We spend a lot of time talking about how businesses fail. About how half of businesses fail in their first four years, and that businesses need access to cash or they’ll fail. We rail against the deck that seems stacked against companies trying to make a difference, and how they’re pushed out of the market.
As we roll into Thanksgiving, I wanted to take a more positive tack and talk about what makes a small business successful in the current market and how you can build a better business.
The stats below are all pulled from U.S. Small Business Administration (SBA) reports or academic studies, and they’re supplemented with best practices and resources to help you put this knowledge into action.
1. Borrow smart
There are as many bad ways to borrow money as there are bad ways to cook a turkey—I’m looking at you, Aunt Matilda. Luckily, it’s pretty easy to avoid making a horrible decision. According to the SBA, spreads for loans under $100,000 have been fairly consistent for the past decade, hovering around four percent.
This means that the bank is charging you four percent more than it borrows its cash for. In reality, this means small businesses have paid anywhere from eight to 12% interest, but not because they’ve chosen poorly.
In addition to traditional bank borrowing, businesses now have access to all sorts of crowdfunding and online lenders. Just last month, QuickBooks launched an offering that can provide capital to customers who would never have qualified for a bank loan.
Use credit cards for smart shopping only. [Source: Wikimedia]
Reaching even further afield, businesses can tap into Kickstarter and the like, effectively setting their own loan terms. You can give out $40 worth of merchandise for every $75 raised, which puts businesses in the driver’s seat—or at least somewhere between the backseat and the front.
What you can do
Interest rates are on the rise, which means it’s a great time to review what you’re currently paying. Anything low and fixed is an excellent choice. High rate borrowing—usually short-term lending—should be avoided as much as possible.
The worst of all worlds is when high rates meet variable rates. These fluctuating loans are the products you’ll really need to watch out for. Corporate credit cards are a great example of this dangerous combo. With variable rates around 15%, simply carrying a balance on your card(s) can really eat into your bottom line.
2. Use contractors
America’s self-employed economy has been steadily growing since its low point in 2011. While the SBA notes that it’s still not at its pre-crash high, it’s well on its way. Earlier this year, Intit released a study claiming that gig workers account for 34% of the workforce.
This is great news for small businesses, which often need to scale quickly and at low costs. Gig employees cost less to onboard and have lower ongoing costs, as they usually don’t receive retirement or health benefits (costs that can easily tack ten percent onto the salary expense of a full-time employee).
Gig workers also offer businesses speed. While hiring a new employee can take weeks or even months, hiring a contractor can happen overnight. In contractor-heavy environments such as development and design, you can hire someone in the morning for a job that afternoon.
Successful businesses are leveraging this flexibility to scale without taking on a lot of recurring costs. Contractors are also benefiting, as rising demand increases control over their cash flow and creates more opportunities to work on projects that interest them.
What you can do
Find a good contractor source for your business and get them primed for work. This way, you can make last-minute decisions and scale quickly.
Local networking events are a great way to meet people looking for gig work or others who’ve employed and can recommend local contractors. You can also always tap into Upwork, Freelancer, Fiverr, or one of the other freelancer sites out there.
3. Plan, plan, and plan some more
Like your cousin that buys Thanksgiving plane tickets in January, a successful business never stops planning. From the initial business plan and launch to quarterly forecasts and budgeting, every small plan along the way makes a business better.
While there’s clearly value to having a plan—and avoiding eight bags of Parker House rolls but no mashed potatoes—there’s also value in the creation of a plan. Forecasting requires business owners to think through multiple scenarios and come up with responses to and solutions for anticipated problems.
Studies show that businesses with plans grow 30% faster than those that without.
A bad time to start planning. [Source: Wikimedia]
To make things easier, there are plenty of forecasting and budgeting tools on the market. While forecasting software still requires human input, it can do all the heavy lifting—read as: math—that you probably don’t want to mess with.
What you can do
Explore the planning software options in Capterra’s business management software directory.
If you don’t find what you’re looking for, head over to Bplans to learn about building your own plan. It doesn’t really matter if you’re using Excel or some specialized tool, as long as you’re participating in the process.
4. Make your own luck
Most SBA reports draw a little box around data from January 2008 to July 2009 to remind readers about the recession and housing crisis, in case you misread all of the good lines going down and the bad ones going up.
If you opened your housecleaning business in 2007, I’m so sorry. On the other hand, if you coincidentally sold a housecleaning business in 2006, well done you. Either way, you slipped into a bit of luck.
There are two kinds of luck, and it’s important to distinguish between them. There’s dumb luck, which kicks you in the face like a rented mule, and then there’s the luck you make. Successful businesses make their own luck.
What you can do
You can’t win if you don’t play. Look for opportunities to grow your business, connect with your customers, or meet great potential employees, and make sure you’re prepared to take advantage of them when they appear. That means planning and keeping resources in place to jump when the occasion arises.
It also means asking questions within your networks about what’s going on. Who knows where your next massive lead will come from? It can come from any direction, so keep your ears and eyes open.
So many success stories start with something like “Bill was on the phone with a regular when they said something that changed everything.” Being ready for luck to strike is almost as important as finding it.
We’ve talked about growth, revenue, and not failing, but success is really what you make of it. Too often, small businesses jump into action without knowing what they’re trying to achieve in the long run. You don’t have to grow. You don’t have to hire a dozen employees. You do need to have at least two pies on the table.
In Morristown, NJ, there’s a little used bookshop—aptly named the Old Book Shop. I started going there with my father and mother in the late 1980s. As far as I can tell, the store today is run precisely as it was when I first set foot inside 30-some years ago.
It’s still around, which is a type of success in and of itself. I hope the owners feel the same way. Setting a bar for yourself is more than half the battle, and there’s no bit of software in the world that can do it for you and tell you what’s going to make you happy.
Not yet, at least.