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Entrepreneurs face challenges every day, and some are harder than others to overcome and can even lead a business to fail. According to the U.S. Bureau of Labor Statistics, about 20 percent of small businesses go under by the end of their first year; by the end of their fifth year, 50 percent of small businesses fail; and by the tenth year, this number rises to 80 percent.
In order to safeguard a business, new or established, it is essential to understand what can cause a business to fail and how each obstacle can be managed or avoided altogether. Here are seven challenges most small businesses face, along with some tactical advice on how to prevent them from happening.
1. Taking on Too Much Debt
According to Guidant Financial’s 2020 Small Business Trends survey, business owners across industries have reported a lack of capital or cash flow as the top challenge they face when running a company. While in some cases, it’s necessary to take on debt to start a business or finance certain activities, entrepreneurs who don’t prioritize repaying debts by making timely payments inevitably find it hard to grow their businesses.
Possible Solution: To avoid being burdened by debt, business owners can use alternative methods, such as crowdfunding, portfolio loans and even 401(k) business financing, to fund their ventures. The latter allows them to use their existing retirement savings to start a business without incurring tax penalties or taking a taxable distribution.
2. Finding Customers
This is one issue that even the biggest, most successful companies, such as Apple and Toyota, face on a daily basis. However, for small businesses, finding customers can be a particularly difficult problem to address.
Possible Solution: To find customers, business owners need to figure how who their ideal customers actually are. They can start with building their buyer personas, which may include what the potential customers look like, where they work, what they do, where they spend time online and so on. This way they can start creating content and get in front of their target customers with the messages that they care about.
3. Hiring and Retaining Talented Staff
This is another huge challenge, especially for small businesses. Hiring employees is a time-consuming and expensive process — according to research, the average cost-per-hire is $4,129, while the average time it takes to fill a given position is 42 days. And in case of a bad hire, employee turnover can be extremely costly.
Possible Solution: Hiring a new employee isn’t as straightforward as posting a job description and interviewing candidates. To ensure that the hired candidates are qualified enough to make effective contributions to an organization in the long run, it’s essential to go through all the stages of the recruitment life cycle. By taking the end-to-end approach, business owners are more likely to place the right people in the right jobs.
The ability to retain employees should be a primary indicator of the health of a business. Therefore, it’s crucial that HR managers and department heads do everything they can do to manage their staff members in a way that helps them retain their best talent.
A business can fail if the person running it exhibits poor management skills. This is because the employees, clients and vendors look to the leaders as a reflection of the business as a whole.
Possible Solution: In order to effectively lead their teams and keep the business running, business owners must master a few small business leadership skills. For example, right from the start, they can set a clear, consistent vision for their team members, communicate often and effectively, give and receive feedback and understand how to execute the vision.
5. Not Keeping in Touch with Customers
Customers hold the key to the success of any business. And a business will fail if the owner doesn’t stay in touch with their customers or doesn’t understand what they need. For instance, the customers may like the product or service on offer, but they may be looking for an upgrade or additional feature(s).
Possible Solution: Entrepreneurs need to keep an eye on what their existing and potential customers are looking for. They can survey their customers and conduct market research in order to figure out what their interests are and stay abreast of the trends and changes using customer relationship management (CRM) tools.
6. Lack of an Online Presence
In this day and age, a well-optimized website is the most important “location” for businesses, because the website works as an advertisement. When customers can’t find a business online, they tend to give up and go to a competitor (one that has a website).
Academic research shows that 91 percent of searchers do not go past the first page of the search results and more than 50 percent do not go past the first three results on the first page.
Possible Solution: Apart from having a website, business owners can optimize their online presence by incorporating some of the most important elements, such as a simple homepage, landing pages, call to action buttons, testimonials and other tools, in order to convert visitors into customers. They should also make conversion rate optimization and A/B testing part of every element of their site, so that they can fix whatever is not working.
Another important characteristic of a website is search engine optimization (SEO). To rank high in the search results, it’s essential to have a mobile friendly and secure (SSL) website, create high-quality content, prioritize user experience (ease of use), employ data analytics (such as Google Analytics, Google Search Console, keyword research and so on) and include quality backlinks, among other features.
7. Taking on Too Many Roles
Many startup owners try to single-handedly take care of every aspect of their business. But did you know that multitasking can take a toll on productivity? Research from the American Psychological Association says that even brief mental blocks that result from repeatedly switching between tasks can cost more than 40 percent of a person’s productive time.
Possible Solution: Even though their business is a source of pride and joy for all entrepreneurs, there are aspects of it that they need to let go of in order to be successful. And if they cannot afford to hire a full-time team, there are responsibilities that they can outsource. For example, hiring a specialized accounting outsourcing firm for all their finance and accounting needs allows them to spend more time on growing their bottom line and less time on administrative tasks.
Escalon's outsourced business services have helped more than 5,000 companies to optimize their operations — and we can help yours too.