A business downturn is the beginning, not the end.
It gives you the chance to learn, start new, and rebuild.
If you look closely, there are a few signs associated with a failing business months before it happens. Some of these signs include a halt in growth, poor cash flow management, and a glaring lack of innovation or differentiation.
The first thing most business owners do to try and save their business is cut costs, but that only slows down the inevitable. What you need to do is breathe new life into a dying business by jump-starting it.
This article will help give your dying business the jolt of energy it needs to get back on the path to success.
Why do small businesses fail?
AdvisorSmith found that 22% of small businesses fail within the first year, 32% fail within the first two years, and 40% fail within the first three years of business. Half of small businesses fail within the first five years, and two-thirds fail within ten years. But what are the main reasons?
One main reason small businesses fail is a lack of funding or capital. New business owners know the main expenses for running their operation:
But they often don’t understand how to price products to turn a profit. Not paying attention to cash flows and profits is a common business mistake for many entrepreneurs. There are a lot of expenses to pay for when running a business.
Our research shows that small businesses spend an average of $40,000 in their first full year of business alone. It’s spent on the following things:
If a business has slim margins and low cash on hand, it has a higher chance of failure. You’re less likely to afford interruptions (which are plentiful in business), support growth, invest in sales and marketing, and hire the right talent.
A business plan isn’t just for entrepreneurs that want to secure funding or grow their business. A good business plan helps you clarify your strategy, identify potential roadblocks, understand your resource needs, and evaluate potential business opportunities.
A business plan includes:
A summary of your business
Competitor and market analysis
Business model and operations plan
Product and service offerings
Not all business owners open their doors with a business plan. When you start a business, your to-do list is long enough that writing out a whole plan sounds like a big undertaking. But those who don’t have a solid plan before operations begin are setting themselves up for failure. Forty-two percent of startups fail due to lack of market demand, which a simple market analysis could uncover before launch.
We had a marketing background, but not much experience in the other functions needed to run a fashion ecommerce business, like operations, finance, production, and tech. Laying out a business plan helped us identify the ‘unknowns’ and made it easier to spot the gaps where we’d need help or, at the very least, to skill up ourselves
The best part? You can create a business plan any time. If your business is struggling, now’s the time to step back, re-evaluate your idea and marketing, and understand the strategy behind your tactics.
A business plan will give you an understanding of the industry and competition. It solidifies your business model before offering any products to customers, and shows possible revenue streams so you can plan ahead. Overall, creating a business plan is critical to sustaining a business long term.
Many entrepreneurs and creators get into business because they are passionate about something, be it making candles, helping others, or creating entertaining content online. Rarely do they get into business with a passion for human resource management and operations.
They are often the only senior role in the business for the first few years. But if you’ve never managed people before, it’s challenging to hire, train, and manage employees. A SurveyMonkey poll even revealed that labor quality was the biggest problem for 52% of small businesses today.
Without a strong manager, it’s easy to mismanage critical aspects of the business, such as finances, hiring, or marketing. It’s important to let go of the wheel and feel comfortable bringing on strong support to make up for your shortcoming.
Business owners are often not prepared to meet the marketing demands of their company. In fact, according to a survey of 350 small and medium business (SMB) owners, 50% do not have a marketing plan at all. No marketing plan makes it hard to determine costs and to target audience reach and conversion goals. It also helps you set a budget and plan for future marketing needs.
Small businesses also lack the ability to understand their customers. They are often creators first. So they build the product and then hunt for customers. Even if your niche has sufficient market demand, if you don’t know your ideal customers, it’ll be hard to sell.
Marketing is crucial for any early stage business. If you don’t understand the basic marketing strategies and how to apply them to your business, it’ll be hard to create and implement successful campaigns.
10 steps to fix a struggling business
1. Adjust your mindset –
There is no secret to success. But there are many factors that go into what makes you and your business successful. Sure, there is hard work and dedication. But there are also more ways than hustling and grinding 24/7 to make it happen. Developing a positive growth mindset can help you stay on the path to success.
