It’s no wonder so many small businesses fail

February 2017

There are a wealth of stats available online for the level of small businesses that fail in the first year and subsequent years, and they all represent depressing reading. Although there’s some inconsistency in the stats, it seems to be the case that around 20% don’t survive one year and around 50% don’t make it to five years.

The reasons stated for failure include cash flow problems to lack of customers, but other than a few factors outside of a business owner’s control that have happened historically – e.g. a big hike in interest rates or an economic downturn – generally speaking they could all have been predicted. So why weren’t they? Piss-poor planning or no planning at all.

I was prompted to choose this subject for my monthly rant by an experience I had earlier in the month . . .

A friend and business associate who builds websites, invited me along to a meeting with a new client he had to see if I could help the client with his marketing. My friend had become increasingly alarmed by the almost complete lack of direction he was being given for the content for the client’s new website, so thought I might be able to fill this void and indeed an apparently larger one.

The business in question is a new start-up, whose basic offer is to quarry, finish and supply stone products – e.g. for walling and paving. Warning signs emerged even ahead of the meeting, with confusion on when and where it would actually be, to being kept waiting for 40 minutes or so before discussions got going.

Anyway, once seated in the temporary portakabin office – the new offices and stone processing facility were under construction nearby (a big financial investment) – we were soon into discussion with the MD, with a number of things quickly becoming clear to me: Here was a really decent and hardworking guy, who obviously knew what he was doing when it came to getting stone out the ground and making it ready for sale. However, any sort of long-term plan to get that stone to market with differentiated brand positioning and a clear understanding of how that market was segmented? Apparently not.

Highly unusually for me, having put in a proposal to create a proper marketing plan, I didn’t get the work. Reason given – and I quote: “After conversing with the board, I’m afraid at this instance we are unable to commit as we still have a lot of legwork to do setting up. Once we are fully operational and if we then require any marketing assistance I’ll be in touch.” So in other words: ‘We’re going to invest hundreds of thousands of pounds in our business without any sort of plan in place first, and we don’t have to worry about marketing just now because it’s all about advertising at a later stage’. Frightening and depressing.

Given the level of investment in his new facility, I was left wondering how those putting in the money – which I understand was private investment rather than a bank loan – would not have wanted to see a solid plan which demonstrated a strong ROI. But therein lies the problem, because entrepreneurs are often so full of confidence and self-belief, that they simply don’t see the need for a proper business plan – a key element of which covers areas such as brand positioning and market segmentation etc.

I genuinely hope this business not only survives but prospers, but suspect it won’t and instead will be part of the 50% statistic which don’t make it past five years – or perhaps even one.