One of the most common reasons that small businesses fail is because there’s no market need for their services or products. This may seem like an obvious pitfall to overcome, and yet according to a CB Insights survey, this problem sinks 42% of small businesses that fail. Why? Because most small business owners don’t want to admit they need to tweak their business model.
A small business’s vision may be sound, the team they’ve built may be solid, and support in the form of financing may be available, but none of that matters if the company’s strategy isn’t delivering results. You’ll simply tread water until you go under.
There are ways, though, to shift your strategy so you can change what isn’t working while keeping yourself grounded in what you’ve already learned and accomplished. Here are ways you can tweak your business model to keep your business growing:
Pivot your business
The first three methods of tweaking your business model come via Eric Ries’ school of thought on “pivoting” your business, rather than leaping to something new entirely. To pivot is to adjust your strategy while maintaining your end-goal vision for your business, keeping one foot in what you’ve learned while moving the other foot into a new mindset or methodology to see if that works better for your bottom line.
Pivot your product to new customers: The first type of pivot is a “segment pivot,” or taking your existing product and applying it to a new set of customers. You may have originally imagined your product as a B2C product, but it ends up being more popular with the B2B crowd. In order to reach these new customers, you’ll need to change little about your actual product—but likely alter your marketing, positioning, and what you prioritize about the product or service.
Pivot to solve a different customer problem: Another major form of pivoting is known as a “customer problem pivot.” In coming up with your product and finding your target market, you likely had to perform tons of market research and conduct customer interviews to help you figure out what your preferred audience wants. But now that you’re in business, you’re finding out your product doesn’t solve your target market’s problems. In fact, you actually have a better idea of what your market needs, and you can build a solution that better addresses their issues.
This may be a major shift in your business model, but you’ll already have a team in place, plus an in-depth understanding of your customers and how to reach them. Now you can create something people will be willing to buy.
Pivot to zoom in (or out) on a specific feature: Sometimes businesses create great products, but they don’t recognize how valuable one specific feature can be. In fact, some companies accidentally “hide” their winning feature amid a suite of expensive-to-maintain-and-develop additional features, which distract team members and users alike. Other companies create a solid product, but fail to see how related products can help create a more comprehensive solution.
By zooming in or out on a certain feature, a business can refocus its efforts on what customers actually want, rather than insisting customers take the whole offering unnecessarily (or, conversely, settle for a solution that doesn’t meet all their needs).
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Solve cash problems
Moving away from strategy pivots, another major reason that small businesses fail is simple: they run out of cash. The CB Insights survey cites it as the number two reason (29%). It’s imperative, therefore, that business owners examine every possible way to cut extraneous costs before simply assuming the business won’t work.
Shift to a more flexible workforce: One increasingly common way to cut costs while simultaneously boosting productivity is to build a flexible workforce that works remotely. By encouraging team members to work from home, hiring remote workers, moving to a coworking space over a traditional office space, and hiring more part-time and contract workers, you’ll potentially reap the following rewards:
- Increased productivity as workers skip arduous, draining commutes
- Less overhead from renting out expensive office space
- Access to a larger talent pool that isn’t confined by geography
- A leaner, more cost-effective team that you can scale up or down as needed
Play with your pricing model: Businesses are often hesitant to play with their pricing, worrying that too heavily discounting their product will pigeonhole them and not allow them to raise prices again without backlash. Yet pricing and cost issues is the reason why 18% of failed businesses go out of business.
There is a fine but distinct difference between adjusting your pricing and adjusting your pricing model. How are you currently charging your customers? You might find better success—depending on what your goals are for the current quarter or year—if you switch up how you present your pricing to customers.
Different pricing models include:
- Penetration pricing—Offering an artificially low price to break into the market
- Psychological pricing—Pricing your products in ways that are more likely to trigger action, such as charging $5.99 rather than $6.00
- Versioning—Offering three tiers of your product at good, better, and best
- Sandwich pricing—Offering three price tiers for your service, with the intent to drive people towards the middle option
- Competitive pricing—Aligning your prices to what your competitors are charging, and then beating them on other factors, such as customer service
Re-examine your profit model: The question of how much to pay yourself and your team, as opposed to reinvesting profits back into the business, is a delicate and complicated one. As a sole proprietor and entrepreneur, it’s a bit easier to sacrifice your own salary in order to put money back into the business (though eventually you will suffer burnout if you don’t let yourself live). But good luck building a quality team if you ask them to constantly forgo a paycheck for the glory of the business.
Go back to the drawing board and trace your cash flow from gross profit to net profit. How are you using that net profit to grow the company? If you are too worried about maintaining a certain lifestyle, or if you are failing to reward your team and are constantly churning through talent as dissatisfied workers leave, your profit model isn’t working either way and your business will suffer.
Tweak, test, and validate
Making changes to your business in search of growth is never an easy decision. It can be difficult to identify what aspects of your model, strategy, or expenses are holding you back at present. But a good small business is never satisfied with the status quo—tweaking, testing, and validating should always be top-of-mind.
Try one of these methods of change to see if you can validate it as the missing piece of your model—and, if not, move on to the next.
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