“50% of all small businesses in UK fail in first 5 years”
“Creative art grads in the UK earn £17K, females earn £12K”– source: Institute of Fiscal Study
“Self-employment in UK has grown by 40% since 2000” – source: RSA
“The average gross income of makers in UK is £23,485” – source: Crafts Council
These statistics don’t make pretty reading for anybody who is thinking about or has started a creative business in the UK or abroad (where the statistics are actually very similar).
Earlier this year I did a major research project for the Small is Beautiful conference in Edinburgh about what makes a creative business successful, and got detailed responses from more than 400 creative professionals.
From this research and from my experience as a creative business adviser, trainer and coach who has worked with 1,000s of creative businesses over more than 15 years, I have compiled this list of 8 reasons why small creative businesses fail, especially in the first 5 years:
1. Lack of direction & vision
Most creative businesses are started because the owner has a love of material, technique or has a special skill or talent. You love making and designing, realise that you are good at it and decide to make a living from it. Or you go to art school, try to get a job, but that’s often very hard or near impossible, and then decide to become your own boss.
Many creatives don’t consider themselves to ‘be a business’.
They don’t like the word.
They don’t associate with it.
The wrong images comes up.
But the reality is that if you want to make a living from your creative talents that you will need to become a business.
Many creatives have become a business ‘by default’.
Because they have a skill and want or need to be their own boss.
They didn’t really set out to become a business.
The metaphor that comes up for me when I work with many small creative businesses is that of a little boat in the middle of the ocean. Happily working along, making some sales, going where the wind is going.
But the problem is that when there is a big wave or a storm brewing, they are not prepared.
And they struggle.
There is no direction.
There is no harbour they are aiming for.
Nobody is really ‘in charge’.
From my research into successful creative businesses for Small is Beautiful it became very apparent that successful* creative businesses had a very different mindset from many creative professionals. They really set out to create a successful business:
- They had a very clear financial goal (for the next year and also the medium term future)
- A very clear idea of what they wanted to create with their business (very often they were on a mission, beyond just making money)
- They knew exactly what their definition of success was, and what they were aiming for
- They were very clear about their own strengths and weaknesses, and how to overcome them
- and what they needed to do (in great detail!) in the next 2 – 5 years to achieve their goal.
- They also tended to spend more money and time to learn new skills.
- Also the successful business often created and focused on more commercial products, often working in giftware. They knew their market very well, and created and launched often innovative new products within their niche.
Some of their descriptions were so visual that I could imagine them very clearly.
The participants who had a turnover of less than £15K had far more often very vague goals (if any goals at all); very often mentioned that they ‘didn’t do it for the money’ (very few of the successful businesses don’t either!); and more often had ‘fantasy’ dream income targets (far more likely to mention round figures like £500K or £1million, without a clear idea of how they would get there).
It was very interesting to see that high earning businesses were not more likely to have a written business plan, but they did seem to have very clear goals (in their mind, or written down) and knew what actions to take to get their business there.
SUCCESS TIP: If you want to create a more successful business then identify:
- What is your definition of success? What would make you feel proud? (You can read here a previous and very insightful blog post based on my research where 45 other creatives share their definitions of success.)
- What do you want to achieve in the next 5 years? Think in terms of income, product range, partners or clients, innovation and creativity, profile and getting recognition and respect, the space or location you want to work in. Be specific.
- What do you want to achieve in the next 2 years? Create a so called SMART goal (Specific, Measurable, Achievable, Realistic, Timebound), so put a number on it and a date. What do you need to change, create, learn and stop doing to achieve that goal?
- Write your goals down and review them regularly (monthly or quarterly). What is going well? What needs more work? What are the fundamentals in your business that need work? Writing down your specific goals has been proven scientifically to help you achieve them!
- What products can you create that your kind of clients would love to buy? You don’t need to sell out! But starting to understand more about who your clients are can really help you to become more successful.
(For the sake of this research and post I have identified successful creative businesses as those with a turnover of £50K or more. I am very aware that money is only one aspect of creating a successful business (!), but this seemed to be the dream turnover number that most of the research participants were aiming for. Indeed one of the questions was what their ‘dream salary’ would be, and more than half gave £50K as their answer, without being prompted.
It was very clear that the successful businesses very often had broader aims than money, and were very often on a mission to teach others or to employ them, or they had a mission around creativity, recycling etc.)
2. Lack of business & marketing knowledge
Many businesses in the UK are started by people who lack basic business skills. I studied in the Netherlands and in Belgium, and in both countries I was taught fundamental business skills (including accounting/bookkeeping and marketing) as part of my creative studies. If you want to start a shop or work as self-employed in the Netherlands you will need to train and show a certificate that you have these basic business skills. Otherwise you can not start.
