Sink or Swim: How can SMEs survive their first year in business?
The turmoil triggered by the Covid-19 outbreak spurred many Brits on to launch their own business, with 800,000 registered in the first year of the pandemic alone.
Yet, whilst Britain is a hub for entrepreneurship, around 9 in 10 start-ups end up failing. Now, with the cost-of-living crisis escalating and amid a backdrop of supply chain issues and soaring inflation, SMEs are facing even bleaker success rates.
In fact, according to Lloyds Banking Group, business confidence has already dropped to just 33 per cent this year – the biggest fall since the first 2 months of the pandemic. With a recent business survey from the Office for National Statistics (ONS) also highlighting that 24 per cent of businesses saw a drop in their turnover in June compared to the previous month, it is easy to see why so many SMEs are struggling to envision a path to success.
Without a doubt, the first year is truly the most difficult for any business venture. So, how can SMEs survive and thrive amid the ongoing market turmoil to come out on top?
Center your business on strong foundations
Irrespective of sector and overall ambition, entrepreneurs cannot afford to overlook the importance of building their business on strong foundations. As a starting point, researching the industry, consumer appetite and competitor activity is essential.
Developing clear business and marketing plans will also go a long way to setting an SME up for future success. Whilst you might start off as a one-man band, when it comes to attracting capital to support growth, any bank or investor will want to see your vision for the business. So, spend time making sure you get this right from the off – it will not only highlight what makes your business a good investment, but also what makes it unique.
Act at pace
The single biggest mistake business leaders make in their first year is focusing too much on perfecting their offering and not focusing on driving forward delivery with the product and/or service they already have.
The mind of an entrepreneur is hard-wired to overthink every detail and continually work on improving their perception among potential clients. However, often they forget to take stock of what is right in front of them and, equally, they are not aware that what looks perfect to them isn't what looks perfect to the client.
If you have a minimum viable product (MVP) ready to go, then what is stopping you. This is usually enough to attract a first wave of clients, so start selling. Not only will this get you off the ground, but, most importantly, this then allows you test the market in real time. The key point is to bring your business to the market as fast as you can, so you can get you the information you need to make the best decision for the business to move forward. Standing still on the start line debating ‘what if’s’ and potential modifications, is not going help your business take off.
Forget about profit
It may seem like a catch-22, but in order to survive the first year in business, SMEs need to forget about profit entirely. Instead focus on directing any disposable revenue into the correct marketing channels and establishing cash flow.
If you your business is being advertised on three different marketing channels, but 80 per cent of your business is coming from 'marketing channel one', SMEs will need to double down on that one area. This will vary from industry to industry, but as an example, if you spend $1 on TikTok adverts and it is consistently giving you $2 back, you need to understand that you now have a sales printing machine!
Taking advantage of this whilst you can is paramount as this channel and flow of sales will not last forever. Our growth at The Clinic Room doubled month on month from the very beginning by applying this very same principal.
Network, network, network
You can have the best business idea, strategy and game plan, but unless you put concerted time and effort in building your network, you run the risk of the market demand dwindling. An engaging website is a great start as a base to direct people to. However, consider joining local business groups and attending events to enhance your profile and learn from the wider business community. Stakeholder engagement is equally important, helping to identify new target markets, opportunities for growth and even mitigating potential pitfalls.
Stay focused and on track
In order to set your business up for success in the first year, you need to learn to say 'no' to all your other great ideas. Opening up a variety of different product lines or services too quickly only leads to distraction and loss of focus. Entrepreneurs have an extremely bad habit of trying to expand too quickly, and into diverse markets, which almost always causes a fracture in their primary business or product line – ultimately leading to a decline in sales and an overall downtrend in business growth.
Learning to say 'no' and putting these ideas aside for the time being is the best thing you can do to help you and your business thrive in the first 12-months.
Looking ahead
Going out alone and setting up a business is no easy feat. The first year has always been the make and break for SMEs, however, amid an extremely challenging economic landscape, the steps entrepreneurs take now to stay afloat and on track with growth projection pathways is more important than ever.
While three-quarters of SMEs now see the cost-of-living crisis as the biggest threat to their survival, the long in the short is that they are essential to the economic revival of the nation. Therefore, it is important that we inject a wave of optimism into the sector and support as many entrepreneurs and business leaders not only to survive, but also to thrive, in their first year of business.