This may sound a little “woo woo,” or dubiously mystical and unscientific. Yet recent neuroscientific research has shown that our actions are triggered by intentions, incentives, or intrinsic values. A growth mindset is defined by the belief that your intelligence is changeable and improvable. Individuals with a growth mindset see setbacks as a part of the learning process and “bounce back” by becoming more motivated.
Develop a growth mindset by:
Learning lessons from your mistakes. There will be a running list of failures in your business. I’ve built three businesses from the bottom up and it was never a smooth ride. Every loss becomes a win. So if you feel like a failure, brush it off. Look at what happened in your business and figure out what you’ll do differently in the future.
Staying flexible. Chances are, nothing will go according to plan. Being able to adapt and adjust will help overcome the many business interruptions in your path. If you find yourself in trouble, reach out to a friend or colleague who has been through similar situations. Twitter is a great place to meet other entrepreneurs and connect to solve problems.
Inspiring yourself. Remember to make time for yourself. It’s easy to work yourself to the bone when your business is going through a rough patch. Endless work will wear you down and make you want to quit. Take time each day to do something that inspires you. Read your favorite book or a magazine, cook, hike, listen to music, volunteer—anything that gets you away from the business and motivates you.
Eleven years into the entrepreneurial hustle, I’ve learned that entrepreneurship is being on a mission where nothing can stop you. It will take twice as long as you’d hoped, cost exceedingly more than you’d ever budgeted and will be more challenging than anything you’ll ever try, but if you give it your all and refuse to give up, you can trust it will be the ride of a lifetime.
It’s true that hard work is important, but staying headstrong and happy is even more important to achieving your goals. Use the above tips to achieve a healthy, balanced mind to get through the tough times.
2. Set goals
Now that your head is in a good place, it’s time to work toward turning that business around. Setting goals helps guide your focus and sustain momentum. Goals help you reach for a specific result when you feel like everything is falling apart.
Goal setting is linked with higher motivation, self-esteem, and self-confidence. Research has also established a strong connection between goal-setting and success.
Start small. Don’t go crazy by setting massive goals, because you’ll be disappointed if you don’t achieve them. Set frequent, smaller goals and reward yourself after completing them. Create a series of mini goals that lead to a big goal.
For example, say your big goal is to get 200 subscribers for your email marketing list. Your mini-goal list could look something like this:
Learn why customers are leaving your business. It could be a number of reasons you’re unaware of, such as:
A poor customer service experience
Your product failed to meet expectations
You didn’t prove your value
Your sales tactics were too aggressive
Establish a feedback system with customers. You can use an app like Customer Feedback Surveys or Fuzzy Surveys to collect feedback and understand what customers really want. This data can help you create better products and marketing strategies that increase sales and loyalty.
4. Understand your target audience
A target audience is the group of people you aim marketing and advertising efforts at. Do you know who yours is? Identifying your target audience is important because it helps you find new customers easier and bring more qualified buyers to your website, which results in more sales.
It took cosmetics brand SUGAR three years to truly nail down its target audience. “While we were running our ecommerce business between 2012 and 2015,” founder Vineeta Singh says in a Shopify Masters episode, “we realized that there were a lot of millennial women who couldn’t find that perfect nude lipstick or a perfect red lipstick. There were a lot of colors that were perfect for, say, Caucasian skin, but wouldn’t work on the deeper Indian skin tones.”
From there the brand identified that its buyers:
Were Indian woman between 20 and 27 years old
Live in metropolitan areas
Consume a lot of digital content
Are Inspired by global trends
Want trends Indianized for them
This led SUGAR to create its first bestselling product: liquid lipsticks. These lipsticks are extremely long lasting, which, with India’s humid and hot weather, were perfect for the brand’s target audience. SUGAR went on from having one ecommerce store to over 10,000 retail touchpoints, and has become an industry disrupter that raised over $21 million in Series C funding.
If you’re a struggling small business, now is the time to take a step back and look at things from a broader perspective. That’s where SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) comes into play. A SWOT analysis pushes you to look at your business from different perspectives and shines insight into how you’ll perform in the future.
Strengths and weaknesses are internal factors, or something that you can control. Examples include reputation, partnerships, intellectual property, and staff. Opportunities and threats are normally outside your control, such as competitors, economy, market size, trends, and supplier issues.