In the UK there are no such rules. And indeed, I sometimes wonder if it is too easy to start your own business. Especially when I see people who have taken on huge loans or are in debt.
Of course you didn’t become a jeweller, ceramicist, graphic or product designer to do marketing or bookkeeping (…) but that lack of basic skills and understanding is scary to me.
It will set you up for failure.
I do think that art colleges in the UK should provide a far better grounding in topics such as marketing and bookkeeping to their graduates, throughout their degree. Not just to ensure that their students are better prepared for real life beyond college, but also to create better and more innovative products and services. Knowing your clients and market at a deep level will no doubt help you to become a better designer.
But the new self-employed and business owners also need to take some responsibilities for themselves.
So that your chances of succeeding will massively increase.
Many creatives are against marketing, or scared of it. They believe in the marketing myths.
Say things like: ‘I am not a business person. I am a creative.’
Unfortunately they don’t realise how creative marketing can be!
And that marketing isn’t just about earning money, but that it is about reaching your audience. And especially if you are advocating social, environmental and political issues you will need to learn some basic marketing, so that you can reach your audience, increase your profile and reach, and get your message heard.
Marketing isn’t just an after-thought, that you bolt on once you have created a product or service.
Marketing for me starts with the ideation of the product.
By really getting to understand who your clients are.
What they really want. What their real needs and wants are.
What you are really creating. (Which goes much further than ‘just a product’.)
Creating real value for people.
And knowing what YOU are worth!
Often creatives with limited sales come to me and ask my advice to create a more successful business.
My advice is simple:
Identify who your potential clients are, find out where they are and when they are most likely to buy, and build a relationship with them. That’s how you start to get sales. That’s how you create and grow your business.
Spend time to learn about marketing and getting to know your clients deeply. Create new and creative products that your clients love. Indeed start to spend 40% of your time on targeted marketing to build your profile & credibility with the people who matter to your business. Listen to them, be pro-active and reach out.
That’s what successful businesses do.
SUCCESS TIP: help yourself to succeed
If you want to become a more successful creative business then you will need to make sure that you help yourself to succeed. Write down:
- What do you need to learn about business and marketing? Marketing is much more than spending time on social media!
- What do you need to learn about marketing and sales? Costing and pricing? Branding and photography? Selling online and social media? The Design Trust has many free blog posts on these topics (look at the bottom of this page ‘read more’, and our Business Club members have access to webinars on all these topics too. We also recommend a wide range of books on these topics and other online training providers too. For example the Etsy Handbook has got loads of practical posts for people who want to learn about how to drive traffic, SEO and how to create professional images.
- What do you need to learn about bookkeeping and finance? Did you know that HMRC (the taxman in the UK) provides free videos and webinars on a wide range of tax and bookkeeping topics? Loads of information is available for free. Start to make time to teach yourself the basics and face up to your financial and legal responsibilities.
- Write down 3 specific things you want to learn in the next 3 months, and how this will help you (the latter is to keep you motivated!). Then make 3hours/week available in your diary to work ON your business and learn.
3. The numbers don’t stack up
When I am running workshops online or live with other organisations then very often this is a topic that comes up:
A lot of creatives aren’t really failing, but they aren’t thriving either!
Unsuccessful creative businesses are not creating and selling enough products or services at a price level that’s sustainable.
Many creatives I speak to, and indeed the 400+ I researched earlier in the year, are aiming for a turnover of around £50K (which will give most ‘regular’ product-based business a salary of around £20K – £25K, which would make most creatives very happy. Jewellers and others with a high studio rent or material costs would need to have a higher turnover to reach this salary as their business costs are far higher.)
So how would you make £50K per year?
Often creatives haven’t done the number crunching on this.
This is basic back-of-an-envelope-financial-management.
For example: you could sell 1,000 products at £50, or indeed 50 products or services at £1K. Both of these would generate £50K.
The next questions then are:
- Do you want to make more products at a lower price level, or fewer products at a higher price level? Where do you want to position yourself? What does this mean for your marketing and branding? Do you like selling to rich people or do you want your work to be more affordable? How many people would you need on your database to achieve that amount of sales? What marketing would you need to do to reach your ideal clients? How can you build your profile and credibility?
- What will your job and responsibility be on a day-to-day basis? If you are going for the high end then you will need to provide excellent customer care, and be very good at your job. And have a good dose of confidence too! If you are wanting to sell at the lower end then you will need to outsource very likely, and you will need to work on your online & retail sales to reach more people and sell higher quantities.
