Soft Factors and Financing Are Killing Small Businesses

You can’t always predict where things will go wrong, but you can ask for help

Every ship needs a captain.

On May 30, 2017 I had the good fortune of being able to attend a morning lecture series at the Zürcher Kantonalbank’s co-working space on Zurich’s Bahnhofstrasse. Speaking was Beni von Allmen from Verein GO! The non-profit works with the city and canton of Zurich to help small businesses — especially those looking to become self-employed — get access to micro loans of between CHF 5'000 and CHF 40'000. The average today is at around CHF 37'000. The repayment period is 3 years and the interest is fixed at 6.5%.

Mr. von Allmen made the comparison of self-employment being akin to going on a long road trip. You might plan it well, but you can’t predict everything. What spoke to me were some of the statistics and information that he provided which reenforced a previous blog of mine. Soft factors are one of the main reasons small businesses fail. Mr. von Allmen presented the statistics below, which I have annotated.

42% — No demand for the product or service. This is not a soft factor, this has to do with not knowing the market, or failing to differentiate yourself in the market. I started a language school in 2009 and everyone told me that the market was saturated. We eventually grew to 5 teachers for a while. We had a USP — running and language learning. Marathon Sprachen is still around today.

29% — Missing financial resources. This is a big factor because it doesn’t mean a company is not working, but it might limit its growth. Again in the language school, we were able to grow for a bit and then contracted again because demand for classes halted with new laws limiting the number of foreigners being able to come to Switzerland. When we wanted to grow aggressively though, we would have needed to take on debt and we did not know how to do it.

23% — Wrong Team. This is a soft factor. The wrong team doesn’t mean that there is fighting, it means that the people in the team aren’t all pulling in the same direction. It also occurs when expectations are not clearly managed from the start. How many hours, what type of results and in which field are expected? Teams need leaders and there is nothing wrong with being the strong one in a team and having a vision to get people there. A team without a leader will fail as the team crumbles apart. I saw this happen with another firm I helped start. We started off as three people thinking we shared a vision and no one wanting to take on the leadership. In the end, I always felt like I was pulling in another direction. Before we fought and failed though, I realised that I was the one holding the company back and withdrew. Today, the company is doing what the other founders envisioned.

13%—Infighting among the team. Another soft factor. Fighting comes when the team starts to fail. There are many reasons for that. Missing leadership and someone to support others can be one of the reasons, but so too can duelling alphas. If two people try to take on the same leadership role, there will be conflict. Like having the wrong team, this can’t always be avoided. Conflict can arise in almost any company. There are two ways of dealing with it though. Either you work through the conflict together, or the fighting partners go separate ways.

13%—Poor marketing. In today’s age of digital and social media marketing, everyone thinks it’s easy to market yourself and your business. I’ll just say it’s not easy, it’s difficult. Marketing is more than random Facebook posts, a website and times tweets. It requires a deep understanding of what your company stands for, what kind of customers it wants and who the customers are that it has. It also requires a degree of bravery to stand out from the competition. You don’t need to add to the deluge of information, images and noise out there if you have one clear and succinct message. Spend some money to work with professionals and set targets that are more than clicks and impressions, but actual revenue. If I had to make a recommendation right now, I’d say contact PAM.

8% — Burn out. This is another soft factor. Yes, many people think that self-employment is the dream of being your own boss. But what if you’re worse than your boss in the demands you put on yourself? There is a great deal of stress to not always knowing where your next paycheque is coming from and you need to make a payment of that 40K at 6.5%. Being self-employed requires discipline and organisation. But it also requires you to be able to say “no” and to say “help”. If you can’t say those two words, you should rethink self-employment.

If the above list can be boiled down to one single lesson, it would be to get a mentor or even a team of mentors. Someone who can support you when you have questions and who spots potential trouble before it happens. They will also help you with product-market fit and pivoting if or when that becomes an issue. With the right mentor(s) you should be able to resolve conflict, get your finances in order and get access to funding so your business can grow.