By Aimee Chanthadavong
The underlying reason why so many businesses fail within five years of start-up is because they fail to plan for the future.
But a nationwide survey conducted by American Express found that almost three in four businesses (73 per cent) have taken actions to future-proof their operations in face of sustained economic uncertainty.
“In a fluctuating economic climate it is important for all businesses, including retailers, to take active steps to ensure their long-term survival,” Jason Fryer, vice president of small business services at American Express, told RetailBiz.
“Australian retailers are increasingly feeling the pressure of strong competition from online businesses that are not constrained by geographic location. This makes it all the more important for retailers to think of business strategies that will help them weather the effects of such competition.”
The research found more than half (51 per cent) of these small businesses looked at reducing their expenditure while the remainder improved their product or service offering (24 per cent), took steps to improve cash flow (17 per cent) and improved their marketing campaigns (16 per cent).
However, while cutting cost has been the most popular future-proofing option it seems to be almost counterproductive. Of those businesses that cut their costs, 65 per cent reported a decline in profits over the past 12 months. On the other hand, the businesses that chose the other options were reaping the rewards.
Fryer said this indicates that a cost reduction mindset is not always conducive to retaining and attracting customers.
“Businesses need to remain agile and adapt to maintain relevance in constantly changing market conditions,” he said.
“This requires investing into the business, in other words, you have to spend money to make money.”
The research also showed businesses established for more than five years were more inclined to resort to safer internal methods of future-proofing, including reducing expenditure than their younger counterparts (56 per cent vs. 42 per cent).
In contrast, businesses younger than five years looked to their markets and were more likely to innovate by implementing or improving marketing campaigns (23 per cent vs. 13 per cent) and adapting their product or service offering to capture more market share (31 per cent vs. 21 per cent).
“Small business is the nimble and innovative younger sibling of large business,” Fryer said.
“While the latter rely on economies of scale and their market share to succeed, what sets small businesses apart is their ability to adapt quickly to changes in customer behaviour and market sentiment.
"Herein lies the success of small businesses. How small businesses go about adapting is what is making a world of difference, as our research shows.”