A SWOT analysis will help get you back on track. It helps you identify problems, work on changes and improvements, and make the right decisions to help create a successful business.
Many issues can sprout up for business owners related to finances. Insufficient cash flow, inaccurate reconciliation reports, high turnover, debt—these are only some of the preventable problems you can face.
If money seems to be your issue, you’ll need to look at your expenses and outgoing cash flow. You may want to track finances weekly versus monthly to stay on top of everything. Catching financial issues early can help lessen the impact and keep your company profitable.
“I think my biggest mistake was not paying attention to my finances whatsoever. Through [running my business into debt], I learned a lot. I realized that I did want to fight for the business. I wasn’t going to give up. In the end, it made me a better business person. Now I’m obsessed with my finances, and I will never ignore them, ever again.”
Working capital is a problem for businesses of all sizes, but it can be harmful for smaller companies with limited resources. Having cash to pay your bills and eat lunch is great, but lack of capital prevents you from hiring, replenishing stock, building marketing campaigns, and developing new products for the market.
To overcome these hurdles, you’ll want to establish a budget for operations, then research and secure financing options before you even need it.
Shopify Capital is one way to get quick and easy access to funds. There’s no lengthy application or credit checks. You can get funded within days of accepting an offer. Plus, you can repay from sales with payments that work for your business.
I really love the flexibility of the repayment system of Shopify Capital. On busy days I repay more, and on slower days I repay less.
Pivoting sounds simpler than it actually is and could mean many different things to different businesses. For some, it might mean changing your business model. For others, it might mean moving to a completely different vertical or changing your target customer. Maybe you thought your product would sell well with acoustic guitar players, but in fact, it might sell better with piano players.
You might need to sell an entirely different product. This sometimes happens because business owners didn’t properly validate their business ideas or products before launching. You need to do a close analysis of what’s working and what’s not, and consider making drastic changes.
In the case of iHeartRaves, pivoting was the result of the COVID-19 pandemic. “Our ecommerce stores were in a very challenging position, because we sell fashion items to attendees of music festivals. These events were canceled or postponed all around the country and throughout the world,” founder Brian Lim explains. “We have been preparing for a potential recession for multiple years now and, thus, have cash built up to withstand a huge revenue hit. But we did not plan for a health crisis on top of a financial crisis.”
iHeartRaves pivoted in a few different ways:
It shifted marketing from mostly festival clothing to focus on other uses of its clothing, such as lingerie or loungewear.
It started designing face masks.
“Think critically about how you can pivot in these uncertain times if your business is struggling,” says Brian. “Pivoting can help you weather the storm and keep your business afloat until things return to some sense of normalcy. These pivots can turn into permanent revenue streams. Even when COVID-19 is gone, our masks will still be purchased and used by festival goers to protect their faces from dirt, dust, wind, and sun, while staying fashionable at the same time.”
9. Invest in marketing
At this point you’ve got the foundation to turn around your business. You know your audience, you’ve got cash in the bank, and you’re ready to get the word out. To attract the right customers, you’ll need to implement marketing strategies that attract, engage, and retain them.
You can get a lot of awareness on a small budget by using social media tactics:
Henry Chen, a serial entrepreneur and business coach, strongly recommends leveraging video marketing to promote your business online: “Create consistent, evergreen content. In particular, YouTube videos that are value-driven and searchable.”
Even if you have zero subscribers and no experience creating YouTube content. Appearing in videos immediately gives you some authority and trust from potential customers and partners you might want to work with.
He adds, “Focus on solving one to two simple but common and important problems in each video. People are more likely to do business with you after they see social proof and—(free—value that you’ve provided. Being that it’s evergreen, your videos will work for you for months and even years to come.”
10. Take action
When you know your business is on its last legs, you need to be proactive. Don’t sit back and wait for things to happen before you take action. Take actions that are not only preventative (before things get any worse) but that also fix glaring problems.
There’s no better feeling for an entrepreneur than when he or she is able to turn something around for the better. Every entrepreneur is faced with challenges, and a failing business is just one of many. Even if your business fails despite all of your efforts, take it as a learning experience. Many entrepreneurs before you have had many failures before their most successful venture. You only need to be right once.
