The prospect of starting a small business may seem exciting, intimidating or both. This is for a good reason: the attraction of being your own boss and starting a profitable business is tempered by the high failure rate of small businesses. A quick search on the Internet reveals no shortage of studies providing causes and statistics on small business failure rates. Although the exact rate for each study varies by industry and time period, most studies indicate that about half of small businesses remain in business a few years after opening.
This reality raises the question of what makes survivors successful. I recently had the opportunity to speak with a few small business owners, each of whom has a retail window. The purpose of my investigation was simply to learn a little more about the challenges of owning a small business, and more importantly, to learn what contributed to its survival and success.
Factory Direct Trains is an online and in-store model train retailer based in Ashe ville, North Carolina. Factory Direct Trains specializes in HO-wide trains and has been in business for six years. The Music Shoppe is a music store located in Harrison, Ohio, a suburb west of Cincinnati. The Music Shoppe, which has been in existence for 21 years, sells musical instruments and offers an instrument repair service and music lessons. Originally founded by three partners, the Music Shoppe is now the exclusive property of one of them. The Practical Outdoors man, also located in Ashe ville, North Carolina, has been in business for two years and sells retail and consignment outdoor items for hunting, fishing, camping, hiking, biking and canoeing.
In discussions with the owners of each of these three companies, a few recurring themes emerged that were attributed to their success: conservative financing and general debt avoidance, priority given to customer service, commercial differentiation and serving an identified market gap or opportunity.
The three companies started small, slow and deliberate, and did not incur any debt to start their business. Often, small retail businesses with relatively low overhead costs can avoid commercial loans with good planning. Each business owner interviewed started with his or her own money and, in one case, with the money of two partners. Launching through savings rather than financing has the advantages of increased personal commitment, as well as the absence of the debt burden of third parties. Business loans or some form of external financing are often unavoidable in other companies with higher overhead and fixed costs, but retail trade can offer more flexibility in this area, depending on the size of the launch.
The low level of overhead costs for these companies is partly explained by the small number of employees, the largest of whom employs four people, including the owner. The absence of debt encouraged a pace of business growth for all three companies, which was directly related to sales and revenue growth. Conversely, some of the interviewees cited the opposite scenario where a business owner, usually a rival, borrowed money to build a business that was larger than the market it served and, as such, the business was unable to both repay the debt and generate enough funds to cover its operating expenses.
The commitment to customer service was highlighted by each company. The era of Internet retailing and discount department stores makes it imperative for small businesses to offer value in other ways, as they generally cannot compete on price and choice. This is where the human element becomes critical. A personal sales effort and cultivated relationships with returning customers, if well managed, can outweigh the appeal of large retail options. Some people are willing to pay a higher price for a more personalized shopping experience.