According to the Office for National Statistics, more than half of small businesses in the UK will fail in the first five years. How can you ensure that your start-up doesn’t become part of that statistic?
A new study from Xero asked 2,000 entrepreneurs (some with successful businesses, some whose ventures failed) about their habits. Based on the Make or Break report, here’s five steps you can take to give your business the best shot at survival...
1. Don’t spend all your time working
Nearly 60 per cent of successful entrepreneurs said that spending time with family in the evenings was crucial to their effectiveness as a business owner. And 55 per cent said that it was important to keep their weekends free for their loved ones.
The stereotype of an entrepreneur might be someone who’s hustling all day every day, but the reality is that living like that is bound to lead to burnout. Instead make sure that you make time to spend doing something other than business, these results suggest that in the long run it could make you more successful.
2. Don’t pretend you have all the answers
Just 14 per cent of entrepreneurs surveyed whose businesses had failed had sought advice from a mentor or a support group, compared to a third of successful entrepreneurs.
Richard Branson is a great believer in the importance of mentorship when you’re starting out as an entrepreneur. He says: “It's always good to have a helping hand at the start. I wouldn't have got anywhere in the airline industry without the mentorship of Sir Freddie Laker. Now, I love mentoring young entrepreneurs. As American author and businessman Zig Ziglar said: ‘A lot of people have gone further than they thought they could because someone else thought they could.’”
3. Be willing to spend money
Finances are often tight when starting a company, but you’re not going to make any money if you don’t spend money in the first place – it’s just important to think about what you’re spending your money on. Nearly half of the businesses that survived beyond the first five years spent money on marketing, compared to just 20 per cent of the failed ventures. Additionally, just 20 per cent of the failed businesses invested money in improving customer service, compared to nearly a third of successful businesses.
It’s that old saying, “you have to spend money to make money”.
4. Keep your finances in order
Of businesses that reported a business reason for failing (as opposed to a personal one), a huge 65 per cent said that their failure was due to financial issues.
“My advice is to learn about your cashflow pretty early on, even if financials are not your ‘thing,” Emma Lomax, founder of Emma Lomax London told Xero. “It’s in the best interest of your new business that you know where your cash comes from and where it’s spent.”
5. Don’t be afraid to fail
Risk is a huge part of entrepreneurship. 58 per cent of successful entrepreneurs that Xero surveyed had a corporate position before they launched their businesses, they had to take a leap of faith to get their business off the ground.
Richard Branson thinks that risk is not something to be afraid of, however. “Most people immediately have negative thoughts when they hear that word. When somebody is talking to me about risk, I hear ‘opportunity’,” he says. “Starting a business is undoubtedly a risk, but it can be the most rewarding thing you ever do. One of the main things holding people back from starting a business, or from doing anything they want to in life, is self-belief. You have to think: ‘Screw it, just do it,’ and simply get on with starting your company. Nobody will do it for you - so take a risk, flesh out that business proposal that's been in the back of your head for ages and go for it.”