- How will you create that amount of products, especially if you would need to produce more than 100? Will you need to outsource? Will your job be more of a designer with good quality control? Or do you need to look at other income streams like licensing to earn more income?
- Why would somebody pay £50 or £1,000 (or more!) for your products or services? Would there be enough people willing to pay that amount? Have you got products or services at these price levels available? What new products or services could you offer to your existing clients?
- Get more creative with who your clients are and how you can get repeat business (the key to any successful business!). Think about interior designers for example, but also licensing and working in partnership.
What I often see is that creatives have got no real plan when it comes to pricing and positioning themselves. They want to sell to rich people, without really understanding what that means and entails.
Another strategic mistake I have seen a lot in recent years is creatives offering products and services in the ‘middle’ market.
The reality is that the middle market is really struggling right now!
If you are trying to get to £50K by selling 250 products at £200 (for example) then you will be struggling more than when you are aiming for the lower end or higher end of the market.
A product at £200 is still a luxury product for many of your potential clients, and it’s too cheap for the high end of the market (who won’t buy because it’s too cheap, and they worry it’s not good enough!). And being able to sell 250 a year means that you need to sell one of these every single day to achieve your financial target!
That’s a tough one to achieve.
Doing financial calculations like this isn’t just about the money and the finances. It’s about how you position yourself in the market, your ideal clients (consumers and trade), your branding, marketing actions, your day-to-day job.
All of these decisions are connected to result in:
What business do you really want to create?
SUCCESS TIP: Are your numbers stacking up?
Write down for yourself:
- What salary do you need to earn in the next 12 months?
- What turnover do you need to get to pay yourself that salary + your tax + all your business costs?
- How will you achieve that? How many products and services will you need to create and sell at what price level?
- What will this mean for you in practical terms of what your responsibilities are, your marketing, positioning, branding etc.
4. Lack of finances
You might be surprised I only mention this one now?!
Many creatives blame the lack of grants and finances on not being able to start or grow their business.
I have found over the years as a creative business adviser and coach that it is actually more the lack of financial skills and understanding that stops businesses from succeeding, rather than lack of finances.
The reality is that there have been very few pots of funding around to start a business. This isn’t due to the recession. This has never really been the case, as most funding went into providing business support or creating marketing opportunities.
In the last couple of years it has become a lot cheaper to start a business.
Especially if you are providing a design service rather than a product, then your startup costs have fallen dramatically. You can work from home often, and all you need is a good computer, software and a good contact list of potential clients. Keep your costs down when you get started, get recommendations and introduction, and get clients, and get repeat business. That’s how you build a successful freelance business.
But of course if you are creating a product-based business you will need to get money to create stock.
But the biggest financial issue is for most new creative businesses is cash flow and underestimating their own living costs. Many creatives ‘forget’ to include their own salary in their cost calculations.
I see a fairly clear pattern in the first 5 years of every creative business:
- First 18 months: expect to lose money, and not be able to earn a proper salary. You are still trying to work out what your talents are, who you are as a creative, and who your clients might be. Your main job is around creating a collection of products or services, starting to find clients and driving traffic to your website.
- 18 – 36 months: You know your USP and niche much better, and have identified better who your clients (consumers & trade) really are. You get more regular sales, but cash flow is an issue as you need to invest and your sales come in peaks & troughs. You are often still not able to pay yourself a proper wage.
- After 3 years you will often find it gets easier as clients start to come to you. You have got a better profile and more credibility. Appropriate & pro-active marketing and taking part in the right events will help. Hopefully you are starting to get more repeat business, and you might get more wholesale income too. But often income is very irregular and unpredictable, so you’ll need to save in the good times and do additional marketing or get clever about selling in the quiet periods, or use your time and energy wisely.
- After 5 years it often gets easier as you are more established, have more confidence, clients know you and will come back. You will know the routine and the flow in the market. You know better what to expect, and what to do and when. You might not necessarily earn more, but you know what to expect.
- Recently I have seen creative businesses over 20 years old struggling as they didn’t manage to adapt to the new market situation, in particular the decrease of market share by galleries, the increase of online sales and competition, and increase in craft and trade shows. (More about this later).
SUCCESS TIP: Face up to your financial facts!
Cash flow is a major issue for creative businesses at all stages of their development, and there are different reasons and different solutions for each stage. Identify new potential income streams (including getting a part-time job elsewhere, which is very common in the first 3 years of running your own business); let go of non-profitable products or services (when was the last time you reviewed which products made money and which one were a loss maker?; and (often most importantly!) increase your marketing to your ideal clients who can get you better or more regular work.
