As an entrepreneur, you're a risk-taker in a free market economy. Unfortunately, the "risk" part of that definition leaves open the possibility that your business could fail. Since that's obviously something that you don't want to happen, it's always a great idea to proactively take steps to limit the risk of failure as much as possible.
Here are seven ways to limit your chance of going under:
1. Have a Clear Business Plan
Your business plan is essentially the roadmap for your business. Without it, you might not be going in the right direction.
For starters, if you want funding for your startup, you're going to need a business plan. This isn't 1999 anymore, when the dot-com craze led angel investors and venture capitalists alike to invest in supposedly hot Internet companies without any business plan. Unfortunately, many of those companies went belly-up, due in no small part to the fact that they didn't invest in proper market research (they would have done that had they created a business plan).
Second, a business plan is a great way to keep your company strategy "on track." Is the latest marketing initiative in line with corporate objectives? You can always check the business plan, which outlines your competition and identifies your target market, if you aren't sure. Likewise, you can use the business plan as your company "Bible" to ensure that you're proceeding according to plan.
2. Know Your Cost Per Acquisition and Your Profit Per Customer
If you've ever watched Shark Tank, you might have seen shark Kevin O'Leary (yeah, "Mr. Wonderful") talk about what he thinks is the most important question every entrepreneur should be able to answer: how much does it cost you to acquire one customer?
If you can't answer that question, then you can't determine your margins. If you can't determine your margins, then how do you know if you're current business model is sustainable?
Make sure you use whatever analytics are at your disposal to understand how much it costs you to earn the business of one customer as well as the profit derived from that customer.
3. Have a Plan to Scale and Delegate
A successful startup can be described with one word: growing.
Unfortunately, though, some companies get into trouble because they grow too fast. That is, they don't plan to scale when demand for their products or services is hot.
Make sure you have the operational infrastructure and strategy in place so that your company can grow if demand escalates. If you've got a rising star on your hands, your biggest problem might be fulfilling orders.
Realize also that, as a leader in your business, you're going to have to delegate to be successful. You might think of yourself as a hero for working 20-hour days, missing your kids' birthday parties, and sacrificing weekends to make the business work. However, to be successful in the long run, you'll need to locate some great talent and delegate responsibilities.
4. Have a Clear Marketing Plan That Is Proven
What are the goals of your current marketing efforts? Is your current campaign in line with your overall marketing strategy?
Those are the kinds of (very important) questions you can answer if you have a marketing plan in place. On the other hand, with no marketing plan, you're shooting without aiming.
Also, make sure your current marketing effort is generating a positive return on investment (ROI). You'll do that by examining analytics and using split-testing to give you a read on which marketing tactics are most successful.
5. Operate With Positive Cash Flow or Have a Clear Funding Strategy
You might be thinking that you have a "long-term" business model and won't be generating any positive cash flow for a quite a while. That's okay if you (and your investors) think your business model is sustainable. Just make sure that you're heading towards a target of positive cash flow farther down the road.
Even Amazon, which is currently disappointing investors with an investment in its business to the detriment of net income, still generates a positive cash flow most of the time.
The reason a business exists is to maximize the wealth of its shareholders. To do that, your business will need to generate a positive cash flow. If it's not doing that now and there's no positive cash flow in sight, it's time to reevaluate the strategy.
6. Have Weekly Meetings, No Matter What
Sometimes, as the leader at your business, you can be so involved with behind-the-scenes work that you lose sight of what's happening on the front lines. That's why it's important that you have weekly meetings and keep tabs with people who are facing your customers most frequently. During periodic meetings, you'll also get feedback about how well the current strategy is working and you can take corrective action if necessary.
7. Always Be Improving, Always Be Innovating, Always Been Hustling
You're never "done" building your business. Your business has never "arrived." You'll never reach a point where you shouldn't pursue growth any further.
Always be looking for some way to expand your product line to another market. Never stop trying to streamline your operations. Constantly look for a better way to build the proverbial mousetrap. Always look for growth hacks and opportunities for expansion.
No matter how good things seem to be with your business, you should always look for a way to make things better. That's how you'll go from good to great.