The UK has been established as the best country in the world to scale up a tech business. Supporting statistics taken from a study last year report that “London has accounted for around 80% of all venture capital funding in 2017” with UK tech companies attracting almost 3 times more venture capital investment than any other European country over the past two years.
And with such great backing, you’d assume that 99% of start-up businesses in the UK would flourish into rich, successful multinational organisations. However, statistics infer that this isn’t the case, figures depict how “only 50.1% of companies formed in 2013 endured for three years, 3.6% below the national average.”
Albeit, some thrive. Findings reveal how the highest success rates in start-up businesses are in finance, insurance and real estate with 58% of businesses still operating after 4 years, revealing the top most profitable small-business industries by net profile margin are: accounting, tax preparation, bookkeeping and payroll services.
This reassuringly suggests how certain sectors in London do and can prosper, despite the anxiously-high failure rate.
There are infinite factors to consider when building a start-up, of which are forever developing and challenging businesses. Take the new budget for instance, the privatisation of IR35 and the looming departure from the EU are both concerns for SMEs who fear their businesses may be effected due to labour shortages.
Businesses can also underestimate the value of their location – they deem their brick-and-mortar presence as non-essential, due to operating online and via third party outlets – of which can incur numerous financial implications.
CBI insights, an online machine-intelligence platform, consistently update their databases with startup shutdowns, the recordings being relentless, with the failure of SME’s infectiously rising annually across the years. However, on a positive note, the results are used to find the biggest concerns for SME’s, whilst raising awareness and providing tips and advice for akin startups.
The platform recently announced that numerable startup shutdowns occurred between April ’18 and August ’18, including the Kardashian’s DASH Stories and online social-networking platform StumbleUpon. Both SME’s were forced to throw in the towel early this year, due to an ‘unsustainable business model’. Likewise, food delivery space Chef’d was recently forced to ‘call it a day’ due to insolvency problems. Chef’d’s finale email was sent out to employees and read as follows:
“Due to setbacks with financing, unfortunately we are ceasing operations for all employees, effective today, July 16, 2018. If we had been successful with these funding efforts, this difficult decision would have been avoided.”
Based on the analysis of 101 ‘start-up post-mortems’ the top five reasons for the collapse of upcoming start-ups are: no market need, running out of finance, competition, pricing issues and not having the right team.
Top tips for scaling your business
Conduct market research
Analysis of 101 post-mortem start-ups revealed that 42% of unsuccessful start-up SME’s shut-up-shop, due to a lack of market need, in simpler terms, failing from ill market research. Things to consider when undertaking market research:
Businesses should deliver their product / service in timely fashion. Being overly keen or not fast enough, can hinder the immediate ‘trending’ stage of a business’ service and result in an almighty flop. Sometimes, a business can assume they’re being ‘ahead of the game’ and misinterpret the market, this oppositely repels consumers who are instantly repelled via a lack of understanding.
Identify what’s currently on the market, competitive products, upcoming releases and highlight critical consumer shopping periods of the year, to ensure you punctually hit your target market.
Researching the market and identifying gaps is essential when developing a business model. Businesses should create a product or service that fulfils a purpose and offers a solution: “startups fail when they are not solving a market problem.”
Additionally, businesses should take customer feedback onboard and conduct surveys to redevelop their product, improve user-functionality and to test out their brand awareness. A product’s features may be great, but what do your consumers think?
Testing the product; businesses should develop an MVP before releasing their final product to attain invaluable feedback from users. Receiving constructive criticism from targeted consumers, helps to maximise the product’s functionality prior to final release.
Accumulate investors and manage finances
A number of start-up founders cited a lack of investor either at the seed follow-on stage, or at all throughout their entrepreneurship, as responsible for their business failure.
Yet the digital world is an entrepreneur’s profitable oyster. Start-up directors can acquaint with angel investors via AngelList and LinkedIn and venture capitalists through MicroVentures.
Additionally, businesses can catch an investor’s attention by reaching out online, networking and partaking in crowdfunding events.
However, often from receiving financial investment, founders experience further monetary challenges along the way, such as product / service cost miscalculations and failed pivots. Again, such errors can be avoided by undergoing thorough market research in advance and during early development stages.
Insufficient transaction handling can also ruin start-up businesses. As when SMEs are stretched, they can often misinterpret the need for valid, time-effective, consistent bookkeeping within their business. Taxing transactions can also be a behemoth process for restricted SME’s.
Employing cloud-based bookkeeping software, such as Pandle allows the user to merge all existing bank feeds together, generate business costs, invoice and distribute receipts to contractors / employees, and generate tax on products and transactions. Discover how else Pandle can elevate businesses through effective bookkeeping.
Construct a business plan
Behind the genius of a successful product / service, lies a constructive business plan, not a haphazard mess. Founders must simply outline goals and objectives, employees, price, product, promotion and place, and a step-by-step strategy to enforce disciplined decisions. And not only will a thorough plan help to scale a business through precise measures, but it will also help validate a business owner’s proposal to potential investors / clients whom they may want to collaborate with.
Online marketing
According to NASDAQ, “By 2040, it is thought 95% of purchases will be facilitated by eCommerce.”
Entrepreneurs birth, develop and profusely invest into their business product, whilst often neglecting their marketing strategy in the process. Overly consumed with making their product bigger and better, business owners can fatally be sucked into a market-less maelstrom made up of zero conversions.
Albeit business founders may possess little marketing knowledge, owners must embrace digital marketing strategies in order to grow a product. Having a great business concept is no longer enough, as without online promotion, a product will not be received well, if at all, by mass audiences.
But before insourcing or outsourcing employees, business owners should first grasp digital marketing methods themselves. This will give owners an awareness and understanding of digital techniques and brand identity, for when sourced marketers are implementing campaigns and growing followers online.
Find more help and support for your London-based business in our information centre.