Small Business Failure Rate – What you should know

“90% of all new small businesses fail within the first few years!” You may have heard that statistic before. Well, it seems that there isn’t much in available data to support it. Maybe it’s a scare tactic or maybe it’s just people exaggerating. Either way, just because a lot of businesses fail, it doesn’t mean that yours has to be one of them. 

But, since we’re on the topic, let’s examine the small business failure rate a little bit closer. According to data available on the US Small Business Administration’s website, about 34% of new employer firms are still in business 10 years after opening. That often won’t even include businesses that may change entity types or reincorporate. So, I think it’s safe to say that about 1/3 of new businesses survive their first 10 years. Now, if we were talking human survival rate, that’s pretty bad but for a small business survival rate that isn’t too bad.

Data from the SBA website states that 7/10 new firms survive at least 2 years, ½ at least 5 years, 1/3 at least 10 years, and ¼ at least 15 years or more. They also stated that small business failure rates were similar across states and major industries. 

So, after looking at that data on the US small business failure rate and going to see what other people out on the net thought of this rate, I found a post from 2008 on Small Business Trends that also shares more data. According to their figures, about 29% of the small businesses they were tracking were still in business 10 years later; a little lower that the SBA numbers. Also, their data showed that about 25% of the small business that fail, do so within the first year. So, if you are past your first year in business, your chances of survival just got a lot better!

I hope this small business resource was helpful to you. Please leave a comment and let me know your thoughts on the small business failure rate. Also, be sure to pass this article along to your friends using one of the social media or email links below!

(Image: Some rights reserved,  TheGiantVermin.)  

5 Small Business Sales Tips

Let’s face it. If you’re in small business sales, you can’t offer all of the same benefits and perks that your larger competitors can. You need to differentiate yourself and provide what the big boys can’t. How do you do that you might ask? Well, I’ve prepared 5 small business sales tips below that I think will help you do just that!

1. Sell a relationship – If you are friendly, dependable and honest, your customers will appreciate you for it. We all know that working with large companies can be annoying because we never know who we will interact with and what kind of a person they are. As a small business, your employees are your face to the customer, so put on a good one. If you can build good relationships with customers, they will stick by you even if you don’t have all of the whistles and bells.

2. Be Flexible – As a small business sales department, your employees should have the power to deliver what the customer needs. Big businesses are like ocean liners and small businesses are motorboats. Although you can’t provide all the comfort and benefits, you can maneuver through tough waters and change course easier. If you see a need that your prospects have that no one is satisfying, you can jump on that opportunity much quicker than a large business with lots of red tape.

3. Work with partners – As a small business, you should understand that many times customers will want a lot more than you provide.  If there is something you don’t have the time or resources to develop yourself but your customers want it, consider finding a small business partner who can provide it. For example, if your company makes accounting software, you may want to partner with a company that makes CRM software. Add value to your products by bundling them as a solution with other small businesses products.

4. Don’t sell yourself short – Just because you’re a one-man shop, doesn’t mean everyone has to know it. Or if you have 20 employees, your customers don’t have to know that either. I’m not saying you should be dishonest, but make sure you and your employees go out of your way to avoid telling people. Never tell customers “We can’t fix that because we only have four full-time employees.” Don’t let it be an excuse, because the real reason will always be that it’s not the highest priority right now or you are working on it. You should act big, but not too big. Don’t have your employees convincing people that you are a big company only to have them find out on their own that you are not. 

5. Use a salesperson – Even for small business sales, a salesperson is important. If you don’t have a salesperson or can’t afford one, turn yourself into one by studying. There are plenty of books that can teach you how to become a better small business salesperson and what you should do to improve. Don’t just hope that you will get it right and then pat yourself on the back when you get a few sales. No matter how good you are now, a little education and a lot of practice will make you better!
 

I hope these small business sales tips have been useful. Please leave a comment below and let me know what you think. Also, be sure to pass this small business article along using one of the social media or email links below!

(Image: Some rights reserved,  Aaron Tang.) 

Calculating Return on Investment for Small Business

Do you know what ROI is? If you’re managing a small business, then you definitely should! ROI stands for Return on Investment, or the benefit (or loss) that your investment has returned to you. Usually this is calculated in dollars and it’s figured over a certain amount of time. As I talk to more and more students and young entrepreneurs, I am often surprised and how many of them don’t know what a return on investment is or how to calculate it. ROI is business 101!

Let’s look at an example, say I started a business with a loan from the bank of $15,000. For now, don’t worry about the interest on the loan or when it has to be paid back, let’s focus on the ROI you’re getting from your investments in the business. Let’s say you use $1,000 to build a website and another $2,000 in the first month to advertise online and bring traffic to your small business via the website. What’s your ROI for that investment?

