t doing a stellar job of bringing back customers to their store or location. Customer growth is often a problem of building customer engagement and converting new customers into regular ones and regular ones into high-value customers.
Business sustainability is about targeting the right customers and converting them into high-value customers successfully. Retail entrepreneurs especially need to create an elevated brand and market it to the right customer by having a deep knowledge of the product-market fit and the culture of their target customer. Optimizing conversions, in this case, is all about bringing a new customer back to the store, re-targeting them in campaigns, and using loyalty and discount tactics to attract them once again.
3. Lack of Product-Market Fit
Business is all about bringing something to market that’s in high demand or that can fit a valuable niche. For small businesses and retail stores, this is especially true. Knowing your competitors and doing better is essential, as well as providing a unique selling point that’s irresistible to your audience.
Even with a great brand and great products, small businesses still need to create an effective sales funnel and customer acquisition strategy. The customer experience must resonate with the audience and stand-out as memorable. The business plan has to embody the unique value of the culture and offer exceptional products with a strategy and marketing plan that ensures that the product and the market sync in the best possible way. This requires constant pivoting and not every business will be able to do it successfully. It requires listening to customers obsessively, tweaking details, optimizing experiences, reducing friction, and enabling staff to succeed.
However retail entrepreneurs can do everything right and still might find that the brand simply doesn’t have enough product-market fit to survive. There are intangibles, trends, and shifting customer preferences that could change things overnight or competitors that rise to the occasion, taking market share. Retail entrepreneurs must do an incredible amount of research before they start their business, to make sure they have the right product-market fit to risk starting the business in the first place.
4. Failure to Innovate and Be Agile to Changes
Onward, about 30% of businesses will survive their 10th year in business. Retail entrepreneurs need to be especially sensitive to changing consumer preferences. Small businesses need to implement technology and best practices that ensure they are responsive to customers at every level.
As entrepreneurs, we can’t do it all. We have a tendency to overgeneralize and become biased in our frame of reference. To keep growing our businesses and an SMB into something more requires that we remain agile to the marketplace. This includes an ability to control expenses, manage inventory, track key KPIs and remain customer-centric with evergreen branding and a fine-tuned flexibility to your audience.
As a founder of a small business, you need to be open to implementing technology and being data-centric in order to ground your business, automate tasks, and deliver incredible results where your business is a fine-tuned machine that balances people, customer experiences, and technology that empowers your business model and boosts your profits.
5. Failure to Build a Tribe
A small business today requires community. This is an often overlooked point. A tribe of loyal customers and devoted employees is essential for sustaining growth and the ups and downs of being a retail entrepreneur or founding a small business. A tribe means you have reached people on a fundamental level, not just as a brand or for discounts or products, but as a message to the local community — we bring value to your life.
Building a tribe means establishing a brand and doing all the little things in marketing right that can help scale your business, so it can adapt to changes in the market or the economy or the location of your physical store or business. Building a tribe means so many things in the value you bring to your local community: events, partnerships, charities, in-store happenings, connecting people together at your business — that is great for word-of-mouth. Being a leader in your community and inspiring your audience with your products.
Building a tribe is easier said than done. If you started your business for the right reasons, it will also be easier to build a tribe that resonates with people authentically. 42% of small businesses fail because there’s no market need for their services or products. If you build a tribe effectively, you can create a market need; that’s the power of local businesses fueling economies and inspiring entrepreneurship.