In fact, around 60% of new businesses in Australia are said to fail within their first three years. So, what can you do to set your business up for the best possible start? Here are six tips to help you prepare for the most common challenges and potential pitfalls.
DIVIDE BY TWO
Be optimistic but realistic about what your business needs to become profitable and how long it might take, says serial entrepreneur andUniversal Business School Sydney founder Alan Manly.
“The most common cause of failure is overconfidence in the ability or willingness of the market to accept a new player, with a new product.”
He recommends applying the ‘factor of two’ rule: “Most startups will cost twice as much as any budget prediction, take twice as long as any forecasted plan, and be twice as difficult to make a go of as you expect.”
LEARN AS YOU GO
Failure to be flexible can see many new businesses flop. Study the market and be willing to change tack, says Tania Usher, founder of the award-winning food tourism business Blue Ginger Picnics.
She overhauled her marketing strategy a few months in, after realising men were the primary customers for her upmarket al fresco experiences.
“I started out focusing on women because they love picnics, but found most of the people contacting me were men, booking for their partners,” Usher says.
“I had to change my imagery and figure out how to get my messaging in front of the guys.”
DON’T PUT ALL YOUR EGGS IN ONE BASKET
A big customer is often a blessing for a new enterprise, but becoming overly dependent on one can be dangerous. “It’s easy for a startup to become captive to a demanding client who allows little margin,” Manly warns.
Aiming for a broader customer base can help you avoid this. It can also reduce the risk of experiencing a credit crunch, should a key client take their business elsewhere.
Professional advice is a wise investment, and it pays to get the best you can afford
ARE YOU STARTING OUT?
DON’T BLOW THE BUDGET
Some initial investment is inevitable when you’re getting a business going. Temper your enthusiasm and think about what you could manage without, Usher advises.
Your bank balance and cash flow will be better for it and so will the business’s chance of making it to the three-year mark.
“Our biggest mistake was getting too much, too soon,” remembers Usher. “We were excited and bought equipment we didn’t need.”
ASSEMBLE A TOP TEAM
Getting a new venture soaring is rarely a solo act. The people you hire in the early years can make or break your business and, when the team is small, there’s no room for slackers.
“Focus on recruiting team members who have the potential to be high performers and invest in coaching and training for your managers,” says David Sharrock, author of the business workbook Fighting for Enterprise Success: through the eye of the tiger. “It’s a small outlay which can generate a big return.”
WORK WITH THE PROS
Professional advice is a wise investment, and it pays to get the best you can afford, Sharrock adds. As such, a good accountant might be worth the investment.
They can help you get on top of the business basics, like your Business Activity Statements (BAS) and Goods and Services Tax (GST) returns. At the same time, accountants can advise you on cash flow management – an issue that sinks hundreds of fledgling businesses every year.
Similarly, having a competent lawyer on your team and an experienced bank manager on your side will stand you in good stead as your business moves from startup to sustainable stage.
CONCLUSION
Getting a new business off the ground is no task for the faint-hearted. Being aware of common obstacles, and making plans to tackle them, can help ensure your enterprise will be alive and thriving well beyond year three.