Small business owners look forward to a bright future, but before they can start enjoying their ROI, they will have to ready themselves for the challenges of the first couple of years.
Data from the US Bureau of Labor Statistics shows that from 1994 to 2019, a little over 20% of small businesses close down in their second year. Further analysis of the data by mortgage broker LendingTree adds that 50% of small businesses close by the end of their 5th year, and about 75% are out of business after their 10th year.
Why do small businesses have bleak odds of success? There are many factors, but we can pinpoint several major ones that are shared by the majority.
Here are some of the biggest challenges that small businesses face today, and what they can do to ease their situation.
Getting Enough Funding
Small businesses may not need as much capital as startups with ambitious business roadmaps, but they still need enough to get things started. Owners must fund the renovations, rent, staff’s salaries, production, inventory acquisition, and overhead costs for the first months of operation without depending on revenues. Bear in mind that most small businesses recoup their investment after two or more years. If there’s too little capital, the business could go bankrupt before it even turns a profit.
Tip: A low-interest loan in Singapore for small businesses can increase your capital and sustain your business when profits are slow. This loan can be your primary source of capital or supplement your overhead months after you opened your business. It may be daunting to apply for a loan when you’ve yet to generate an ROI, but your ability to generate products (and by extension, profits) will be sorely limited if you have a nonexistent cash flow.
Increasing Brand Awareness
The first challenge for new small businesses is getting the word out about their products or services. It’s crucial to market ahead of the opening, but as most small businesses have little capital, they could divert the majority of it into other areas of the business.
It’s also extra challenging when the competition are bigger, older, and more established brands that are well-known and well-liked. Not only do small businesses have to make people aware of their existence, but they also need to convince the market to try their products and services out.
Tip: Optimize social media and word-of-mouth marketing to promote your new business. It’s the most cost-effective method of marketing to a wide audience if you have a brick-and-mortar establishment. Your target audience is more defined, which is advantageous if you want to run an ad on Facebook, for example, because you can use geo-targeting to reach the right audience. You can also ask friends and family to spread the word to their own networks of friends.
Earning Customer Loyalty
Getting customers to walk through the doors is one thing: delighting them is another. Not to be confused with customer satisfaction, customer delight is achieved by exceeding expectations and eliciting an emotional reaction from your customers. Delighted customers do not just remember the brand, they also become its loyal patrons.
This is challenging for small businesses that are offering something new and innovative or have a very niche market. With the former, the business has to create a strong and positive first impression; and with the latter, the business may have to compete with a long-established brand that has enjoyed a monopoly over the market.
Tip: Get to know your target market. Understand their needs and find out exactly what you can offer to meet those needs. Test your products and services, get honest feedback, and use the information to innovate and offer something “extra” that your customers will love. Meeting needs and exceeding expectations — if you achieve these, you’ll delight your customers and earn their loyalty early on.
These are just three of the biggest challenges small businesses face. Others are building an email list, attracting capable and experienced employees, and scaling or achieving growth at the right pace. There are no black and white solutions, but business owners can prepare and strategize so that they don’t fold because of these problems.
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