Beyond the FAIL


One in ten self-employed people closed up shop during March 2020-2021.
Why is that?

Lockdown 1.0 gave us a lot of time.
Time to spend doing DIY or hobbies.
Some of us turned these hobbies into a second job.
…and some used the time WFH to start their own business.

Running your own business and working for yourself sounds great but it is not easy. Successful business owners are those who take risks. They can bring a product or service to market at a price that meets consumer demand levels. All whilst knowing that deep down, it could either go completely wrong or succeed beyond their wildest dreams.

Latest figures from the FSB (Federation of Small Businesses) show that over a twelve month period, approximately one in ten Scottish self-employed people folded up operations and 57% of Scottish small business owners believe that running their own business is not worth it.(1)

If you’re considering making the move from hobby to business a more permanent one, have started one or are already making tentative first steps, here’s four big reasons why so many businesses fail and what you can do to avoid falling where others have…

Underestimating just how important money is

Working for yourself sounds like an attractive idea.
It’s not easy though, and depending on what product or service you’re bringing, it may not be cheap either.
Even if your idea is simple and low-cost, you’ll still need to ensure you have enough coming in. Money to pay essentials such as rent or utilities.
One big reason why small businesses fail is a lack of funding and failing to keep enough cash on hand.

C.R.E.A.M. (Cash rules everything around me)

You might be aware of how much you need to keep things ticking over daily. As long as you make money and pay your bills on time, you’ll still have power and a roof over your head. The same applies in business.
Not paying your bills (to suppliers)?
Juggling or struggling to make ends meet?
This will become a problem quite quickly.
Don’t overspend either. You might see a sudden rise in sales and want to start producing more products. But if it’s only a blip, you could then be stuck with more inventory than you need. Inventory that you then need to store until needed.

We’ve stated before the importance of keeping enough cash on hand – plan for between three to six months. Having too much capital (the dream!) means you’re potentially losing out on that money being invested, which could be making you more rather than sitting in an account doing nowt.

Considering getting investors onboard? You’ll definitely face challenges obtaining financing during the startup phase.
Angel investors…
Venture capitalists…
Bank loans…

These are all sources available to businesses.

…but not every company has the revenue or growth trajectory needed to secure major financing from them.
So if you can’t get funding for a large project or even ongoing working capital needs, you may have to scale down or worse, close up entirely.

So start by setting yourself a budget and be willing to provide some of your own money during the startup or expansion phase. Look into every funding opportunity you can. Research all to see if you’re eligible, so that when the time comes to obtain funding, you’ll know where to go for funding.

And if you do receive a business loan or investment, resist the urge to burn through it within the first three months!

Skills (and lack of)

You’re your own boss – well done, you!

However, a common reason small businesses fail is a lack of skills on the part of the management team or business owner. In some instances, a business owner is the only senior-level person within a company, especially when a business is in its first year or two of operation. You may think differently and want to do things differently – this ability to adapt and improvise can be both a strength or a weakness if you don’t get it sorted.

While you may have the vision and the necessary skills to create and sell a product or service, you may be lacking the attributes of a manager. You also probably don’t have the time to train or supervise other employees. Without a dedicated management team, a business owner has greater potential to mismanage certain aspects of the business, whether it be finances, hiring, or marketing.

You will probably end up doing everything at the start but a smart owner will outsource the activities they do not perform well or have little time to successfully carry through. As you grow larger, a strong management team should be one of your first priorities, to continue operations well into the future. It’s important that you feel comfortable with the level of understanding each employee has regarding the business’ operations, current and future employees, and products or services.

Lack of planning/action

Coupled with the previous factors, a lack of planning/action also causes businesses to fail.
When it comes to planning, the first thing we mean is a business plan – your roadmap that sets out who you are for anyone who cares (which could be investors!)

Don’t forget the importance of effective business planning before starting. The more details you get sorted out now, the less likely you’ll face problems at an early stage. Putting pen to paper helps you to describe your idea – writing it down will help you visualise it. It’s step one in starting out to success.

You might be able to get away with a “lean plan” if it is simple – otherwise, make it detailed.

A standard business plan usually includes the following:

Executive summary

A short and sweet explanation of what you’re offering and how you plan to do it.

Company description

Staff (who does what…and who you will need later on)

Market analysis

That is to say, is there a market or are you going to be wasting your time?

Service or product line

What it is you’re selling or offering…

Marketing and sales

You’ll need to create awareness…

Funding request

If you are seeking investors, you’ll need to mention how this money will be used and how it will be paid back.

Financial projections

Be realistic! Most businesses do not turn a profit within the first year.

Pressed for time?

Alternatively, there is the SWOT plan. This plan is slightly quicker to produce as it gets you to think about:

Strengths (i.e. your USP or product/service)
Weaknesses (Perhaps you lack the initial capital?)
Opportunities (You may be able to manufacture abroad as you find out it’s cheaper…)
Threats (…but a downturn in the global economy could affect this!)

Business owners who fail to address the needs of the business through a well-laid-out plan before operations begin are setting up their companies for serious challenges. Similarly, a business that does not regularly review an initial business plan—or one that is not prepared to adapt to changes in the market or industry will hit every along the way.

To avoid pitfalls associated with business plans, entrepreneurs should have a solid understanding of their industry and competition before starting a company. A company’s specific business model and infrastructure should be established long before products or services are offered to customers, and potential revenue streams should be realistically projected well in advance. Creating and maintaining a business plan is key to running a successful company for the long term.

A business plan will also indicate early on if your idea has staying power – if not, you’ve potentially saved yourself time and money identifying any shortcomings rather than three years down the line(!)

Lack of a business plan and an unwillingness to adapt the plan as challenges arise can create structural problems for a small company.

Underestimating the power of marketing

Often considered a “dark art” by outsiders (when in fact, it’s anything but!) but don’t forget your marketing needs. There’s no point in creating a revolution if no-one knows about it.

Your first steps, as well as what we have previously mentioned will include a website for customers. A website automatically creates awareness of your ‘shopfront’ and allows people to visit you virtually. Then onto creating brand awareness via social media.

The FSB findings show that the majority of businesses that closed were unregistered. If you were a potential customer, would you feel more secure knowing the company was at least registered before handing over money? Consider also that the process of getting outside funding is made easier if registered as your business will look more legitimate to potential investors.

Don’t forget to research

You’ll also need to do market research (if you haven’t already added this to your business plan) so if there is the need for your business to have a physical space, where are you going to locate it? For example, if your business is located too close to others, you’ll need to offer something different in order to stand out. Locate yourself too far away and no-one will find you.

In time, the data you gather will influence your decision-making. For example, if more people visit your website on weekends, you can then release new product lines or announce their release date, rather than just guessing. Not researching this could result in poor footfall and minimal sales.

Make sure you plan for realistic projections in terms of target audience reach and sales conversion. Getting into the mindset that your business will be a success from day one is highly unlikely

Ultimately, remember that businesses that do not understand or fail to consider these four big factors  are more likely to fail than those that take the time to plan and create a successful business enterprise.



Press release from FSB