Why do small businesses fail?
According to the Federation of Small Businesses, small firms account for 99.3% of all British businesses. There were over half a million new companies registered in 2014 alone. The sad truth is that 90% of these will fail. So, why do small businesses fail? According to a survey by CB Insights 42% of start ups fail because there is no market for the product they are offering. People often have an idea for a business to solve a problem they have experienced, but don’t check whether there are other people who would be willing to hand over their hard earned cash to buy the new product or service. And in large enough numbers to make it profitable as a business.
It’s a mistake easily made when you have had a great idea that you are personally excited about. And you would be in good company. Many of the world’s most successful entrepreneurs are very public about businesses they started that have failed because they didn’t take this basic first step. So if you are thinking of starting your own business how do you avoid making the same mistake? Simple. Start small and test out your idea with your potential customers before you give up the day job.
The story of how Innocent Smoothies began is well known, but it illustrates the point perfectly. The founders of Innocent started small – by selling their wares at a music festival. They put up a sign above their stall asking whether they should give up their jobs to do it full time. They asked people to vote with their empties in one of two bins. By the end of the day the ‘No’ bin was empty and the ‘Yes’ bin was overflowing. The next day they resigned from their jobs and the rest is history.
Market research doesn’t need to be complicated or expensive. It certainly doesn’t need to be a survey. It can be as simple as asking friends and family for their honest opinion. Or anyone you happen to get chatting to. The woman you are sitting next to on the bus, the guy on the checkout at the supermarket are, like most people, happy to be asked for their opinion.
And with social media you can do a lot of research from home and at no cost before you take a drastic step like resigning from work. Even if you only use Facebook to talk to friends and family, it can still help you with your market research. Best of all it costs nothing but the risk of a slightly bruised ego if you don’t get the response you are hoping for. The average number of Facebook friends is now 338, the median around 200 [http://bigthink.com/praxis/do-you-have-too-many-facebook-friends ]. By investing a few minutes to ask for feedback on your idea you could save yourself a lot of effort, heartache and money in the long run.
Some things to think about when doing informal market research:
1. If using social media, keep your post short. People are generally willing to help but not if they have to wade through War and Peace in order to do so. If you aren’t able to explain your business idea in less than 50 words it may be a sign you need to do a bit more thinking to nail your idea.
2. Be direct. If you want people to give you feedback, then ask for it up front. A simple and straightforward request for help, “Hi everyone, I am thinking about starting a business and want to know what people think of my idea. It would really help me if you could tell me what you think of it” is more likely to get you a response than if the request for help is buried at the end of a post. A lot of people only skim read posts on social media, you need to grab their attention at the outset so they go on to read your whole post.
3. Be specific about what you are asking people to do. “Please leave a comment telling me whether you personally would buy this product” or “Can you tell me what you like or dislike about my idea, either in the comments or by messaging me” or “Could you share this post with your friends and ask them if they would buy a product like this?”
4. Be yourself – if you are asking people you know personally, or even if you don’t, you don’t need to use “business speak” when doing market research unless the product or service is aimed at a corporate market. People relate to people and are much more likely to give up their time to help you if you come across as a human being.
5. Be curious. It is disappointing if people are negative about your wonderful idea, but as bruising as it is to get negative feedback it will help you improve your business. The natural reaction when someone is negative is to defend yourself. But if you are doing that, you are missing out on information that might help your business. Instead, ask yourself “I wonder why they are saying that?” or better still, ask them why directly. It might be that you have simply overlooked an important detail that makes all the difference.
6. Think about who your potential customers are, and try to find ways to talk to them directly. Go along to the places that your potential customers go. If you have a particular market in mind, say parents of young children, visit the websites and forums that they are likely to visit. You can learn a lot about what they care about simply by listening to the conversations that are taking place.
7. Do not assume your experience is the same as everyone else’s. The fact that when you were a parent, you and your immediate group of friends would have gladly spent £30 a go for Spanish lessons for your toddlers, doesn’t mean others would. Other parents might think language lessons for toddlers would be great but they wouldn’t be willing to spend £30 on them. They might just think it’s a terrible idea. The point is that you need to check out for yourself whether there are enough people that are willing to spend the amount you want to charge for your product, before you launch it as a business.
The good news is that to find this out, you just need to ask.