How to Maximize Returns as a New Business
Starting a small business is not for the faint of heart. 20 percent of small businesses fail
during their first year, while 50 percent fail within five years of opening. Even companies who manage to keep the lights on sometimes struggle to move from breaking even to profiting. Running a small business, for many entrepreneurs, is part of the American Dream. So why is it so challenging?
CB Insights recently executed
101 “startup failure post-mortems” to identify why small businesses might wind up collapsing. While the number one failure reason they identified was “No Market Need” (identified in 42 percent of cases), other prominent reasons demonstrate how easily money problems can take down small businesses: 29 percent “Ran Out of Cash,” 18 percent experienced “Pricing/Cost Issues,” and 8 percent struggled with “No Financing/Investor Interest.”
Money makes the world go round -- particularly when you’re launching a new business. According to the Small Business Chronicle, entrepreneurs generally
re-invest as much revenue as they can during their business’s first year of operations, just to reach a state of “ramen profitability” that enables the company to break even as long as owners pay themselves only enough to maintain a minimal lifestyle, with plenty of Top Ramen dinners.
If you’re starting a new business, you might have no choice but to eat some Top Ramen during your first year. At the same time, it’s important to exercise smart
cost-cutting in your business operations themselves, to maximize your returns on every business expense. Here are a few strategies for pinching pennies without sacrificing business functionality:
For small business owners, it might feel impossible to make yourself heard above the marketing expenditures of chains and corporations who launch nationwide ad campaigns with healthy marketing budgets.
But while small businesses are at a marketing disadvantage when it comes to financial resources, they also have two major strengths: their passion and the public’s interest. A recent Gallup poll showed
that while Americans’ confidence in large businesses has hovered around 20 percent for over a decade, their confidence rate in small businesses is high and growing, currently measured at 70 percent. So if you’re a small business marketer, take heart: while large businesses have to earn customers’ trust, you’re more likely to start out with it in the first place.
What small businesses lack in funds they can make up for in their expertise, passion, and community connections. Community-oriented marketing could include making an appearance at local events and sponsoring local initiatives such as clean-up drives or little league teams. If you work in a lead-oriented business, providing word-of-mouth referral discounts can help you grow your customer base. If your company has an online presence (and it should, at the very least, have some well-run social media accounts), you can draw in web visitors by turning your employees’ industry-specific knowledge into content marketing through infographics and articles.
Investigate Data Analytics
Data analytics tools, which help businesses maximize growth and revenue by obtaining information about their customer base and productivity patterns, produce real results. One study found that companies who quantify gains from data analytics experience
an 8 percent increase in revenues and a 10 percent decrease in costs. These are life-or-death performance changes for margin-sensitive mall businesses. But many small business owners assume data analytics are the sole purview of big companies with sizable technical support staffs.
There are in fact a growing number of data analytics tools and services available for small business budgets, and there’s also evidence they’re producing results. Most entrepreneurs aren’t data scientists and might assume they don’t have the skills to use these tools effectively. But you don’t need a data science background to benefit from data analytics: in one survey
, 80 percent of small business owners who adopted data analytics tools found the deployment easier than they expected, and 70 percent said that results from investment in new technological tools exceeded their expectations.
As data analytics move into the cloud, they’re becoming more accessible. Google Analytics, an invaluable tool for tracking data on web visitors, is free for sites whose visitors don’t exceed 5 million per month. Software Advice recommends
Birst, Tibco Spotfire, Tableau, Qlik Sense, and SAS Visual Analytics for small enterprises.
Design on a Budget
Design can provide a way for small businesses to level the playing field with huge corporations--because as plenty of expensive design have proven, money can’t buy you taste. The widely mocked logo for the 2012 London Olympics came
with a $625,000 price tag, while Twitter’s initial concept for its instantly recognizable bird logo cost
Good design can give your company a significant boost because customers care about aesthetics. Where it can get tricky for small businesses is getting a good
design for cheap -- more than a few business owners have had to confront that they know more about their industries than logo design principles.
Luckily, there are low-cost options for helping businesses create aesthetically pleasing websites and logos. Squarespace, Wix, and Wordpress are all cheap options for building functional sites using pre-programmed modules, rather than coding from the ground up. Tools such as the Oberlo Logo Maker
can help owners experiment with different logo designs.
Small businesses require plenty of investment, particularly in their first few years, but there’s a huge range of returns available for different strategies and tools. Prioritize tools that give you the most bang for your buck.