To figure it out, we first need to know how to calculate a Return on Investment. Well, it’s quite simple actually. Take the profit generated by the investment and divide it by the cost of the investment. (The profit generated by the investment is not the revenue. You must subtract the cost from the revenue to get the profit.) For additional help in the calculation, a really good definition can be found on Investopedia’s ROI page.

Now that we know how to calculate it, let’s break it down and find the ROI in our example. In order to find the ROI, we need to know how much business the website actually generated. So, let’s say you had a system in place that tracked where your leads came from and showed that $4,000 in sales closed because of the website. Now we can find the website’s ROI.

To calculate this month’s ROI, simply take the revenue generated from the website in the month ($4,000), subtract the cost of the website in the month ($2,000) and divide the result of that by the cost of the website in the month ($2,000). So you get something like this:

($4,000- $2,000)/$2,000 = 1 ROI

Now, what does 1 ROI mean? Well, notice how the dollar symbols are on both the top and bottom of the equation, so they cancel each other out leaving only a percent as a unit. This means that 1 ROI is a Return on Investment of 100%. That makes sense because you spend $2,000 and you got your money back plus another $2,000.

You may be wondering now why we didn’t include the original cost of $1,000 to build the website when we subtracted website costs. Well, the reason we didn’t is because of the way we figured our timeline and how we did our accounting. I don’t want to spend a lot of time in this small business article talking about accounting. But, I will say that I decided not to include it because that $1,000 was a cost that will continue to provide benefit well beyond the first month I run the website. Some people may want to include it but I find it more relevant to focus on the current costs that generated the current revenue. Because come next month, I won’t have to pay that $1,000 to build the website again.

I hope this small business article has been useful and if you have any questions about calculating return on investment, please leave a comment below. Please send this small business article to your friends and colleagues using one of the social media or email link buttons below!

(Image: Some rights reserved,  Keith Ramsey.)  

5 Things to Do Before Starting a Business

Ever wonder why they say 9 out of 10 new small businesses fail? Well, it’s because there are many potential traps every new business can run into. How do you avoid these traps? One of the best ways is to have a plan and not to get overwhelmed. If you ever seemed overcome in running your small business, just know that you are not alone. Just remember to occasionally take a step back and prioritize your tasks so that you are always taking care of the most important things first. So, in order to help you keep focused before you ever start your small business, today I wanted to share 5 things to do before you even open your doors. 

Know your customer – Ask yourself, who is really going to buy what your selling? If you start a pizzeria in your town, who is going to come? Is it going to be a teen hangout or a place for families at dinner? Are you going to be on Main Street or in the new shopping district on the edge of town? Your location, menu, lighting and everything should be centered around your customer. That’s why it is vitally important to find out who your customer is going to be and make sure to be in a place they want to be. It's essential for survival in small business!

Estimate your burn rate – Your burn rate is how much money you need to spend on the business over any amount of time. Going back to the pizzeria example, you need to know how many employees you need, how much you are going to pay each employee per month, how much rent and utilities will be, and how much depreciation will be on the assets of your small business. 

Calculate your break-even point – Your break-even point is the point in time at which your small business no longer has a negative net worth. In essence, that means your company is actually worth more than the sum of all its’ tangible assets. Knowing your estimated break-even point will help you determine how much capital investment you will need up front and if you will need additional rounds of funding later. (I'll write another small business article on this in the future.)

Get a great team – Any small business needs an experienced, eager team supporting it. If you were born with natural entrepreneurship skills, then you know that you should surround yourself with those you aspire to be like. All of your team may not be employees; you could have investors who help plan things from a high-level view or even mentors who know your industry. 

Have a plan – Having a plan is one of the most important things you could do for your small business. Something magical happens when we take something from our minds and put it down on paper-it becomes real. Even though your plan will change, write it down so that you can remember and update it as needed. Include things like goals and strategies for reaching your goals. A plan is your first step to proper small business management.

All of these points are simple guidelines to help you visualize how your small business will grow. It’s not as important that all of the estimates that you make be right as it is that you have them and you update them so that you can continue to progress.

I hope you have enjoyed this and will check back frequently for more small business articles. Please check out our additional links and articles in this small business resource center!

(Image: Some rights reserved,  dave_mcmt.)

5 Ways to Get Small Business Financing

Today I want to share a few thoughts on small business financing. If you are new to entrepreneurship, you may not be too familiar with terms like Venture Capital (VC) or Angel Investors. In this small business article, I want to briefly explain these terms and share with you a few creative ways to get the money you need to get your small business started or to take it to the next level.

