Business owners need to be “judiciously passionate” to succeed in their early years

According to the latest business survival rates, 29% of business that were founded in 2020 haven’t made it past the two-year mark.

The lockdowns of 2020 and 2021 may have brought about a widespread entrepreneurial spirit, but now experts have warned against the risks involved with turning a passion project into a viable business venture.

Professor Marco Mongiello Pro Vice-Chancellor, Business and Science at The University of Law (ULaw), comments: “There is a danger when someone starts working on a passion project that they might become unwilling to pivot, or to take on board the feedback needed from clients, suppliers or partners to keep their business relevant and take it to the next level. Of course, if one is happy maintaining a small business this is absolutely fine, as long as it is their conscious choice. However, for growth or even survival in the current economy, business owners need to be able to step outside of their world for a moment and seek to capture and act on the signals they receive from outside.”

Of all businesses set up in 2020, 93% made it through their first year. While this statistic appears encouraging at first, the number drops by more than 20 percentage points to 71% in year two. It is often said the early years of business are the most challenging and these numbers certainly support that theory.

Regionally, Scotland leads way with a higher-than-average survival rate, closely followed by the East of England. Meanwhile, the West Midlands sits significantly lower than the national average, along with Wales and the East Midlands.

Business survival rates by region (2020-2022):

• Scotland – 74.2%
• East – 73.4%
• South West – 72.6%
• London – 72.3%
• South East – 72.3%
• Northern Ireland – 72.1%
• Yorkshire and the Humber – 70.6%
• North West – 70.2%
• North East – 70.1%
• East Midlands – 68.8%
• Wales – 68.2%
• West Midlands – 65.6%

Marco’s advice for early-stage businesses to succeed:

1. Be “judiciously passionate”

Whether people found themselves out of work or simply wanted to change careers, many of the businesses set up in 2020 were passion projects. This is a wonderful thing, as having passion in your product or offering will put you in good stead for success.

However, this comes with a warning. Try not to be so in love with your product that you end up with blinkers on, creating an inability to see flaws or opportunities.

It is vital that as a business owner you can step back and see the bigger picture. Is your product still relevant? Is your pricing where it needs to be? What are you competitors doing?

Leading with your heart is certainly no bad thing, but a good business owners knows when to recruit their analytical mind too. This will enable you to clearly see when new opportunities for growth come your way, and to seize them when they do.

2. Don’t live in a spreadsheet

Many early-stage business owners will stick to their spreadsheets religiously. Of course, this can be an efficient way to manage profit and loss and maintain solid margins, however it shouldn’t be your only way.

When determining pricing for example, a spreadsheet may give you a cost-based number resulting from some simple maths, but you need to analyse what the rest of your market is doing. The number in your spreadsheet may make you a profit, but if your competitors are priced much higher than you are then perhaps you’re missing an opportunity for much larger margin.

Numbers will only tell part of the story, the key is to balance the analysis with external information and your entrepreneurial instinct, too.

3. Be ready to adapt

Things have changed significantly since 2020. This means that while your business plan and outlook may have looked a certain way back then, there is a good chance something will have to change now in order to keep up.

This comes back to being judiciously passionate. Those who are so in love with their offering that they are unwilling to be flexible, will most likely struggle as the markets and their customers change. Those who are ready to adapt and evolve will succeed.