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Why 80-Percent Of Businesses Fail In The First 5 Years

Oct 16, 2007
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There are three main reasons businesses fail to reach their fifth year anniversary.

* Failure to attract sufficient numbers of qualified prospective clients
* Failure to convert qualified prospects into profitable customers
* Failure to keep existing clients from slipping into inactivity or away to competitors

In a nutshell, each of these reasons contributes to the business running out of cash. Most of these cash flow problems and failures happen because few businesses have marketing 'systems' in place to generate new sales, leads, and profits.

Instead, business owners of failing companies 'wing it' from one day to the next. Hoping the next day will be better than the first.

Winging it almost never leads to more sales. Blindly turning a company over to ad agents for help doesn't work either. Nor does paying a copywriter big fees for a single sales letter. Clearly more is needed.

After many years advising businesses, I've created a unique marketing tool I call the "12 Step Profit Building Plan" to help entrepreneurs increase leads, sales, and profit margins.

Basically the plan is designed to help business owners do three things:

* attract new business
* increase sales to existing clients
* reactivate clients that have drifted away

It may sound unbelievable, but the plan shows how a company can increase sales by 300% by making incremental improvements of just 10% in a few key areas.

For instance by making just 10% improvement in the number of leads, sales conversions, referrals, life-time value of customers, average transaction size, purchasing frequency, and profit margins the cumulative effect is a whooping 304% increase in profits.

Profits and cash flow take a sharp upswing when the business continues to make incremental improvements beyond 10%. For example, 15% improvement in each of the above areas leads to 524% increase in profits. And profits continue to climb sharply like this by making simple improvements.

It saddens me to hear of established businesses going under. This is almost always preventable. I often think to myself, "if only they knew the marketing options that were available to them."

I don't mean this in a condescending way. The problem is few business owners know how to go about increasing profits through incremental improvements. And of those who do, most are too busy 'putting out fires' and dealing with the daily grind of running a business.

I've seen it over and over again. A few years back I was employed as an outside sales rep for a company that sold high-end custom installed software products. I visited hundreds of potential clients door-to-door and by appointment.

Though I was there to sell or support prior software sales, the one trend I noticed in each of those businesses was the companies were swamped with the operation side of their businesses. Very few had time to do any marketing.

Most had gotten caught up in the idea that the reason for their existence is to create widgets, or deal with the daily activities that surround providing whatever is that the companies sold.

Outside of paying sales reps to drum up business or paying for high-priced ads, not one of those companies did any real marketing to existing clients, past clients, or the clients of complementary businesses.

That's a mistake. The main focus, the driving force that keeps businesses alive is attracting and keeping clients and customers. A company doesn't stay alive by producing products. It stays alive and prospers by selling more of the products to more people.

I am convinced the number one reason businesses fail is because of the single-minded 'widget creating' mentality.

In companies that produce physical products you can see a flurry of activity taking place. All of the activity surrounds the production of some item. Twist a knob here. Pull a lever there. Punch in a some codes here or there. And at the end of the day everyone feels the company did what it was 'supposed' to do, create widgets.

Such mindset exists in all types of companies, not just those that produce physical products. The problem is when all activity centers around production or operations, it's easy to fool ourselves into believing we are doing what is in the best interest of the company and its customers.

But the reality is, the business may be struggling financially or falling short of its true potential because not enough emphasis has been placed on market growth.

The first area I look at when advising clients happens to be the least glamorous and least attractive to most business owners: leverage relationships with existing clients.

For some reason I have more resistance here than with any of the other 12 steps for business growth. One business owner was adamant that his clients would leave him if he did any marketing after initial efforts to get them to do business with him in the first place. After much frustration I decided not to help him any further.

That's because I couldn't get him over the hump to see there's more to marketing than running his crappy yellow page ad (that he admitted didn't generate even a single call, ever) or sending out the crappy, 'vanilla' no-offer brochure and cover letter designed by the franchise he bought into. Within a couple of years his company was dissolved. He lost everything.

Another business owner told me he needed to drum up money quickly but couldn't see why bother with leveraging his relationships with the 1200 ongoing buyers he had acquired. It took him several days of reviewing the materials I left with him for it to 'click' that his existing clients are a great source of immediate leverage.

These types of situations are common. Yes, new business is critical for ongoing growth. But for fast income generators I recommend companies start with their current assets. This includes current and past clients. Here are a few ideas:

* create new and profitable point-of-purchase offers i.e. 'Supersize'
* offer limited availability special offers to existing clients
* up sell, back-end sell, down-sell
* establish a frequent buyers club
* create one-time-offers

These are just some of the more than 100 ways a business can increase sales by leveraging relationships they've already established with existing clients and customers.

Some of the things a business owner might try for attracting new clients and customers are direct mail, make smart use of the world wide web and search engine marketing, use persuasive sales brochures, use yellow pages advertising intelligently, and develop joint venture offers with other companies.

This is far from being a complete list. In fact, there are also more than 100 ways to increase leads and attract more new business.

How can a company with a do-it-yourself mentality best adapt these new marketing methods into their business? One way is to find successful case studies and emulate them.

These case studies could be from within the same or other industries. Truly the industry is irrelevant. What matters is the process.

Most business owners think their industry is unique. That their clients and customers are 'different' than other industries. Not true. All humans have the same basic goals, aspirations, and needs. We are all made of the same stuff. What works in one industry will work in another, with slight modification.

Hopefully its obvious most businesses fail, or fail to reach their true profit potential, is simply because the owners failed to put marketing systems in place to insure long-term success.
About the Author
Andre Bell is a Business Growth Specialist and author. Visit his official Business Growth Strategies site for a free copy of his "12 Step Profit Building Plan".
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