As part of your business plan, you should consider how much money your business will need, when it will need that money, and how you are going to get it. This will help you stay focused and not be wasteful. Depending on the amount of money you need and when you need it, you may want to use various types of small business financing for your venture. The methods I list below certainly aren’t your only options for financing, but just a few of the main ones. Consider the following types of financing and their pros and cons:

Bootstrapping

This is when you start a business with only a minimal amount of capital (maybe a few thousand or even just a few hundred dollars) and continually reinvest the company’s earnings to provide additional capital investments. Bootstrapping is probably my favorite type of small business financing. This is because it lets the business grow naturally and keeps you, the business founder, in charge of the direction of the company. Bootstrapping means that the company grows and expands on its own without an outside infusion of capital. If you need something for the business, you have to wait until you generate enough money to buy it!

Friends and Family

Another way some small businesses get the capital they need to get start or expand quickly is through the entrepreneur’s network of friends and family. Although this may seem like an easy and safe route to take for small business financing, I issue an extremely harsh word of caution before you consider such a thing. Your friends and family are the most important relationships you have in your life and if by some means you are not able to repay the money, this can cause large problems in every area of your life. While there have been many example of friends going into business together where both friends succeeded, there are countless untold stories of business partners ruining their relationships because of failed businesses and unpaid debts. 

VC (Venture Capital)

If you study business in school, say by getting your MBA (Masters in Business Administration) or even an undergraduate degree in Business Management, like me, you will learn about Venture Capitalists. My advice would be that if you have big plans for your little business and don’t want to be bossed around, you should seriously consider against going to a venture capitalist. That being said, VCs can still provide a good source of capital and great business skills and resources to help your business grow. However, they can be very demanding and very picky on which of all of the many businesses that are presented to them they will actually invest in. I’ll write a blog post later to expand on the world of VCs as this small paragraph certainly cannot do it justice. 

Angel Investors

Many people new to entrepreneurship aren’t familiar with exactly what angel investors are. Many times Angel Investors work in small groups or networks and they invest their own money, as compared to Venture Capitalists who invest their investors’ money. Angel Investors typically invest less money than Venture Capitalists and don’t take on as much control but act more as advisers. Angel investing seems to be on the rise in recent years and is definitely a good source of small business financing.

Online Investing

OK, so this last area of financing is going to be one you may not hear about too often, but depending on your needs as a small business owner, could be extremely valuable. One website, Prosper.com, has set up a peer-to-peer marketplace where investors and borrowers meet. While the website isn’t restricted to purely business uses, many small business investments are made all the time. Prosper.com is a great alternative to getting money from friends and family and could be the answer you’re looking for.

I hope this helps answer some of your questions about how to obtain financing for your small business. As I have more time, I will expand further on these topics and provide more small business resources to connect you with small business financing. Let me know if you have any questions as I would be happy to answer them in upcoming articles!

(Image: Some rights reserved,  Alan Cleaver.)

5 Ways to Find the Best Small Business Ideas

I know this is a question a lot of people ask themselves when considering entrepreneurship. You may have thought of a few good business ideas in your lifetime only to discover that someone was already doing them! Or, maybe your business ideas were so far removed from your knowledge set that they seemed impossible for you to accomplish, nevertheless, you knew they were great ideas! 

Well, even when you have a great idea, just remember that there is a lot more that goes into starting a business than the idea. In the real world, ideas are a dime a dozen and your success as an entrepreneur really depends on the plan and execution. 

Today we live in an age with an overabundance of information. We must learn to weed through the bad information and find the useful information. I heard recently that the average American comes across something like 2 different million-dollar business ideas per week. The real trick is deciding which idea to run with! That’s why I’ve outlined 5 ways to help you find the best business idea for you by filter through all the excess information. So, here we go:

1. Ask yourself when you were a dissatisfied customer or simply unhappy with something. Maybe you received bad service at a local fast-food joint, or your oven light broke. Any time and any place that there is a need or pain, a business can thrive. Make a list of these pain points and consider how you might solve them with a business idea.

2. Focus on a business idea doing something you love. Chances are that whatever business you decide to go into; you will have a competitor that loves the industry and everything about the business. For example, say you wanted to sell designer toothbrushes online. Great, if you love toothbrushes! But, if you don’t and you just see it as an easy way to make money, it might not be the best idea for you. Because someone who eats, sleeps, and drinks toothbrushes could put you out of business quickly.

3. Consider if your idea is scalable. You need a business idea that you can expand beyond just a part time gig. For example, if you decided you wanted to sell tacos in the local downtown district, while your idea may be good for one person or a few, remember that the barrier to entry is very low. Not many people are going to want to work for you for an hourly rate if they can start their own business making more for themselves.

4. Ask yourself why someone isn’t already doing it or if they are how they are doing. The last thing you want to do is jump into a business too fast and waste a lot of time and money. Analyze the market and competition before considering starting your own small business.
  
5. Talk to people who could use your business idea. Once you have narrowed your list of business ideas to a few that you are really excited about, share them with people who you know that could use them. Be sure you get feedback from the target market and not just anyone because they happen to be the most convenient. In statistics, that’s called a convenience survey, and it’s not very useful. Also, don’t be shy in sharing your ideas, remember, that the real value in a business comes from the execution!

