The UK is one of the most popular places for startup businesses, but not every new company succeeds. A recent study found that less than half of new UK companies survive for more than 5 years. So how can startups reduce their risk of failing?
The study, from the Office of National Statistics (ONS), found that just 42.4% of UK companies formed in 2013 survived their first five years of trading.
The study also revealed that short term survival rates dipped between 2013 and 2017. 93.5% of companies formed in 2013 survived for more than one year, but this number dropped slightly to 89% of companies established in 2017. The two-year survival rate for businesses formed in 2013 was 75.1%, although for companies starting in 2016, just 68.3% were still trading after two years.
The ONS study shows that startups need to remain vigilant in their first years of trading. The coronavirus pandemic has also made it more important to understand why startups fail, and what actions new business owners can take to reduce the risk of failure.
There are many things to think about when planning to keep your startup afloat. Here are 5 key questions to ask yourself when deciding how your new business can survive and thrive.
1) Have you conducted enough consumer research?
Consumer feedback should be the driving force behind any business. Particularly in the early years, startups need to regularly speak with consumers to understand what they like about the business, and what they think requires improvement. As Bill Gates puts it, “Your most unhappy customers are your greatest source of learning”.
2) Have you invested enough in the right kind of marketing?
Startups, particularly those with a new or innovative service or product to offer, need to invest in the right kind of marketing to raise awareness among their target audience.
The type of marketing used should correlate with consumer research. Does your target audience read print media like magazines or newspapers, or do they prefer digital? Will display advertising capture your target market’s interest, or do they value information through editorial and content?
Startups need to have a solid marketing plan to raise awareness in the early years.
3) Is your business plan working?
We recently posted about writing a business plan. Is everything in your business plan still accurate, or have there been material changes for your company? Are external factors like the economy affecting the business?
If a startup’s business plan no longer offers the right direction, it should be re-written. If the plan is still a good one, but the company is veering off course, it’s important to make the necessary changes to get back on track.
4) Do you have the right team with the right skills?
Do you and your staff have the right skills to grow the business, and to capitalise on business growth? Startups need to have the right team in place to both sustain and grow the business. As the business grows, you can invest in training for your team, or hire additional staff who can add necessary expertise.
5) Is your business flexible enough?
‘Pivoting’ is a phrase you’ll need to be aware of when starting a business. To pivot is to make changes, whether minor or more substantial, to make sure your company has the right model at the right time. Lots of businesses have pivoted in 2020, for example restaurants which have established takeaway services, or high street shops which have added e-commerce to their business. Startups need to be robust, but flexible enough to pivot when circumstances change.
One of the best ways to reduce the risk of startup failure is to be prepared before you start your business. Make sure you have the skills, the knowledge and the insights you need to plan, manage and develop your company. If you want to be prepared, Oxford Business College offers a range of business management courses to help.