Business Development: Surviving Year Two
Are you running out of stuff?
Posted by Jacky Sherman on 11/01/2023 @ 8:00AM
“What do you want to cover today?” is the usual question I ask my clients at the beginning of our session together after we’ve reviewed their progress to date. When I asked that of my client last week, his response was, “Well Year One has gone better than expected. I’m told Year Two can be harder. Why is that and what can I do to manage it?”
If you want to survive Year Two, you need to stop yourself from running out of stuff!
copyright: alphaspirit / 123rf
It's that time of the year and reflecting on the last couple of weeks, several of my clients are focused on how to manage Year Two and with good reason. According to Forbes magazine, 80% of small businesses survive their first year, but this falls rapidly with less than 50% making it past year five.
Forbes, and hundreds of others on Google, will give you detailed reasons why this occurs. My own experience working with small business owners is that whether they have had a successful launch year or not, those that fail, do so because they run out of 'stuff'. They run out largely because they never planned for Year One to impact on their resources to manage Year Two.
Let's just look at the kind of stuff they run out of:
Money - Many small businesses start with very limited working capital and limited personal resources to finance their new venture.
Cash flow problems may intensify once they have customers to satisfy and that exacerbates the misalignment of paying suppliers before they receive payment themselves.
Even if they are not producing goods, business owners often underestimate the amount they need to invest in starting up the business. Marketing, website, premises, transport, phones, networking, accountancy, insurance, compliance, royalty payments, personal development fees; all this before they even consider paying for staff or start repayment of loans,
As well as these, they underestimate the length of time they need to support their own private needs from other sources. That fat redundancy payment or savings fund may last the first year, but many people expect to be able to finance their own needs for the second year from the profits of the business.
My client who asked the question has been successful in meeting his targets. He signed up more clients than expected and managed his finances tightly, but even so, the first year ended with only financial break even.
Time - This is a big one for many small business owners, especially if they offer continuous service to their clients. From a financial point of view, new clients mean real growth for the company, but it also means increasing pressure on service delivery.
For the solopreneur or stand-alone consultants, this can become a ceiling to further growth unless they review their business model or outsource the back office stuff. For others, it means employing more people, trained and ready to deliver.
Either way, there is added risk in spending on people before winning more work. What often happens is that they switch focus from sales and marketing to delivering the service. The danger here is they fall into the feast and famine trap. The order book is full, they stop marketing and then suddenly or gradually their pipeline of new prospects dries up and the order book is empty along with their bank balance.
Often the first part of their dream fades; leaving employment to improve their work/life balance. My experience in any roomful of small business owners is that working at the weekend is normal as is taking work with them on holiday. Most never measure how many hours a week they put into the business, but it would be rare for it to be less than 40 hours and is more likely to be over 60.
Energy - The first year in business most people live on their adrenalin. The hours don't matter as the excitement and drive to get their dream into production kick in.
As any athlete will tell you, these neurochemicals need to be replaced through rest and recovery time. So, it is with business, some people can maintain that initial high level of workload and performance, but usually, it is not sustainable unless downtime is built in.
A common phenomenon of people who are running on adrenaline is even when they have time, they replace the work with energy-sapping play. They "work hard and play hard" as the boast goes. Rest means rest, so we're talking about a visit to the spa or just a regular good night's sleep rather than the next triathlon.
Chronic tiredness or stress will diminish your performance and decision making which leads you to become less resilient in managing the emotional roller coaster that is working for yourself. Before my personal trainer readers leap on me, the Triathlon is great, but not to replace sleep.
Good will - Very few people start a business alone. Family and friends usually give all levels of support from formal investment, help with living expenses, expertise and advice to just being there at the end of the long day. Spouses or grandparents take on covering off the school plays and putting kids to bed. It's easy in the excitement and pressure of getting started to forget to pay attention to their needs. If Year two doesn't start to show results their good will may start to evaporate.
Payback times for loans need to be met just like other investors and time booked out for your spouse and children can easily become pressures.
If, like many small business owners you join formal networking groups, you will soon develop supportive relationships with a wider group of people. Whilst at first most seasoned business networkers will understand you can not easily reciprocate, their interest and support will dwindle if nothing comes back in year two.
Usually these are the people who were the source of your first clients. If they start to drift away through your neglect of their needs then those sources of business go with them.
Motivation - If you don't keep on top of all of the above, it will make you run out of the most important stuff you need. The motivation to carry on.
What started out as a dream, a vision of working at what you love doing with you in control starts to look more like a nightmare. It may be that you didn't realise how much of what you need to do is way outside your comfort zone. Many regular tasks are things that you actually don't like doing. It's easy to find that you have jumped off one hamster wheel straight onto another.
The need to find new clients can be relentless. Look at any social media groups and you'll quickly notice how many are offering silver bullets to the small business owner. "Follow my method and I'll get you more clients and you don't even have to be there." or even articles entitled, "Twenty must do tips to become a millionaire". So, much promising clickbait, so little return on your investment.
"Running a small business with staff means one person off sick or one post unfilled and someone has to fill in and that someone is always going to be you!"
And the clients, oh if you're good at what you do, most are marvellous and are the reason you work as hard as your do. But others try to force you to discount when you're already charging rock bottom prices, they want more for their buck and want even longer periods before they have to pay. What's more, they can't even accept an apology when things go wrong.
My tips for you is this: if you're still in Year One make sure your plans include how to pre-empt running out of any of this stuff next year!
If you're already in Year Two and some of this is emerging, take a look in your rearview mirror. Revitalise yourself by seeing how far you've come. Then turn forward and look at your dream, that vision you had when you first decided to go it alone. If you still want the dream then plot out how you're going to get there using the new experience of what has worked and what hasn't worked for you
If it's not turned out to be what you expected and most tasks fill you with horror at the thought of doing them for the rest of your business life, then think again whether running a business is for you. Maybe returning to employment or working under contract for others is a better way for you to go?
Whichever route you want to take, write down where your store of stuff is getting low and the headlines of how to get it restocked. Now, get a good night's sleep and tomorrow start figuring out where to go to get the help you need to move you that bit closer to where you want to be.
Until next time ...
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more business development tips, it may be a great idea to give me a call on 07970 638857. Let's have an initial chat over a coffee and see how I can help.
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