The glass is actually 80 percent full since, according to the Bureau of Labor Statistics, just 20 percent of small businesses fail in their first year.
Here’s the not-so-good news: Retail is among the business sectors with a high failure rate, along with construction, transportation and manufacturing. How high? According to Small Business Trends, retail businesses have a nearly 60 percent failure rate at the five-year mark, owing to continued frugality among consumers and an increasing de-emphasis on acquiring material goods.
Retail accounted for 11.2 percent of US business failures and 13.6 percent of global failures, according to a Dun & Bradstreet report. But in an industry dominated by chain supermarkets and big-box stores, the outlook for the smaller retailer is somewhat brighter: Since 2013, small specialty retailers in the US have grown 1.0 percent, achieving a revenue of $41 billion in 2018. In those five years, the number of businesses grew by 1.7% and employee headcount by 2.6%.
But I digress. It’s Year One we’re talking about here. With a bit of thought and a lot of planning, you can avoid being among the 20 percent who never make it to Year Two.
The Plan’s the Thing
Before you do anything, know exactly what you’re doing to do and how. “The quality of the plan is probably the key thing,” says Bronny Jacobsen, head of apparel at Rivers in Australia. Whether you’re pitching investors or not, write down your plans to help refine your vision and pinpoint what problem you’re trying to solve—and for whom. “Establish realistic timeframes for launch, sales and profitability, with enough detail to determine the quality of your target market and business model.”
If you’re already up and running, you need “a well-thought-through understanding of how much stock is necessary to hold at any time,” says Bronny. “This will depend on your model and the categories you’re operating in. Ensure that supply and lead times are dependable yet flexible enough to not compromise sales.” And always have a contingency plan should something unexpected happen.
Lastly, she says, “Seek the advice of experts, especially in areas you are unfamiliar with.” As well as helping you plan and execute, it’s a great way to build your network. Anyone you encounter could be a future supplier, distributor, customer or even source of ideas. If you aren’t in a position to pay for their time, remember to always be respectful of it, express your gratitude and pick up the check.
Start Lean and Stay Lean
Running out of money is the most common cause of failure among new business, so keep your expenses low until sales start coming in. Spend only on the things you need, not the things you think a business should have. You may have dreams of a glamorous office, but forgo the urge to splurge for as long as you can. Keep your headcount low as well: hire only those you can’t do without and supplement with contractors and freelancers. Having a skeleton staff will also lessen the need for office space, and with the rise in remote work and eCommerce, it’s no longer a huge stigma for a startup brand to have people in different places.
The customer should be the center of your universe. Remember that it’s not about you or your aspirations to create an awesome product or business. Your goal is to help your customer by creating something they want and need.
Knowing your customer, then, is critical, a topic we’ve recently covered in depth. From concepting your product to planning your assortment and marketing efforts, being attuned to their needs, tastes and preferences is everything. Communicate with your customers regularly and at as many touch points as possible. Seek feedback, both informally via your store team and in a more structured way, as with surveys. Listen to what they tell you then adapt based on their feedback.
Reinvest in Your Company
This should be a given. After all, it’s your baby! As an entrepreneur, you pay the cost to be the boss and will typically pay yourself last—if there’s anything left. At least some of the money you make should go back into the company, into your product and into marketing. Since you’ve done your planning and customer research, you should already have a good idea of where and how to reinvest your revenue.
Don’t Confuse Activity for Productivity
As a business owner, you’ll be busy. All the time. But press pause and carefully consider how much of what you’re doing is actually creating growth and momentum. You have only so many hours in a day, so be selective about how you spend your time to avoid entrepreneur burnout. Your enthusiasm for your business and your brand may spur you to jump at every opportunity that comes along, but before you do, think about whether it truly aligns with your priorities and plans. It’s okay to say no. As Steve Jobs famously said, “I’m actually as proud of the things we haven’t done as the things I have done. Innovation is saying ‘no’ to a thousand things.”
Measure, Don’t Assume
To ensure your time, money and effort are being spent in the right places, back everything up with data and facts. You should aim to track two to four key metrics at all times, such as the volume and origin of website or foot traffic and gross profit percentage per product.
Plan Beyond a Year
Even though this article is about Year One, it often takes longer for businesses to reach the point of profitability, sometimes 18 to 24 months. This goes back to setting realistic timeframes. If you’re still in business by the year mark, you should congratulate yourself, even if you’re not yet in the black. Be patient and consistent in your methods, adapting where necessary. Continue to test, measure and adapt, always keeping your eye on the market and your customer.