Despite what you might think, 7 out of 10 new businesses are around for 2 years, and 51% of businesses are around for at least 5 years. I bet that is a lot better than what you thought. (Statistics are from SBA.gov) The labor force is on our side so we have many well trained people to pick from. Another point would be that energy prices are at their lowest ever, and getting even lower. After all, America is set to become energy independent by 2035. Due to the banks restricting lending, the only businesses who get started, are ones with great ideas or wealthy backers. However, don’t celebrate yet. Small businesses are doomed and here’s why.
Reason #1 – Long term interest rates are low
According to The Economist, long term interest rates are at an all time low for corporate bonds. This is terrible news for small businesses. I know what the theory says, “low interest rates for companies, means more growth and a better economy€. Perhaps, but this time it is different. Big corporations are the only companies who have access to the bond market. Small businesses have to trot to the bank when they need to borrow money. This is normally not a problem, but it is when the banks aren’t lending. Big companies don’t have a problem raising money, but small business is starved. It is difficult to compete with the big boys as it is, but now they have oodles of cheap cash to solidify their positions. And why wouldn’t they? It is true that big corporations use small businesses, but where would you find the money to invest and expand if a big order comes from those companies with the cash? Big corporations increasingly outsource activities to other big companies, because smaller ones cannot fulfil all their needs. In order to compete, a small business has to out-innovate, reinvent, or do something extremely special to get noticed.
Reason #2 – Regulation, they’ll getcha
Regulation is a big man’s game. I am sure President Obama has good intentions, however he has left a wreck in his wake when it comes to regulations. Now it is left to businesses to pick up the pieces and work around it. Unfortunately for small businesses, we cannot hire a team of 30 lawyers to sift through 1,400 pages of one piece of legislation, let alone the 50k pages of the tax code.
Let’s take Dodd-Frank as an example. I know most of you reading this won’t be a financial institution, but trust me, you have lots of regulations to deal with because of it. Firstly, Dodd-Frank was meant to curb the big bank’s excess and protect the consumer. However, it is so complicated and burdensome, only the big banks can deal with it. Smaller entities have had to sue the federal government to try to survive. Therefore the bigger banks who were the ones playing with your mortgages have just solidified their position. Instead of punishing’ them they have actually helped them to the detriment of their competition. We all know competition leads to better institutions and by getting rid of it doesn’t make any sense. I know a lot of small Forex investors who are forced to keep their money with US brokerages. You got it, a foreign company is not allowed to accept a US citizens money without being registered with the US authorities.
Here is one example (from a list of about 100) that relates to small working businesses. Every organization who takes a transaction above $2,000 is subject to a credit check. Just ask PayPal!
The business taking the money needs to undergo a credit check.
If your credit is bad, don’t bother trying to sell anything above $2,000. All those entrepreneurs who went bankrupt and want to start over are finding that out pretty quickly. I don’t expect you have $100m lying around to lobby your way out of this.
Reason #3 – Marketing is a black hole
Marketing. This is one of the most hocus pocus industries out there. Small business are constantly looking for ways to reach their target market. The only problem is that marketing is extremely expensive so we have to resort to guerrilla marketing tactics. Scammers and thieves love this. Even if you avoid the scams, how can you be sure that it is going to pay off? What avenue do you go down? Radio ads, local TV ads, newspapers, online, cold calling etc. This is a long and lonely road to go down. Everyone is offering you a million ways to improve your business if you just give them your kid’s inheritance.
Small businesses definitely suffer from marketing-itus. Larger corporations simply hire another large corporation to do a mammoth study on who their target market is and then they spend millions chasing them. We don’t have that luxury.
Is there any hope?
These are some of the reasons why small businesses are doomed. We face an era of excessive regulations, tight lending, and too many marketing pitfalls. We are outspent, outgunned, and underrepresented. Is there any hope?
The answer is yes. Of course there is always hope. The answer is personalizing your business’. What do I mean by that? The only marketing material and edge’ you have over larger companies, and the government’s incompetence, is you. We are living in a time where customer support means speaking to someone in India or to three machines before reaching a person. Political correctness has stifled the big guy’s ability to interact with normal people. They are all panicking when they might offend someone. They don’t have the time or resources to give you a personalized service. Some of them do, but most of them don’t.
As a small business you can put some personality into it. Make sure people can reach you. Give them value that they appreciate, and give it to them for free. Go the extra mile with a smile and a follow up phone call, don’t just email them. Call them up and say “Just checking in. How is everything?” Don’t try and sell an after service unless they ask for it, simply be their buddy. They will come back and they will bring friends.
I know what you are thinking “Tell me something I don’t already know. Tell me how to triple my sales. Well, I can do that but…