According to Gallup, “About 50 percent of new U.S. companies fail in their first five years.” For aspiring entrepreneurs, that statistic can either be a source of anxiety or a source of strength. Building a profitable startup that can withstand the test of time is no small feat, but it is not as daunting a task as the numbers make it out to be.
To set your business up for success, here are five important tips to remember.
1. Measure the market before you build the product.
Entrepreneurs create products and services they think customers will want but, unfortunately, they don't always get it right..
Before you invest too much in an idea that people may never buy, start by validating it. First, survey potential customers to discover what their real pain points are, then build a minimally viable product (MVP) and, finally, see if anyone will pay for it. Once you have properly validated your idea, feel free to scale it.
Turn to crowdfunding platforms such as Kickstarter and Indiegogo to measure consumer interest in your offerings. Serious buyers will put their money where their mouth is and pledge to finance your campaign.
2. Charge what people will pay.
Customers are price sensitive but their reaction to the cost of a product can be counterintuitive. Cheaper goods seem to get more buyer attention, though they are not necessarily viewed in the most favorable light. Other times, more expensive items are a luxury that select buyers are most eager to purchase.
For businesses to stay profitable, they should charge a premium on their goods and services. The price should demonstrate the value the good offers to customers and should include plenty of gross margin to allow a business to invest in further research and development, marketing and customer service.
3. Foster brand loyalty.
Foolish entrepreneurs recklessly abandon established clients to aggressively chase new ones, even though it can cost up to 7x more to acquire first-time buyers than to retain existing customers. Fixation on vanity metrics, such as number of users, can lead to financial ruin when what matters more is how profitable each customer is.
Smart companies instead find creative ways to demonstrate their love and appreciation for their clients. Over time, owners are able to increase a customer’s lifetime value and encourage more organic referrals and positive word-of-mouth. While some managers think of customer service as an expense to hold down, they ought to recognize that brand loyalty must be earned.
4. Leverage the competition.
You will work yourself into an early grave if you constantly try to outdo the competition. By putting in longer hours, spending more money and attempting to steal their customers, you achieve short-term gains at the expense of long-term happiness and growth. Contrary to popular belief, competition helps more than it hurts.
Find opportunities to collaborate with your competitors to increase awareness about your different offerings. Conduct yourself with honor and develop friendly relationships with companies in your industry.
Invest in improving operations and the overall customer experience instead of taking down competitors. You will find that your energy, money and time are spent in a more effective and productive manner.
5. Sleep well, sleep often.
Successful entrepreneurs snooze more and work less. In addition to a full night’s sleep, some of the world’s most admired CEOs also nap during the day.
On the other hand, many startup founders, who boast about how hard it is to grow a business, have a bad habit of bragging about how little sleep they get. Though their sacrifice for their companies is noble, it is a loser’s scenario. You are least productive when you are running on fumes, powered only by caffeine, energy drinks and willpower. Spend more time sleeping to maximize your performance while you are awake. When you get a good night’s sleep every night, you produce better work during a seven or eight-hour work shift than you would during a 48-hour work marathon.
Smart business owners know when their output has declined and it is time to recharge. A good night’s sleep gives you the energy and mental clarity to produce quality work and make sound business decisions that will continue growing your bottom line.