5. Undervaluing & underselling yourself
This is a chronic issue for many creatives who are struggling. In particular women seem to struggle with valuing their work and pricing it appropriately.
It’s partly the lack of financial and basic marketing knowledge that I discussed above, but it often goes deeper than that.
It’s often a mindset issue, more to do with confidence and self-esteem than with financial ability.
But if you don’t value yourself, then who will?
Your price tells a story, and sets an expectation.
Setting your price too low, will make people wonder ‘What’s wrong with it?’ rather than ‘That’s a bargain!’.
Your thoughts, ideas, worries and expectations around money, rich people and ‘selling out’ have a major impact on how you do business, and what you charge for your work.
There are some really good books available that can really help you to tackle this issue:
- Overcoming underearning by Barbara Stanny, one of my most recommended books as it really goes deep into some of our behaviours around money and valuing ourselves.
- How to become a money magnet by Marie-Claire Carlyle – a really practical book by a British author with loads of great exercises to work on your confidence with money.
- Playing Bigger by Tara Mohr, a practical book aimed at intelligent women who ‘play small’.
6. Not selling online (seriously enough)
One of the key observations from my research for Small is Beautiful was that less than half of the creative businesses that I researched that had a turnover of less than £10K sold online.
Of course, online selling isn’t for everybody, and it’s not right for every product.
But, online selling is a major opportunity for creative businesses to raise their profile and credibility, and to sell to clients across the world. It has opened up a lot of opportunities in the last 10 years or so.
One observation from the research was that many of the older creatives (both in age, but also in terms of business age) did not sell online. There might be a training issue here around the lack of technical skills required to sell online, or also an aversion to online selling and what that entails.
I have recently come across various well established designer makers in particular who are in their 40s or 50s who have a very high profile, but whose income has been slipping dramatically over the last couple of years. Especially worrying, as they are getting closer to retirement age.
Against their expectations these designer makers have less sales and commissions, often because they relied heavily on craft galleries (that have decreased in size) and certain craft shows. They aren’t used to having ‘to sell themselves’, and used to have a lot less competition. They might have a very limited social media presence or pro-active approach to marketing. Sometimes their work is well known, and they find it hard to adapt their signature style to today’s market.
The other thing to mention here is that although a lot of creative businesses might have an online presence, they actually don’t work on driving traffic to their website, Etsy shop or other platform.
Earlier in the year I worked for Etsy on an online training programme for new Etsy sellers called Etsy Resolutions, and I observed that many creatives expected that by just opening an Etsy shop the clients and sales would come. They were disappointed and even seemed to blame Etsy.
The reality is that Etsy (and other platforms and your own website too) are just market places that create an opportunity. They are extremely popular and you need to do your best to stand out online, and to be found. It’s up to you to put in the work to get clients to visit your online shop, and then to get them to order from you online.
If you want to be successful online you will need to work on driving traffic to your site, work on your SEO (search engine optimisation AKA how you will be found) and have a strategy to stay in touch with your clients and reach out to potential new clients. Social media can be a great first step in this process, but you will need to create a broader strategy that includes newsletters, events and social media to get online sales.
TOP TIP: Selling online seriously is hard work!
It can be a great start, but you’ll need to put the work in. Expecting to get sales without doing any marketing is just very unrealistic.
- What are you doing in terms of driving traffic to your site? Have you got a database and do you stay regularly in touch with your clients and audience through newsletters, social media and invites to events?
- SEO can be tricky as there is so much competition! Think broader: How will you make sure that people remember your name (that’s the first step if they need to google you!) next time they want to buy a gorgeous creative product? If you are selling on Not On The High Street or Etsy or another niche market place then your key words are crucial. Spend 2hours/week in the next month learning how SEO works (The Etsy Handbook is a great resource to get you started!) and then spend 2h/week implementing what you learnt.
- Email marketing and social media are key too to driving traffic to your site. There are plenty of blog posts on The Design Trust website to help you get started.
7. Over-optimistic about the challenges (in life & business)
You need to be a bit naïve & very positive to start a business, don’t you?
As otherwise you wouldn’t start one in the first place!
Apparently from every 1,000 people in the UK questioned nearly 1/3rd wants to start their own business. Only 3 will actually do it.
There are 101 reasons not to be self-employed, work for yourself or start your own boss.
You probably know them all.
Despite all the financial hardship and insecurity it turns out that the self-employed are happier than employed people. (source: Royal Society of Arts self-employment research)
There is something special about running your own business!
But being prepared for the future and being aware of the risks is useful. And can help to overcome the storms ahead! (Back to our ‘boat in the middle of the ocean’ metaphor.)
