There are nearly 6 million small business firms in the United States, according to an annual survey from the Census Bureau. In total, small businesses employ 58 million workers, or just under half of all private-sector employees.
After about 25 years as a management consultant, I have learned a bit about why businesses fail.
There are at least seven reasons: lack of capital and cash flow, unqualified team members, wrong niche, inflexibility in the business plan, poor planning and inadequate marketing.
Lastly, a new business can fail by growing too quickly and being unable to financially mature properly in the marketplace.
There are lessons to be learned, too.
Play to your strengths
My most successful clients shared the notion of the founders playing to their own strengths. Various assessment tools available in the marketplace can define exactly what they are. People are pretty good at doing what they like to do and not so good at things they do not like to do.
Answering the question, “What business are you in?” is an important place to start in planning a new company or clarifying a business decision.
The need to get this right is reflected in the fact that early-stage and startup businesses have high turnover with one-third no longer around after two years; half after five years close their doors.
Be in good company
A business mentor once told me that “you are known by the company you keep.”
It is important to affiliate with people of good character. Most people entering business know at least a few community leaders who will make themselves available, especially in the early days of starting a company.
Do not struggle too long with a formal mission statement. Keep it short. One thing about a company mission statement is that as you move along in defining who you are, you can easily change it. It is really a kind of beacon indicating the direction of the organization and, in the early stages, can literally be on a single sheet of paper.
Spend some time on what values are important to the firm. Ideas include a continuing belief in integrity and ethics, open and honest communication, commitment to client confidentiality and a two-way team orientation. One client offered a value about the willingness to share in a client’s risk with the potential to also share in the rewards, something that business people can understand and appreciate.
Rather than worry too much about the pricing, focus on serving your clients.
Clients know that your business products and services deserve compensation and that, like anyone else, you need to be paid.
Clients are more than willing to pay for results; a 1-2 page memorandum of understanding can avoid both lawyers and lawsuits.
As a management consultant, what’s most rewarding to me is improving performance and finding new and better ways of doing things by reducing costs and achieving savings.
Today, about 660,000 management consultants work in many specialty fields in the U.S. with an average annual income around $90,000; IT consultants earn far more.
It has been a most rewarding professional ride for me.
Chuck Slocum is president of the Williston Group, a management consulting firm. He can be reached at Chuck@WillistonGroup.com