According to Investopedia, 90% of startups eventually fail. 21.5% fail in their first year.
These statistics aren’t meant to scare – they’re just facts and they’ve remained quite consistent over the years. Rather, this just points to a bleak case for starting your own business — especially during these pandemic-stricken times.
With SMEs comprising 99% of enterprises in Singapore, it is all the more important for small business owners to figure out what the future of your small business looks like.
Let’s first tackle the elephant in the room — the business model.
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What Is A Business Model?
Simply put, the term a ‘business model’ refers to how your company plans to make a profit. Business models are important for startups and small businesses because they lay the foundation of how your business will operate in a highly competitive industry. Realistically, almost all industries are highly competitive – so you should plan for it.
Here are 2 simple diagrams to illustrate how a business model can be visualised.
#1 Porter’s Five Forces: A Quick And Easy Tool For Industry Analysis (And Entry Points)
Porter’s Five Forces examines the competitors in your industry in detail. It also allows you to predict how your customers or competitors might behave if they see an upstart like you enter the industry.
Threat Of New Entrants
This describes the possibility and ease of new competitors coming in. Take the e-commerce industry— anyone can set up a Lazada or Shopee account and become a seller.
By bringing down the barriers to entry, platform businesses allow greater accessibility for small business owners to start their business in a low-cost fashion. As a result the market quickly becomes frothy and extremely competitive. This can lead to price wars, especially in the e-commerce industry, where competitors bid down each other’s products and everyone bleeds.
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Bargaining Power Of Suppliers
Your suppliers — the businesses that supply you with the raw material or manpower to perform a task that is related to the building of your products or services — can hold significant sway over how much profit your business makes.
If your supplier is the only one in the world who can make the raw materials that you need to develop your final product, then they can charge you a sky-high fee and that can eat into your margins. If the raw materials you require is readily available, then you have a better bargaining chip.
Bargaining Power Of Buyers
Your customers can also determine how much profit you can make. If you have a huge customer that makes up 70% of your total revenue, then losing that customer might mean your business failing. That customer might also use this to depress prices when negotiating with you. That might frustrate you to no end.
Threat Of Substitute Products
For every product you type into an e-commerce website, you will likely be fed with tons of undifferentiated products that do virtually the same thing. This is an issue that only e-commerce sellers face, but even companies in well-esteemed industries like law and accounting. With tech companies looking to disrupt these slow-moving fields, this threat should not be taken lightly.
#2 Business Model Canvas: A Tool To Quickly Draft Your Business Model
The BMC, or Business Model Canvas, allows you to map out your business model faster than a traditional business plan would. This aims to give you a big-picture view of how your business functions as a whole.
This exercise can be done before you start a business, but you can carry out this exercise from time to time to review your progress and see if you’ve stuck to your plan. Or whether you need to strategise a new plan.
How Can Small Businesses Compete?
It is not a secret that big businesses have an advantage. Amazon has been accused of unfair business tacticsto crush small businesses based on its sheer size alone. One such example as stated by the Wall Street Journal was Amazon cloning and selling of one of its seller’s bestselling products — Pirate Trading camera tripods — and using a series of price wars and suspension of accounts to force small business owner Dalen Thomas out of business within a few years.
Big businesses get bigger due to economies of scale, brand loyalty and ability to shape government policy — these are advantages that small business owners have little of.
In such a fast-changing and cutthroat environment, how can small businesses stay ahead?
#1 Have A Digital-First Business Model
Having a website is no longer a plus, but a necessity — building the right website or mobile app with the right user experience can determine whether your business looks like another Wix website template or is able to take users through an interactive experience online.
Read Also: Shopify VS Wix – Which Platform Should You Choose to Build Your E-Commerce Website
This digital-first mindset needs to be adopted by all stakeholders involved and business activities. Tailoring the right digital channels and user acquisition strategy will determine whether your business can attract the right customers in today’s fast-paced environment.
Finding the right partner or team to work with you to digitise your business will also be key in determining if you can easily make the transition — this is important if you are looking to pivot from your brick-and-mortar business into a hybrid or fully digital one.
#2 Decentralised ‘SWAT’ Teams Of Versatile Specialists
In order to build a business fast, you will need small, competent teams of specialists who are combined in ways that amplify their productivity multi-fold — think “hustler”, “hipster” and “hacker” archetypes — teamed up for specific missions to deliver a part of a product or service.
With remote work now the norm, companies have to empower their employees to grow; putting trust into the fact that even though you may not see them, they are still doing their work diligently.
These teams will not need much hand-holding or supervision on your part as they possess the skillsets in combination to resolve the problem at hand. Top-down, static business models driven by workers in siloes will be quickly overrun by small agile teams working in tandem to achieve an organisation’s desired goals.
As the prevalent powers that be (Amazon) continue to consolidate power, the hope that small business owners have is to form effective partnerships with allies in different industries. Networking needs to take on a new form — cross-industry problem-solving.
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#3 Content Is Queen In The New Attention-Driven Economy
The contemporary business adage “cash is king” still stands — companies need solid financials to weather the storms that come with the uncertainty and volatility that the next decade will likely bring. However, if cash is king, content is queen — educational or entertaining content that will help move the conversation forward about whichever niche you’re in.
Great content attracts attention, and with enough recurring attention, you can drive engagement with your brand that builds credibility. It’s an uphill task though, as content creation requires in-depth knowledge of your field and a willingness to start from 0.
Break down key information about your industry and share what you already know to niche audiences who want to learn about the content you provide and start small. You don’t have to reach everyone and crave widespread attention. You just need to connect with your customers and potential customers. In his TED talk, actor Joseph Gordon-Levitt talked about how craving attention makes you less creative.
By focusing primarily on creating and giving value, you are not bound by the chains of vanity metrics; by focusing on your mission, it will be easier to deliver great value and grow your audience.
Today, it is easier than it has ever been to start a business, but it is also much easier to be outmanoeuvred by monopolistic or oligopolistic big tech companies. Small business owners need a game plan to fight the statistical disadvantage and survive the cutthroat competition that will only intensify in the next decade. This survival starts with changing your business model to suit the demands of the 2020s.
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