What makes or breaks a successful small business? There are several key commonalities among businesses that succeed, according to several studies polling entrepreneurs.
Here’s a closer look at four things successful business owners do right—and one thing they need to do better.
What successful entrepreneurs do right
- They start strong. In a poll of 500 successful entrepreneurs, a whopping 84% of respondents say their companies achieved profitability within their first four years in business. In fact, 68% became profitable within the first year. Only 8% became profitable after their fifth year in business, suggesting that the first years in business are make-or-break ones for most entrepreneurs.
- They focus on finding new customers. Small business owners in the survey say finding new customers is their top business challenge—far ahead of cash flow issues or dealing with the competition. Smart entrepreneurs stay focused on continually generating new leads and closing new business.
- They put cash back into the business. Forty percent of business owners say whenever they have surplus cash, they put it back into the business rather than paying themselves, a separate study found. What’s more, 47% tap into personal savings to finance their businesses at one point or another.
- They work hard. Never let it be said small business owners are slackers. Some 86% work on the weekends; 23% take fewer than two vacation days total all year long; and of those who do take vacations, 75% work during their time “off.”
What successful entrepreneurs could do better
There are a few key areas where small business owners could stand to improve.
1. They should invest more money in marketing.
Given the importance they place on finding new customers, small business owners in the survey say implementing new marketing strategies is their number-one priority for business growth. However, they’re not putting their money where their mouths are. Survey respondents admit they consistently spend less on marketing than on payroll, rent, equipment and technology purchases.
Marketing may not seem as urgent as those other needs—after all, you’ve got to pay the rent and meet payroll. But small business owners recognize that marketing deserves more attention—and despite their success, entrepreneurs in the survey wish they had invested more money to market their businesses.
Looking at different years in business, here’s what percentage of small business budgets were devoted to marketing and what owners wish they had spent:
- Year 1: Marketing was 7% of budget; they wish it had been 28%
- Years 2-4: Marketing was 13% of budget; they wish it had been 25%
- Years 5-9: Marketing was 7% of budget; they wish it had been 16%
- Years 10-19: Marketing was 5% of budget; they wish it had been 23%
- Years 20-plus: Marketing was 11% of budget; they wish it had been 23%
More than half of companies surveyed have revenues of $1 million and up. Can you imagine where they’d be if they had invested more money in marketing?
2. They should be ready to find financing.
Even though small business owners in the survey are happy to reinvest in their businesses and even contribute their own savings, they shouldn’t rule out the need to get outside financing. Most small business owners in the study say that at some point, they needed working capital to grow. Specifically:
- In their first year, 38% of companies borrowed capital.
- In years 2-4, 29% of companies borrowed capital.
- In years 5-9, 17% of companies borrowed capital.
- Years 10-20-plus, 14% of companies borrowed capital.
Don’t assume you can finance all your business’s growth needs internally from cash flow. Be prepared to seek financing from lenders or investors when you need it.
Do you need help figuring out what will make or break your business? SCORE mentorsare here for you.