Want to know the cold, hard truth? Most businesses don’t make it. That’s probably not the most encouraging thing to say, but it’s the reality.
According to the U.S. Bureau of Labor Statistics (BLS), 20 percent of new businesses fail during the first couple of years of being open. Roughly half (45 percent) fold within the first five years, and the majority (65 percent) don’t make it to 10 years. Just a quarter of new businesses survive to see their 15th anniversary.
While a lot has changed in the business world over the past several decades, these statistics have remained relatively unchanged. This shouldn’t discourage you from launching a business, but it should cause you to be a little more thoughtful and intentional about how you build a business. And just like building a house, a strong business requires a firm foundation.
4 Tips for Building a Strong Business Foundation
A company that’s built on a strong foundation is much more likely to withstand the pressures, demands, and evolving circumstances of an ever-changing business world. The question is, what makes up a strong foundation? Here are a few principles:
1. Create Some Separation
Everyone wants to talk about work-life balance. It’s one of those buzzwords that’s dominated the professional world over the past decade. But most people have the idea of work-life balance confused. They assume that it means blurring the lines between work and personal life so that you can work from home or leave work to go run an errand. And while there’s nothing inherently wrong with either of these things, that’s not what true work-life balance looks like.
True work-life balance requires separation and boundaries. As a business owner, you have to get real clear on this idea. Even if your business is currently a small one-person venture, you need a designated workspace that exists outside of your living room. You also need separate bank accounts, your own business email address, etc.
2. Invest in Growth Marketing
Growth marketing can be defined as marketing that’s based on data, analytics, and testing rather than gut feelings or assumptions. Companies that use a growth marketing strategy don’t just focus on the top of the marketing funnel (awareness and acquisition). They prioritize the entire funnel from top to bottom, including awareness, acquisition, activation, retention, revenue, and referral.
At its core, growth marketing is about understanding the ideal customer and creating a personalized experience that (a) leads to a sale and (b) fosters long-term loyalty. In the early stages, this can lead to an increased customer acquisition cost. However, over the long-term, that cost shrinks, and the customer lifetime value (CLTV) increases.
3. Pay Yourself (But Don’t Get Greedy)
When it comes to paying themselves, entrepreneurs and small business owners often operate on extremes. You’ll often find new business owners who pay themselves every single penny of profit. Then on the other end, you’ll find business owners who don’t pay themselves a dime. Neither approach is healthy.
You need to pay yourself something in order to stay motivated (and to keep your personal bills current). However, you shouldn’t pay yourself so much that you strip the business of the capital needed to grow. Ideally, you’ll take a salary that’s slightly higher than your basic living expenses.
4. Build Up an Emergency Fund
If 2020 showed us anything, it’s that uncontrollable circumstances often come out of the left field with little or no warning. And if your business isn’t prepared, you can easily fold under pressure.
One way to safeguard against downturns in the market is to build up an emergency fund. This is cash savings account for three to six months of business expenses. If your basic business expenses are $10,000 per month, this means having an account with $30,000 to $60,000. (You don’t have to get to this amount overnight, but you should be setting aside some money each month until you reach the desired amount.)
Adding it All Up
Every business is different. There’s no single way to build a company. Just look at some of the top names in your industry (or across other verticals), and you’ll see a variety of styles, approaches, business models, and strategies.
However, you’ll also see some similarities. The key is to identify these consistent threads and tailor them to your budding business, circumstances, and objectives.