Millennials are starting twice as many businesses as baby boomers, according to a new BNP Paribas report on global entrepreneurship. The average millennial entrepreneur gets started at age 27, compared to age 35 for boomers, and starts an average of 7.7 companies, compared to 3.5 for boomers.
But despite the increasing number of younger startups, the startup failure rate has remained relatively stable for the last two decades, Bureau of Labor Statistics data shows. Since 2012, the number of businesses failing in their first year has hovered at just over 20 percent, roughly the same as in 1994. The number of businesses that fail within their first five years has also remained relatively stable at around 50 percent.
It takes a number of key qualities to make a business succeed, and not every entrepreneur has them. Here are some of the prerequisites you need to lay a foundation for startup success.
Given the high rate of startup failures, having a willingness to take risks is a necessary quality for entrepreneurs. But successful entrepreneurs are calculated risk-takers, not wild risk-takers, according to Babson College business professor Leonard C. Green. Knowing the difference between taking risks and taking calculated risks is the difference between failure and success in business, Green says.
There are two keys to calculated risk-taking. First, do not risk more than you stand to get in return. Second, do not risk more than you can afford to lose. To implement this, you should always ask yourself what you can afford to risk before taking a business step, as well as what you’re willing to risk. This means that when you start a business, you should manage your risk, so that if your venture fails, you still have enough resources to try again.
One way to do this is by starting with a low-risk venture to test your ability to successfully run a business. For instance, you might test yourself with a business that doesn’t require a large startup investment, such as representing a direct sales company like Amway, running an e-commerce microsite or having a part-time consulting business.
One area where risk management is vital is financial planning. Ninety percent of small business failures are caused by cash flow problems, according to Dun & Bradstreet. This may reflect the personal financial habits of small business owners carrying over into the business sphere, as Gallup poll data shows that fewer than one in three Americans prepare a detailed household budget or a long-term personal financial plan.
Successful business financial management requires being disciplined about financial planning. Businesses in the startup phase should prepare financial projections for their first three to five years of operations, with monthly projections for the first year, including income statements, balance sheets and cash flow statements. Startup companies also need a financing plan detailing how projected expenses will be covered while the company is attaining a profitable status. The SBA’s website provides a business planning guide that includes tips for preparing a financial and financing plan.
Making accurate financial projections of anticipated revenue requires good market research. Doing good market research enables you to gather information that is crucial for making accurate revenue projections, such as the size of your market, the going price of competing products and services, and the average annual revenue of your competitors. Market research also helps you define your target demographic and understand your ideal buyer’s profile, both of which are crucial for successful promotion and sales. Start your market research by analyzing your own current and past customers, including in-store buyers, your website visitors and your social media followers.
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