96% of all non-franchise businesses will fail within 10 years! Out of business! There are many reasons why a business will fail, but we'll tackle those in another edition of this newsletter.
The failure rate of businesses is a statistic that is fairly well known, but there's another statistic that's even more worrisome - 75% of business owners DON'T WANT TO GROW! What? Don't want to grow? That was the slogan for Toys-R-Us, and we all know how well that worked out for them! There are many reasons why a business doesn't grow, but we believe it boils down to only 5. Continue reading to see the reasons. If you own a business now, see if your business is guilty of 1, some, or all 5.
The 5 factors that will determine whether or not a business will grow.
1. The level of demand for your product or service. -This factor has a major impact on the ability of a business to grow, obviously! If you owned a typewriter store in the 1950's, your growth would be uncapped. Back then, everybody wanted to buy your product. Now, fast-forward* 70 years... The demand for your product has waned substantially. Is there a market for your product? Yes! But the universe of potential buyers has fallen to almost zero. There are a few things that can influence the demand for your product or service. Changing technology and a new/better competitor steals market share. In today's fast paced and ever changing culture, the demand for a product or service can change overnight. Sears was once the largest retailer in the world. They got there because the demand for their product (which was delivering items to peoples homes) was enormous. But, even for the giants, you can't ignore this factor, because... One day, you're the biggest retailer in the world, the next day nobody wants your product anymore because a better version of you exists (Amazon). There are many examples of this phenomenon that prove that Lou Holtz quote from above is extremely true. If you're not growing, you're dying.
Blockbuster -> Netflix
Toys R Us -> Amazon
Every 'mom and pop' store -> Walmart
If you own a business, pay attention! If you're not careful, the demand for your product may disappear, making it impossible to grow and thus... Killing your business. *Fast-forward is even obsolete. The term came to prevalence because of the VCR. - For those of you under 30, the VCR is what we used to watch movies on before the DVD player was invented. - For those of you under 25, the DVD player is the device we used to watch movies on before the Blu-Ray player was invented. - For those of you under 20, the Blu-Ray player was what we used to watch movies on before streaming was invented.
2. Effectiveness of the businesses marketing -If you can't convince people, through advertising, that they need to buy your product or service, you can't grow. Bad advertising is a killer of growth. Bad advertising is can plague companies of all sizes, but it's rampant among small, locally owned businesses. You've all seen the terrible ads that local companies run. They say things like "we've been in business for a thousand years..." and, "we're your one stop shop". Just stop it! Cliches like that will make any seasoned marketers skin crawl. Advertising is a simple concept that has a very complex execution. Doing it well can be rocket fuel to a business, doing it poorly can be the "sugar in the gas tank" to a business. If you pay attention to the local ads in your town, you'll notice the bad ones. You'll also notice that those companies have stayed roughly the same size forever. The Best Kept Secret - One of the keys to effective marketing is doing enough of it. As long as the message is good, you can't outspend advertising. For every $1 invested, you will make at least $10. Most business owners don't understand that concept. They view advertising as an expense, rather than an investment. If you're the "best kept secret", you're soon going to be "The most out of business".
3. Ability to sell at a high enough margin. -For some reason, the idea of sales has gotten a bad wrap. That's why most business owners don't focus on sales training. This is the best way to stay exactly the same size FOREVER. Without a dedicated focus to sales, your company's revenue will be directed by the customers. You will lose total control of your income. If you can't consistently build value with a structured sales process, your business cannot grow. Building a sales process starts with understanding your worth. An inability to build value means that your margin will be eroded so much that expansion is impossible. For some reason being the cheapest option is celebrated. Ridiculous! Do you think Ford is sitting around saying "we have got to find a way to lower the price of our F-150's?". The answer is "NO!". They are having meetings asking, "how can we build more value? And thus, charge more?". That mindset is what makes a company HUGE! Without margin, you can't provide any service. Without service, you can't grow. If you want to have a growth mindset, you have to stop viewing your price as the reason you're unable to sell. And instead, focus on how you can build your value.
4. Ability to systematically train employees. -Did you know that 75% of businesses have ZERO employees? The entire business is the owner. Imagine a cupcake shop called Mary's Cupcakes. If the only employee was Mary, how could Mary's Cupcakes become the next Little Debbie? Trick question, it can't! Mary's Cupcakes will only ever sell as many cupcakes as Mary can make by herself. Not only is she the lead baker in this scenario, she's also the bookkeeper, the marketing manager, the recipe innovator, and most importantly, the janitor. The reason Mary is the only employee is because she doesn't have a systematic way to train employees. She's afraid that if she hires someone they won't be able to do the job as well as she can. This fear will keep you small. Get over it, Mary! You're right. An employee can't do it as well as you. So what? As long as you can train that employee to do the tasks well, and ideally, better than the competition, you'll be able to grow. A businesses success will be directly linked to the performance of it's worst employee. Implementing a training program that can quickly get employees to be proficient at their respective jobs, will have an immediate impact on growth. It will allow the business owner to stop working in the business and focus on working on the business.
5. The Business Owner. -Wherever you go, there you are! That's just as true in business as in life. The business owner will have the biggest impact on whether or not a business grows than any of the other 4 factors combined. Because, the business owner affects each of the other 4 factors. If the owner has no ambition, no direction, or no skills - the business will have no ambition, no direction, no skills!
No Ambition - A business owner has to want to grow. If you want to stay small, you'll succeed! A lot of business owners believe that it's going to be too much work to grow. That mindset is as incorrect as it is debilitating. Sure, growth is hard, but not as hard as worrying about how you're going to make rent for the month.
No Direction - If you don't know where you're going, how are going to know if you get there? Setting goals are necessary for growth. Unfortunately, most business owners don't set them. And, even if they do set them, they're not big enough.
No Skills - Learning doesn't stop when you become a business owner. In fact, that's when the learning needs to start. Keeping current on new technology and new trends will help greatly when trying to grow a business.
Another pitfall that business owners fall into is the desire to focus on tasks that do not directly lead to growth of the business. If Mary from the above example is always mixing batter, she can't focus on generating more sales. If you own a roofing company and you're constantly on the roof driving nails, who's driving the business? There will always be times when performing tasks not tied to growth is necessary. But deciding that growth is a priority means that you can't get distracted by the mundane. As a business owner/department head, it's your job to focus on the big picture. In other words, "stop majoring in the minors". It's always more comfortable to stay where you are, but growth is the only way to reach your potential. Get out there and GROW!