This post originally appeared on Forbes
If you are launching a business, you have probably heard the horror stories of business failure after business failure. Listen to some of the naysayers and you’ll start believing that 90% of new businesses are destined to fail. However, the reality is much brighter: according to the U.S. Bureau of Labor, 75% of new businesses survive the first year, 69% survive the first two years, and 50% make it to five years.
Granted, a 50-50 chance of surviving to year five may not sound that great, but you don’t have to sit back and let chance dictate your fate. After working with thousands of new businesses and having started several myself, here are some of the things I have learned to help set a new business up for success:
Create a business plan
When you’re not looking for an investor or bank loan, it’s tempting to skip a business plan altogether. However, the process of writing out your plans is a great way to hone your vision: what problem are you trying to solve? Whose lives are you trying to improve? What’s your realistic timeframe for launch, sales, and profitability? You don’t need a 100-page document, but your plan should be detailed enough to determine if you have a good target market and business model.
Keep your expenses low
New businesses typically fail because they run out of money, so it makes sense to keep your costs as low as possible until you build out your product and sales start coming in. Only hire people you desperately need; use contractors and freelancers for the rest. If you don’t actually need the space, forgo an office for as long as possible. And, in general, spend money on the things you need, not the things you think a business should have.
Reinvest back in the company
When going from a salaried job to entrepreneurship, it’s hard to give up the stability of a paycheck. But the first money you make should be reinvested back into the company, your product, and marketing. Many times, owners are the last ones to be paid during the first year.
Don’t mistake hyperactivity for productivity
In today’s culture, we are busy all the time. But how much of this busyness is actually moving the company forward? During the first year, you need to be very selective in how you spend your time and resources. Too many entrepreneurs burn the candles at both ends, yet only move sideways and not forward.
Don’t say yes to every request that comes your way. When considering each customer request, event, marketing, or partnership opportunity, think about how it fits into your overall game plan and priorities.
Focus on the customer
Your goal isn’t to create an awesome product or business; it’s to help your customer. Be very attuned to their needs and adapt everything based on their feedback. When you build something that people actually need and want, sales will follow.
Build your network
Generally speaking, the more people you know, the better. Anyone could be a potential partner, customer, source of inspiration, or sounding board. Reach out to professionals in your field or others who have started their own businesses. The more people you reach out to, the more opportunities will come your way and the more supporters you’ll have when you need them.
Be respectful of people’s time, but also fearless in reaching out for meetings. When you meet, ask questions, give others opportunities to talk about themselves, always pick up the tab, and send a follow-up thank you. Most important, remember the golden rule in networking: The more you give, the more people want to give back.
Measure and adapt
In the early days, resources are particularly tight, so it’s critical to make sure your money and time are being spent in the right places. Never assume you know what’s going on in your business; back everything up with numbers.
It’s easy to get overwhelmed in analytics and charts, but you should have 2-4 key metrics for your business that you keep track of at all times. For example, where is your website or foot traffic coming from? What’s your gross profit percentage per product or project?
Make a longer runway
It’s common for new entrepreneurs to give themselves a test year to see what happens. Then, if they’re not profitable after that year, they decide to close shop. The problem is that many businesses need more than a year to reach profitability. One of the best ways to last beyond the year mark is to recognize and plan for the fact that it may realistically take 18-24 months for your business to get off the ground.
Launching a business is a risky, stress-inducing endeavor. But more small businesses actually succeed than fail in their first year. If you are ready, don’t be afraid to take the plunge and start your dream business, but be conservative in your spending, plan, measure, adapt, then adapt some more.
Image by Photospin.