Small Talk: Start-ups that steer clear of the five fatal traps have got a fighting chance

Will 2016 be the year you finally take the plunge? More businesses than ever before were launched in both 2014 and 2015, but still a survey published by social enterprise group Cause4 last month claimed as many as a quarter of adults in the UK would like to launch their own venture this year.

There is no shortage of help available for those with the nerve to go for it. The Government has ambitious targets for boosting entrepreneurialism and is providing a range of support – including the Start Up Loans scheme, which offers financial backing to new firms and a broad array of advisory services. Private sector ventures are plentiful too.

The truth, however, is that getting a business up and running is the easy bit. Staying in business – and earning a decent living from it – is much tougher. Failure rates remain stubbornly high. Anecdotally, four in five new start-ups don’t least more than three years.

That suggests aspiring entrepreneurs are setting themselves up for disappointment, and in some cases financial hardship.

There is no single secret of success that will guarantee your business makes it. But if you study those ventures that come up short, you’ll find the same mistakes recurring; if you can avoid falling into those traps, you’ll at least have a fighting chance.

First, don’t miss the bigger picture. When you’re involved in the minutiae of launching and then running a small firm, it’s very hard to see the wood for the trees – fundamental questions such as whether there’s a market for your venture, whether you can turn a profit and what you can do with the business next need to be asked almost continually.

Second, you must plan effectively. That means setting clear targets for your business to achieve, with detailed plans for how it will do so. It also means measuring progress against those targets on a regular basis, adjusting your plans where necessary.

Third, you need to understand how to evaluate your business. Far too few owners know exactly which numbers are crucial to their firm. Study your business plan and your trading carefully and you’ll be able to identify key metrics by which you will stand or fall – anything from e-commerce traffic to profit margins. Learn how to measure these in order to work out whether your business is succeeding.

Fourth, be vigilant about cash. There are countless stories about strong firms with great ideas failing simply due to cashflow problems. For example, companies routinely go bust because customers fail to pay them on time. On paper they may be solvent, but without the cash to pay their bills, that’s not enough.

Fifth, don’t stand still. If you’ve turned your start-up into a successful venture, congratulations. But unless you continue to develop the business, it won’t stay successful. That doesn’t mean you have to reinvent the wheel every six months, but you will need to keep finding new customers and exploring new opportunities – or risk rivals copying your business model and crowding you out.

These five common failures may seem simple things, but it is remarkable how many entrepreneurs lose sight of one or more of them. If 2016 is the year you go for it, good luck – but learning from other people’s mistakes will take fortune out of the equation.

Around 1.45 million small firms will be seeking growth opportunities overseas during 2016, according to a survey by the distribution group CitySprint, but 60 per cent are worried that the UK could leave the European Union when the referendum on membership is held.

CitySprint’s survey found small businesses largely in upbeat mood about their prospects for the year ahead, with more than half saying they were in better shape than this time a year ago. Confidence is particularly high in London, where three-quarters of companies are more confident about their future than 12 months ago.

Nevertheless, Patrick Gallagher, chief executive of City Sprint, said the EU membership issue needed resolving sooner rather than later: “While the majority of UK SMEs are confident about 2016, a more challenging start to it looks likely, with EU uncertainty foremost in their thoughts when it comes to making long-term business decisions.

“It’s clear to see that companies would welcome some clarity about our future involvement in the European Union, and the last thing they will want is a drawn-out process around the referendum.”

The ability of small businesses to gain access to finance improved markedly last year. Research from Albion Ventures shows 44 per cent of firms applying for development finance were successful during 2015, up from 27 per cent in 2014.

The figures suggest the most common reason for seeking finance was a desire to invest in new equipment, which is how 29 per cent of companies used the money. A further 26 per cent invested in developing new products and services, but just one in ten put money into research and development.

Patrick Reeve, managing partner of Albion Ventures, said other issues were now taking centre stage with many small firms: “Concerns about access to finance have given way to shortages in skilled staff and insufficient management expertise.”

“It is a hugely optimistic climate,” he added, “and we should be encouraged by the revelation that such a high percentage of firms are looking to raise finance to grow and innovate.”

“The inspiration for this business actually came out of the failure of my previous venture. I’d launched a business in Athens and then moved to New York. When that business didn’t work out, I needed to move a whole bunch of computers and other materials back to Athens, but I couldn’t find anyone to tell me the best way to do it – let alone to just sort it out for me. That struck me as a business opportunity.

“We began looking into what we could offer and very quickly realised that the UK was the place to start, since it represents Europe’s biggest parcels market. We launched Weengs a year ago; the idea is that you use our app to send us a photo of whatever it is that you need delivering – we’ll then send a courier round to pick it up, do all the packaging, and find the best-value delivery service. For that service we charge £5.

“This is obviously a more convenient way for people to send their goods, but it can also save them money, because we understand exactly how to package items in order to secure the cheapest prices from the shipping companies.

“We’re a relatively young business, but we already have 1,500 active users signed up and hundreds of parcels go through us every day. This is a huge market that’s growing all the time because of developments such as e-commerce. For now, it’s dominated by the big players, notably Royal Mail, but we think there is a real opportunity to break into that by offering more value.”