(Image: Some rights reserved,  Chuck Coker.)

The Social Network Movie Review

Last night I saw the new movie “The Social Network”, which is about Mark Zuckerberg, Eduardo Saverin and how Facebook got started. WARNING: If you haven’t seen the movie yet, this may spoil a few points! However, I will try not to spoil it too bad. I still highly recommend watching the movie! Apparently, with a 97% Tomatometer rating on Rotten Tomatoes, it might be kind of hard to spoil!


What’s it like starting a small business and having it grow to over a billion-dollar valuation with over 500 million users within a few years? Well, apparently it’s pretty dramatic! I personally wasn’t aware of the major two lawsuits involved around Facebook. When I heard the movie was going to involve a lawsuit, I thought maybe it would be about personal privacy issues… not even close! Well, ok, maybe close, but in a completely different way. Is it just me or did both of these law suits not get very much press coverage? Or, maybe they happened before I joined Facebook, which was in 2006. To be fair to myself, I was living outside of the U.S. during 04 and 05, so maybe that’s when the lawsuits got press coverage. Maybe I will have to look it up on Wikipedia.

Facebook started out just like any other small business these days; with a few kids playing around on their computers. I like to think that Mark Zuckerberg wasn’t as socially awkward as “The Social Network” portrays him. I think this is just Hollywood getting away with itself again. I thought Jesse Eisenberg played a pretty good Mark. Great casting job! But, if you are used to Jesse’s normal roles, this one is different and he doesn’t show much personality.

I had heard a while back that Sean Parker (founder of Napster) was involved somewhat in Facebook (or TheFacebook, as it was before Sean came along), but I had no idea he was THAT involved. However, it can’t be true that after already meeting up in Massachusetts, Mark Zuckerberg and Sean Parker just happened to be in houses right across the street from each other in Palo Alto. Don’t you think they would’ve stayed in contact and known about each other’s plans a little more?

Until the movie came out, I hadn’t really heard the Eduardo Saverin or Erica Albright stories. Although, it is cool to see that even Mark Zuckerberg uses Facebook to stalk just like everyone else! It seems like Eduardo was trying to help out with the business but naturally got carved out. I won’t say more than that but I though Andrew Garfield did an outstanding job! In fact, all around the acting in “The Social Network” was great!
I thought the movie would portray more of the history of Facebook and the actually business once it really became a business. But in the movie, once the business started growing, the movie came to a pretty abrupt stop. I wanted it to talk about the good old days of Facebook! Back before there were any applications or Farmville games. Back when poking people was the funniest thing to do and when everyone was related to each other by multiple, obscure ways! Do you remember that? When you added a new friend on Facebook and it would say “How do you know this person?” Then you would choose from about a hundred different options or make up one of your own? So you would look through people’s friends’ lists just to see the hilarious commentary people put there. Like, “We met on a road trip in 1999 and we also met in college and we have a child together and we are cousins!”

One other thing about old Facebook that is portrayed in the movie that I remember is that you had to be a part of a specific group to join and you could only see the other people in your group. It started out that you had to have a Harvard.edu email address and then as Facebook expanded to other colleges, you had to have that college’s .edu email address to join that network. Somewhere along the way that was all lost. But, I think it was a smart move for a small business-start with a small “love group” and once you meet their expectation, grow out and expand. Also, the movie talked briefly how Facebook used the little-big horn tactic to capture Baylor University.

Anyway, I won’t spoil the “The Social Network” movie any more than I already have. I totally recommend seeing it and if you use Facebook-And I know you do because there are more people on Facebook than live in the United States-then it’s a must!!

(Image: Some rights reserved,  Franco Bouly.)

Welcome to Ryans Small Business Blog

Welcome to my small business blog! I hope you will find use in the recommendation and ideas from this blog. I want to make it a place where I can store and share things I find interesting and relevant to small business; topics such as small business software, entrepreneurship books, the interviewing process, building a website for your business and other small business related information. As I share my thoughts and ideas, I hope that you will feel welcome and participate in the conversation by posting comments, sending me emails or just sharing the content with your friends. Please feel free to share any information or link to any of my blog posts, but please, when appropriate, give credit where credit is due.

Who am I? My name is Ryan and I’ve been interested in small business and entrepreneurship since I was very little. I think a lot of my desire to work in business came from influence from my dad. He’s started various businesses and shared with me his knowledge and lessons. (But I’ll save that for another blog post!) So, back to me, I just graduated with a bachelor’s degree in business management with an emphasis in entrepreneurship and a minor in computer science. I’ve worked with various small business, started a few business projects of my own, and one full-on legitimate incorporated company. So, I hope to share those experiences with you as time goes on. I hope you’ll stick around and share your experiences in small business too!