3 real-life example of turning around a struggling business
“When COVID hit, our museum tour company plummeted from $2.8 million per year to zero. Leads stopped coming in, all of our clients contacted us to cancel, and the future looked very bleak.
“We spotted an opportunity for ‘virtual team building’ as a service, and within 24 hours had rebranded and launched with entirely new products. We had our first customer on day one, and by the end of the year had thousands of clients, including Apple, Amazon, Google, and NASA.
“My advice to struggling business owners is to not be afraid to scrap what you have and change directions. In our case, we salvaged what was valuable from the previous business—including some blog posts that brought in relevant traffic, and our customer list. We also continued to work with many of the same employees.
“By identifying the bright spots in your current business, you can cut the rest and direct your team toward more successful business opportunities.”
“Marketing was always a moving target.”
Daniel Stafford, Founder of ecommerce ad agency Shopanova
“The Bookish Shop offers a subscription service that delivers a unique selection of new releases, pre-orders, bestsellers, and award winners to their customers’ doors every month. There are several subscription offers, depending on the customer’s personal reading habits and what they want. Bookish Shop believes in encouraging young adults to be actively involved in reading.
“For those who are already ardent readers, the Bookish Shop provides a platform to encourage them to keep reading, while always inviting new readers to join the fray.
“There are many things in business that can be learned, improved over time, rinsed, and repeated, but marketing is and always has been a moving target. Sales were dropping lower and lower, month by month. Blogger-turned-entrepreneur Justine Woods felt that the strategy that got her to where she is today wasn’t going to sustain her company or get her to where she wanted to be.
“Our initial audit highlighted two major areas of opportunity. First, there was no cohesive sales funnel in place that truly nurtured customers from the first touch point all the way to the point of a repeat purchase. It quickly became a top priority to get this framework built out for them as soon as possible.
“The second major area of opportunity for the Bookish Shop was to use new product launches that were already taking place to fuel advertising content and fill the newly built sales funnel with compelling creative assets.
“Five and half years into the business, Bookish had around 1,500 active subscribers purchasing their products. After going through a strategy overhaul together, Bookish quickly took their subscriber base to 7,000 and continues to grow!”
Thanks to the strategy overall, The Bookish Shop saw the following results:
Revenue growth: 499%
Website visitors: 162%
Return customer rate: 76%
“The most significant piece of advice we have for brands currently is to focus on business development. We believe that the brands that will succeed in the coming years will be well-rounded companies that prepare for the future. It is necessary to be introspective and consider where your deficiencies lie.”
“Almost went out of business permanently in May 2020.”
“Rosie’s Café in Monona, WIsconsin, almost went out of business permanently in May 2020.
“The owner, Cosmas “Coz” Skaife, invested her last $1,500 into a business coaching class with me, even though everyone around her told her not to spend her money and to save it. But she trusted herself and invested the last of her money into the coaching class and has since shared publicly how it saved her business and changed her life.
“I helped Coz get focused on her passion, positioning, and profits.
“Instead of worrying about pushing carryout food orders, I encourage the business to focus on what they are most passionate about, do better and differently, and where a lot of profit lies: specialty bakery, particularly giant made-from-scratch unique-flavored cinnamon rolls!
“They started marketing their unique flavor of the week with giant cinnamon rolls such as Brandy Old Fashioned, Apple Pie, Oreo Explosion, Candy Corn, and more , and they were selling out every week!
“We then built the cafe a website and set them up online. Additionally, we run their social media, create and post job listings, do all email marketing, digital marketing strategy, and PR.”
While 2020 was a challenge for Rosie’s, Amber explains how they’ve celebrated a handful of big wins. The cafe:
Had its highest profiting quarters last three quarters in a row
Broke highest day and week sales records three times in the last six months
Gave staff raises
Has been pursued by a major TV show that features bakeries
Learning from your business failures
Recognizing that your own business is struggling is the first step. You must make difficult decisions to ensure you don’t run out of cash and close your doors. Whether it’s finding a whole new customer base or getting funding, it’s OK to take a step back and get your business back on track.