People may find the idea of starting a small business intimidating or exciting. The high failure rate of small businesses is countering the lure of being your boss and creating a profitable business. Many studies provide statistics and causes of small business failures. A quick search on the internet will reveal plenty. Although the exact failure rate varies depending on industry and time frame, almost half of the small businesses are still in business within a few years.
This reality begs the question:
What makes survivors successful? Recently, I had the chance to meet with small business owners who own several retail stores. My inquiry was to discover more about the challenges and what factors have contributed to their success and survival.
Factory Direct Trains, an Asheville-based online retail retailer of scale model railways, is based in North Carolina. Factory Direct Trains is a specialized retailer of scale model trains in HO scale and has been operating for six years. The Music Shoppe, located in Harrison, Ohio, on the west side, is a music shop. The Music Shoppe has been in operation for 21 years and sells musical instruments and offers instrument repair and lessons. Three partners originally founded the Music Shoppe. Now, it is solely owned by one of the original three and operates as an independent business. The Practical Outdoorsman is located in Asheville and has worked for two years. It sells outdoor products for hunting, camping, hiking, biking, consignment, and retail.
When speaking with each owner of these businesses, some common themes emerged. These included conservative financing and the avoidance of debt, customer service priority, business differentiation, and the service to a market void or opportunity.
The three businesses were small and slow to start and didn’t go into debt to get their business off the ground. With proper planning, even small retail businesses with little overhead can avoid borrowing money. In one instance, the business owners used their own money and, in another, borrowed money from two of their partners. Savings over financing can offer the advantages of increased personal commitment and the elimination of third-party debt. In some cases, business loans or other forms of funding may be necessary for businesses with higher overheads and fixed costs. Retail, however, can offer greater flexibility depending on the launch size.
The small number of employees contributes to these businesses’ low overhead.
The largest employs four people, including the owner. All three experienced a rapid business growth rate due to no debt. This was directly related to increased sales and revenue. Some interviewees mentioned the reverse scenario, where a business owner (usually a competitor) borrowed money to build a larger company than its market. The debt was not paid off, and the business needed more money for operating expenses.
Each business emphasized its commitment to customer service.
Smaller companies must offer value through other channels due to the rise of online retailing and big discount boxes. They are generally unable to compete in price or selection. Here is where the human factor comes in. Personal selling efforts and relationships with returning customers can win over larger retail options if managed well. For a more personal buying experience, some people will pay a higher price.
All three companies identified differentiation as another important factor. To attract customers, your business must be different. Customer service is a key area for differentiation in the marketplace. The Music Shoppe is separate from larger chains of music stores by offering customer service.
Others differentiation criteria were also mentioned. Factory Direct Trains is a competitor in the scale model train market. The business has a physical location but is primarily an internet retailer. It stands out from its competition by maintaining a sophisticated web presence. Strong and increasing social media connectivity is integral to this web presence. This is a modern model for an old hobby business. Social media participation makes it possible for a small North Carolina company to be easily accessible to customers online from all over the United States and worldwide. As such, Factory Direct Trains’ customer service efforts are dominated by social media.
The Practical Outdoorsman is unique because it offers retail and consignment outdoor gear all under one roof. This business also carries locally made outdoor products such as hunting knives, fishing lures, flies, and hunting calls. These products give The Practical Outdoorsman a local authenticity not found in larger outdoor goods stores.