In my research for Small is Beautiful I especially looked at key moments in creative’s lives. As so many creatives are sole traders or work mostly by themselves they are particularly vulnerable to changes in their lives.
Some very interesting (and quiet unexpected!) observations came out of this:
- Starting a family had obviously a major impact, often even being the key reason to start working for themselves. But it had two rather opposite effects: either work became very much a lesser priority, or it became a key focus to provide a living for the family (while raising children). Rather a few of the highest earning creatives that I researched had children at pre-school age.
- Also divorce was a very interesting topic, which had a major impact. It seemed to have a bit of a delayed effect, with especially women who were divorced 5 years ago to really start working on their business. Often they had ‘muddled’ along, but now really wanted to show the world what they could do, and create a living for themselves (and their children). One of the most motivated group of creatives are divorced women. And indeed nearly half of the highest earning creatives I researched (over £100K) were divorced. I don’t want to draw any conclusions from that yet, as it might be a chicken and egg situation, but it’s very interesting to note I thought.
Another observation from my research was that the successful creative businesses were more adaptable, and more flexible. They reviewed their plans regularly, and launched new product collections properly.
They had similar challenges as less successful businesses but they seem to enjoy the challenge, rather than use it as an excuse. They realise that running your own business isn’t always straight forward, and that challenges are part of it.
Less successful businesses had more excuses of why they couldn’t create the business they wanted, why they weren’t selling as much. Some had a very rose-tinted, nearly fantasy-like idea of what running your own business would mean. They tended to look backwards more too, from where they came from, rather than what they could do to change their own destiny.
It seemed that there was a mindset difference around what’s hard, and what is challenging, but also what ‘failure’ means.
One great observations was that many successful business don’t think in term of success or failure … they continuously saw the work ahead of them as challenges to learn from and conquer. As something exciting.
Indeed Seth Godin talks about this in his book The Dip, which is something that everyone who starts and runs a business will come across at some point (and oven several times!) but it’s about what you do when the going gets tough that will make you successful, rather than what you do when things are easy.
SUCCESS TIP: Get ready for the future
- Have you had major changes in your life recently? Have you started a family, did your child start school or leave home? Did you or a loved one get ill or have you had any bereavements? Did you divorce? Did you move house or work space? All these life changes will have a major impact on your business, and can be both negative or positive. Take your time and write down what impact they have had on you and your business. Are you looking after yourself well enough?
- Are you planning any major changes in your life in the next 3 years? How will this impact on you and your family? How can you be better prepared for these changes? What do you need to do, change or learn to minimise the negative impact?
- What would happen if you would get ill, or somebody close to you would? Can you afford insurance, or have you got some financial resources or savings to help you? Can you change how you work to accommodate this?
8. Too much focus on being creative & ‘the air sandwich’
As a soletrader you have to wear a lot of different hats and juggle a lot of different responsibilities: you are the creative, but you also need to be the marketing manager, the finance manager, the social media manager, the IT manager, and the tea lady sometimes!
Creatives focus obviously a lot on their creativity and their creative skills. They often spend most of their time on making and creating.
But to become a successful jeweller, ceramicist, interior designer, illustrator, stationery designer … you will need much more than just creativity.
Every day I see creatives who struggle because they spend most of their time on the creative side of their business, and too little time on creating a business.
Especially creatives who have a strong passion or started their business from a hobby seem to struggle with this. They are passionate about the making-part, hear of people who have made it their living, and want to have a go to. I don’t necessarily believe that turning your passion into a business is a good thing. And the approach to making from an amateur point of view is very different from the point of view of a professional creative.
You will need to work ON your business. Be able to think BIG, create a future vision. You need to be a strategic thinker, and work on the future of your business and the fundamentals such as systems, growth, work space, branding and relationships.
You will need to be able to plan and prioritise, know how to get from A to B, and focus on the right things at the right time, as many creative businesses have a strong seasonal element in them.
And you will need to work with a purpose, have a plan in place of what you want to achieve, and stay on track.
Often creatives are good in either thinking big OR working on the detail. Architects are known for their vision, but struggle with the detail. Jewellers are very good with detail, but often find creating a vision or big plan hard. It’s rare that a person can do both.
The result is what Nilofer Merchant calls ‘the Air Sandwich’; there is no or little connection between the strategy and the day-to-day actions. Your future vision is not connected with what you are doing. There are loads of ideas, but they aren’t being executed fully.
Being able to combine your creative & technical skills, with having a strategic overview and future vision, and have a clear direction and accountability is what makes a creative business successful. To connect the dots and create a successful business plan and model is the reason I have created DREAM PLAN DO, which will be launched on Monday 3 October 2016 on Kickstarter.