What makes a successful business?
by Claire Hancock
Everyone deserves the opportunity to earn a livelihood, provide for their family and support their communities. Jobs and economic opportunities are a vital pathway out of poverty. For many people, starting a business of their own can be empowering and life-changing. However, great talent and good intentions are not necessarily a guarantee of a successful business.
What does business
A business is any organisation that makes goods or provides services. There are many types of business. These range from small enterprises owned and run by just one person, through to large companies which employ thousands of staff all over the world. An entrepreneur is someone who sets up a business.
One of the most important aspects of business success is earning a profit. A profit is the money you have left when you have received all of your income and have paid all of your operating costs and loan repayments during a certain period.
Small businesses that do not make a profit will eventually have to close. However, there is a lot more to success than just financial returns.
Some businesses operate as a social enterprise, which creates social as well as financial benefits. These businesses will often accept lower financial returns in order to bring about greater social impact. For example, the company Sanergy uses a business approach to tackle the sanitation crisis in Kenya by making hygienic toilets affordable and accessible in Nairobi’s slums.
Business success is also determined by how ethically a business conducts itself. Businesses can choose to follow environmentally responsible practices and provide fair wages and good working conditions for any employees.
What does a business need
There are a number of common skills and attributes that a successful entrepreneur and/or business will display:
- Motivation and attitude: It takes time and effort to start a new business and begin making a profit. It is important to have a clear understanding of the reason you want to start a business, and the passion and positivity to stay motivated and see the business succeed.
- Business plan: Successful businesses need to have a clear business plan, which gives an outline of the business and how it aims to achieve its goals. It needs to be simple and concise, and to show an understanding of the market (eg who you will be selling to and how many other companies are already selling similar products). It should also explain how the business aims to make money, and over what time period.
- Good record-keeping: In order to understand whether your business is on track for success, it is important to keep good records. These records will help you to manage your business on a day-to-day basis and identify potential challenges that need to be addressed.
- Organisation: Being organised will help you stay focused and complete the tasks that need to be done for your business to flourish.
- Ways of managing risk: Your business can be threatened by unpredictable weather and other forces outside your control. Find out about the likely risks you may face and ways to minimise or manage them (see page 20). This will help reduce the damage they could cause to your business.
- Awareness of competition: Understand the market in which you are operating. There will be other existing businesses that will be competing with you for customers. Be creative and think about how you can make your business stand out from others.
- Consistently high-quality goods or service: Customers want to know that you will provide the same high-quality goods or service each time they visit your business. If you do this, they will be more likely to come to you again the next time!
Why do some businesses fail?
Just having a good idea and motivation is no guarantee of success. Here are a few common reasons why businesses can fail:
- Lack of financial management skills: It is important to keep personal money and business money separate. Business money needs to be managed separately so that you know whether the business is making a profit and running successfully. From this profit you can allocate money for yourself to spend on household expenses, eg food and school fees.
- Insufficient funds: Some entrepreneurs may underestimate how much money they need to start their business, especially as many businesses can take a year or two to get going. Some people may have an unrealistic expectation of the profit they will receive, particularly when starting out, and are therefore forced to stop the business before they have had a chance to succeed. It is therefore important to make a realistic assessment of how much money or capital your business will require, where you can get this from and at what cost. This will be part of your business plan.
- Not understanding the market: It can be tempting just to start the business you have always wanted to do, or to copy what everyone else is doing, without understanding the market and whether it will actually succeed. This is a mistake that can cause failure right from the beginning. To succeed, you need to identify an unmet need or gap within the market that you can satisfy with a product or service from your business.
- Failure to adapt or innovate: Although your business may be successful at first, it is important to stay continually aware of what the market conditions are, whether any circumstances have changed and whether the business needs to adapt or evolve with the new conditions.
- Location: Sometimes it is not just about having the right idea – it is having the right idea in the right place. A bad location can mean disaster to even the best-managed business. Some factors to consider when deciding on location include where your potential customers are, how accessible your location is, where your competitors are located and what sort of space you can rent for your business to operate from.
- Expanding too quickly: Many businesses fail when they try to grow or expand too quickly. If you want to grow your business, it is important to have a plan to manage this process. Make sure the business can keep up with the demand from the growing number of customers. It is also likely that you might not be able to do everything yourself as the business grows, and therefore you will need to think about hiring and training staff to support the business.
- Lack of support or mentoring: Many new entrepreneurs would benefit from mentoring or ongoing support from existing business people or project staff with skills in this area.
Knowing and being able to reduce some of these potential challenges will make your business more likely to succeed – but of course, there is no guarantee! However, if you do fail, it can be a great opportunity to learn from your mistakes and to use these lessons to succeed next time. Studies of successful business owners have shown they attributed much of their success to building on earlier failures. Before his eventual success, Thomas Edison, who invented the lightbulb, said, ‘I have not failed. I’ve just found 10,000 ways that won’t work.’
Claire Hancock is Tearfund’s Global Livelihoods Lead.