Why your first business doesn’t have to be your last

All new entrepreneurs dream of a successful, thriving business. But did you know that around 20% of new companies fail in their first year? And nearly half don’t make it beyond year three.

These figures are alarming at first, but the reality is that entrepreneurship is a process – like many other journeys in life. In fact, failed entrepreneurs are thought to be more successful the second (even third or fourth) time around.

If you ask other business owners in your life or research success stories online, you’ll likely find that they tried more than once. Steve Jobs, Walt Disney, Henry Ford – all these iconic entrepreneurs failed numerous times before finding success.

These are just a few examples of why your first business doesn’t have to be your last. Below, the company formation experts at Rapid Formations will tell you more about common mistakes new business owners tend to make and how to learn from failure and try again.

Why do so many new businesses fail?

Let’s start by exploring why the businesses failure rate is so high. It’s generally due to:

• Poor planning – Believe it or not, many business owners get started without a thorough business plan. Research and preparation are crucial to maximise your chance of success. They help you identify clear goals and strategies, spot potential challenges and develop a plan of action.
• Insufficient funds – It’s easy to underestimate how much it’ll cost to start a business. Many entrepreneurs invest their savings and don’t take a salary for several months. Without financial backers and an income stream, money runs out quickly in the first year.
• Lack of competitor analysis – It’s impossible to start a business without knowing exactly what you’re up against. Yet many founders fail to gain a comprehensive understanding of their sector and competing brands.
• Over-reliance on a small customer base – Gaining those first few customers is challenging. But once they’ve converted, some entrepreneurs become too dependent on them, making it incredibly risky if they leave.
• Indecisiveness – Business owners need to make decisions regularly. Some are harder than others and require strong leadership skills and decisiveness. However, it’s easy to crumble under the pressure and give up.
• External pressures – Sometimes, the fate of your business can be out of your hands. External factors like economic instability, legislative changes, and natural resources can make or break a startup.
• Psychological barriers – Self-doubt can creep in when things don’t go our way. Some business owners can get overly self-critical when faced with hurdles and setbacks, making it impossible to overcome them.

Have you experienced any of these challenges? Or are you an aspiring first-time founder, worried about what to do if your business doesn’t survive these pressures?

Think of your first company as a test run. It’s all about learning and adapting. If it doesn’t work out, you can always try again. And next time, you’ll be able to come back bigger and stronger.

Starting a business after failure

A failed business isn’t the end of the world. It’s painful and frustrating that your plan hasn’t worked out but think how much wiser and better equipped you’ll be next time. Here are our top tips for starting a second business:

Accept failure

First, acknowledge what’s gone wrong. There is no use denying failure; you’ll need to face it head-on to learn from your mistakes.

Equally, don’t fixate on blaming yourself or others. Simply accept that things didn’t work out. Acceptance will allow you to analyse what went wrong and why, and what you could’ve done differently.

Take a break

Try not to jump straight back into starting another business. Take the time to reflect and recharge. You could go back to work for a while, take up a new hobby, travel, or simply spend time with your loved ones.

Taking a break between ventures is a healthy way to regain your confidence and motivation and go into your next business with a clear head.

Find a new business idea

Depending on why the first business failed, you may need to come up with a new business idea. Conduct research into the field you’re interested in and try and spot any gaps in the market.

If you’re struggling to come with an idea, think about any problems or inconveniences you experience in your life – the solution to those problems could make an excellent business. Either way, choose a business idea you’re passionate about; something that motivates you.

Reassess your finances

A failed business will impact you financially in some way. You may have poured all your savings into the first venture or taken out a loan that you still need to repay.

It’s crucial to evaluate your finances wisely before starting another business and make sure you can afford not just to fund it but support yourself in the early stages. This is especially important if you have a family or other dependants to support.

Trade as a limited company

Did you start your first business as a sole trader? Try setting up a limited company this time. You might find it easier to build consumer trust as a registered and regulated business.

You’ll also benefit from:

Limited liability – A company is a separate legal entity from its owners. This means your personal finances will be distinct from the company’s, protecting your personal finances from potential losses.

Tax efficiency – for instance, you can claim a range of allowable expenses and pay Dividends Tax over Income Tax (which is charged at a lower rate).

Greater access to funding – lenders generally find registered companies more trustworthy than unincorporated business, which could improve your access to startup funding.

Ready to pursue your next business idea?

Regaining strength and confidence after failure isn’t easy, but think of it this way: you’ve gained vital experience and learned valuable lessons that will only put you in a more powerful position next time.

If you’re ready to set up a company again, get in touch with Rapid Formations. They’ve been incorporating businesses and guiding entrepreneurs for over 10 years. Their experts can help you with registration, scaling your startup, legal compliance, and more.