Why Most SMBs Fail Within the First Year ft. Clate Mask, CEO of Keap

Why Most SMBs Fail Within the First Year

Chris Ronzio

October 14, 2020

Nearly half of all small businesses (SMBs) fail in their first 5 years – which sounds super overwhelming if you’re a solopreneur looking to level up your side hustle.

But here’s the good news: you don’t have to be part of this statistic. You just have to keep a few key things in mind as you grow.

A few months back, Clate Mask, co-founder and CEO of Keap (AKA Infusionsoft), explained to me why so many SMBs fail. Plus, a few key ways to prevent it.  Here’s what he had to say:

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An unwillingness to give up control

Growing your business to a million in revenue all on your own isn’t impossible. But it definitely isn’t probable. There are outliers. But unless you’re one of the unicorns, you need to understand the road ahead.

And that starts with knowing the typical trajectory of small businesses. That way, you can plan for the growth stages before you hit them. And most of these stages happen around the revenue 1’s and 3’s.

For example, the first $100k is pure hustle and grit. But once most businesses hit that mark, the founder starts making their side hustle a full-time gig. And when they start growing their team, it can be tough to give up control.

Similar shifts happen again at the $300k and the $1M mark. There’s nothing necessarily magical about these numbers. But they provide helpful checkpoints to help make your growth sustainable.

That’s because each of these achievements typically calls for new processes, more people, and a shift in the product offering. And as you approach these numbers, Clate suggests prioritizing 2 things to make sure you aren’t losing leads or good people as you grow.

Really define your process

Clate’s seen it time and time again, everything was going great when it was just the founder burning the midnight oil. But once things speed up, the wheels come off.

“Most small businesses don’t make it because they don’t have good lead generation and lead conversion processes in place,” Clate noted. But he has key advice to make sure businesses don’t get stuck in a plateau just as they start scaling.

The secret to not losing momentum? Prioritizing marketing and sales. But don’t forget to get those best practices documented as your team grows. That way, everyone on your team is doing things the right way, so your business can efficiently generate leads and close sales.

Plus, documenting how your business does what it does sets the foundation for a robust training program. Meaning, you can trust your team to manage client relationships exactly as you would – so you can focus on other aspects of the business.

👉 Learn how to plan and organize your business documentation.

Make your people a priority

A lot of SMBs start plateauing at one of these growth phases. And Clate explained that “if they’re unconscious to these stages, they get stuck or frustrated. And they wonder, we were growing so nicely. What’s happened?

But that’s because the faster a team grows, the harder it is to read the founder’s mind. This often leads to frustration, miscommunications, and things falling apart as quickly as they came together.

And that isn’t just on the founder’s side — employees come to a company because they want it to be successful. And without effective communication, it can be hard to meet expectations or feel fulfilled.

After you’ve invested time in the marketing and lead generation side of your company, spend time focusing on your team. Find the right people, and train them well. That way, you know your business is in good hands, even if you’re not there.

Not every small business is going to require larger teams. And you might be able to rely on contractors or temporary employees to get you through these key phases.

But even if you have a team of 5 contractors, you want them trained just as well as a full-time employee, when it comes to what you do.

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Be open to your product evolving

It’s important to keep your core business offering authentic to your original vision. But as you grow and bring in more team members (and more customers) you may see your offering grow, too.

That’s because, a lot of the time, the services you could deliver when it was just you were a big pull on resources. And your team can’t keep up with the growing demand and maintain a healthy work-life balance. This is where flexibility and innovation come in.

For example, after decades of offering in-depth sales lead automation at Infusionsoft, Clate and his team decided to scale down their product for smaller companies that don’t need all the bells and whistles.

While Infusionsoft is as robust and customizable as CRMs get, smaller service-oriented teams struggled with the advanced nature of the product.

Their spin-off product, Keap, offers the same marketing automation, but in a much simpler, less customizable format. Clate refers to it often as “Infusionsoft Light.” The lower price point also helps small businesses get in the door, so they can grow into Infusionsoft as they scale.

So even though you can’t prepare for everything that might come your way, you can have a plan and pivot, if necessary. That way, it’s more likely that you’ll glide through these growth points, rather than crash.

As a small business owner, staying aware and conscious of these growth points in your journey can make sure you’re one of SMBs that survive these growth stages. And can help you go on to become a leader in their industries.

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