Taking the plunge and creating a new business from scratch is always a risk regardless of if you are a novice or a veteran entrepreneur. Humans make mistakes and starting a business requires an ever-increasing set of skills such as accounting, technical and marketing and this could go some way as to explain why 9 out of 10 new start-ups do not last for more than two years. One of the most difficult industries to break into and succeed in is the fashion industry. Unfortunately due to a lot of failures, there are common factors we can identify that can kill a business.
- Understanding your competition
Competition is what pushes businesses to improve and innovate; all businesses will have to face their competition at some point in their businesses lifespan (Unless you are extremely lucky and have a monopoly on your industry). In modern times markets can often become saturated with an excess of company’s all selling similar products; what defines a company is how they react to this and differentiate themselves from the competition; what makes you stand out from the crowd? What makes your product innovative and superior? Why should a customer choose you over the other 5 suppliers who sell exactly the same product? This is a continual battle and something you as a new business owner must address.
A simple way to protect your business and products against fraud or copyright is to document the development of your product and ideas, and show the process in full – Register your designs or apply for patents if possible so they are legally protected. If you do this straight out of the gate, it will save any hassle in the future if you have to take legal action against competitors copying your designs etc.
There are other more subtle forms of pressure you may come under from competition; there may be instances where larger companies will actively attempt to stop the progression and sale of your product. These competitors could put pressure on retailers to stop stocking your product – There is not a great deal you can do to stop this, but if you are aware of the potential scenarios, you can have action plans created.
- Failing to maintain a sufficient Cashflow
Cashflow is a vital part of keeping your business running and ensuring you have sufficient funds to satisfy order requirements. Managing your cash flow Is extremely important – Bills must be paid, the stock must be ordered, VAT will not go unpaid and it is also beneficial to have some money kept separately for times of hardship. Hiring an accountant to help keep track of your books and cash flow will be a huge benefit; although it may seem like an additional cost that isn’t warranted, you as the business owner will need to concentrate on its development, therefore, paying someone to manage your cash flow will ensure no mistakes are made and you can put your full devotion into areas of the business that need it.
As a generalisation, most creative minded people are not great at keeping accounts and finances in order; successful fashion companies will employ a dedicated finance individual or team who has an accounting minded brain to perform all bookkeeping duties. Once you have this sorted it will be a priority to keep a strong level of working capital to keep things ticking over, at the same time you have to look at having enough cash flow for expansion. At this point you could consider looking at external finance options; this could otherwise mean you leave yourself short or without sufficient cash flow for the future.
There will undoubtedly be instances where you will have forgotten to account for something, or allowed sufficient funds for a certain area of the business; the business environment and prices are continually changing. Try to ensure you plan ahead and account for any further growth. Understanding your cash flow situation and finances will ensure you are well prepared and can raise finances more effectively. Finally remember that raising funds can sometimes take longer than anticipated so do no leave it to the last minute to sort.
- Holding too much stock
It is hard for new business owners to not be naive and in some cases this naivety can be a benefit, however on the flip side it can also be hugely damaging. In the fashion industry, it is difficult to gain a fine balance between stock levels and production – How much stock do you need? How many orders have you got to fulfill this week? Do you have too much dead stock taking up valuable capital? In many cases, business owners may simply have unfounded faith in their product and order an excess of stock as they believe they will sell quickly enough. Other reasons for over-stocking could be minimum order quantities, or ordering more than you require to make use of bulk-buying discounts – When this is the case, you have to consider the long-term impact; Yes you may have brought the material at a cheaper price, but if you are not selling the final product, that extra cash you spent for the redundant material could have been used elsewhere to develop new marketing strategies etc. It is important to find a fine balance of stock and work as closely to a just-in-time method as possible.
- Lack of a clear business strategy
A business without a clear strategy will face problems; What do you want to achieve? What short term and long term goals have you set? How will you manage the different aspects of your business? To bring all these factors together and create a smooth running business, you need to use proven tactics together with a small amount of risk. Once you have a solid strategy in place, it is important to stick to and execute it accordingly; how will you make it happen and what will do you to achieve your goals? You can consult this article from Chron, explaining how to design your fashion business strategy.
If you have little to no strategy then you may find that you are not efficient and driven as you could be, and your business could flounder and lose its way. Changing plans and ideas continually can reduce your effectiveness or mean you launch products that are poorly researched for example. By all means, make subtle changes to your overall business strategy to react to economic conditions or a change in the market etc, but keep the overall ethos and mission consistent.
- Your products simply aren’t selling
As with accounting, creative minded people are not always suited to sales – They can easily design a new product or item of clothing, but may struggle when it comes down to actually selling said product. Selling your products is obviously a vital part of creating a successful business – Hire a sales representative; they will have the skills and know-how to move your product and bring in the all-important sales figures.
The person(s) you hire could vary in actual job role – You could hire an external rep that can go out on the road and generate new business, an internal rep who can do cold calling or maintain relations with your existing customers, or even a marketing sales expert who could optimise your online store or create advert campaigns. Ensure your sales team understands the target market, your product and how to reach them in the most effective way. Unfortunately experienced sales personnel cost money, however, the return on investment will be worthwhile when you (hopefully) see the sales flooding in. Nevertheless, we can guide you through this Maker’s Row article, explaining to you how to increase your sales without spending a lot.
- Inability to make decisions
As the proud owner of a new business, you will continually have to make decisions on a daily basis; these could be decisions that could affect your business in a huge way and cannot simply be put to one side. Avoiding making these important decisions during the critical start-up and development phase of a new business could lead to greater problems in the future and also cost time and money.
You may be scared to make a bad decision, however, this is preferable to simply not dealing with an issue at all; if something goes wrong due to a decision you have made, you can immediately look to rectify this and hopefully improve the situation for the future. Not acting at all can leave things to chance, and in the business world, this is a risky way to operate. It is understandable that not everyone is naturally born as a decision maker; if you are not one of these people, then you will have to learn, but as time progresses, your confidence and assertiveness will grow.
Regardless of the problems, you may face, whether its teething problems with your products, lack of funds for expansion or executing a clear business strategy, there is always a way to persevere. A successful business will have everything planned for and will have an abundance of research and information readily available to quickly react to any problems that arise. The more knowledge you have, and the more you understand about what things could potentially cause barriers to your success, the better chance you have of lasting past the second year (Analysis from Forbes).