The statistics regarding the success rate of running a small business are both inspirational and depressing. Small-business experts seem to emphasize the necessity of good planning, strong capitalization, and market awareness. A tip often used in a misguided sense is that of following one's dreams.
SCORE, a respected, non-partisan watchdog of American business, reports that, according to the United States Small Business Administration (SBA), the United States had about 30 million small businesses in 2008. They employ roughly half of the private sector workforce; hire 40% of high-tech workers; include over 50% of all home-based businesses; and include 97% of the US exporters and 99% of all US employers. Seventy percent of new businesses survive two years and about 50% are still going after five years, which is about the five-year survival rate for all cancers.
In light of those numbers, planning is seen as probably the most important business activity. Planning is often overlooked while running a small business due to lack of time and money. Small-business advocates repeatedly stress the need for comprehensive business plans, including marketing, management, and financial plans. While the need for flashy or consultant-written plans is debatable, the plans should cover thoroughly the period up to sustainability. The planning documents should be reviewed by several outsiders free to point out unrecognized assumptions and too rosy projections.
The startup period, whether it be six weeks, six months, or six years, is critical for running a small business successfully. When expenditures are greater than revenues, all investors become edgy, even when the owner is the investor. Therefore, capitalization must be sufficient to allow adequate planning time and resources, plus a period of setup and some experimentation and optimization. Particularly for those small-business owners counting on the business as the source of their personal livelihoods, insufficient capitalization is reason not to pursue the business opportunity.
Market awareness may be called good business sense. It is an awareness of the customers’ demographic and psychographic profiles. Demographic data supply information such as household income, family size, and buying patterns, while psychographic parameters attempt to understand why and how a buying decision is made. The entrepreneur often gets tripped up by substituting personal values for general values. In running a small business, the owner has to assume the customer’s perspective, which is best obtained through objective measurements.
A common, but poorly applied tip, for running a small business is the advice to follow one's dreams. While one’s interests and goals are certainly a part of the impetus for starting a small business, success requires flexibility and focus, two traits not usually associated with dreaming. By implementing the tips above, more dreams can become realities for small-business owners.