How Long It Takes for a Small Business to Be Successful: A Year-By-Year Breakdown
Most small businesses take at least 2 to 3 years to be profitable and become truly successful once they’ve hit the 7 to 10 year mark. Most small businesses take years to be successful, despite the overnight success of companies like Facebook. Statistics show that successful small businesses are built over years, not months, according to Forbes.
In this article, we’ll cover:
Small businesses have fairly predictable patterns of growth in their early years, according to Startups.co. They face similar challenges and successes. Unfortunately, the overnight success of businesses like Uber are the exception to the rule. It’s also important to note that success means different things to different owners.
Below, we’ll look at the first few years and what markers of success a small business may find in each one.
Though year one is full of financial struggle as you try to get your startup off the ground, it can be full of small successes as well and rewarding experiences.
Owners can celebrate all the hallmarks of starting a new business like incorporating, launching a website or getting some media attention. Growing your client list and realizing you can pay your personal bills thanks to your startup are other exciting successes you can celebrate in your first year, according to Entrepreneur.
Still, these initials successes aren’t necessarily signs your business will succeed over the next few years. It does mean that you’re starting off well. And it’s important to note too that about 20 percent of small businesses fail in their first year. So if you made it through year one, that’s reason to celebrate alone.
Year two is when the initial successes of year one start to pale in the face of cash concerns. Your savings are probably tapped, your credit card might be maxed out and owners will start to have to borrow more, creating stress around mounting debt.
This is the year when small business owners realize that their early customers aren’t necessarily long-term customers. And that successfully starting a business isn’t the same as running a business that’s successful for the long haul.
Success in year two becomes about hitting growth milestones—even small ones. If your business is growing, you’re on the road to building a viable company, according to Entrepreneur. Year two is when you should see your client list really expanding.
Success at this point may mean breaking even or making a profit. That said, a fully profitable and sustainable business is probably another two to three years in the distance.
At this point, success may be knowing you have a great business idea and that you’re willing to push on for the next couple of years to see it reach fruition.
Or success might mean knowing either your business isn’t sustainable or that you’re not willing to continue working at such a gruelling pace—and that’s okay. If closing your business is the best decision for you, then that’s just fine. A healthy long-term business is never a guarantee for even the fastest growing companies.
If you do choose to hang in there, success in year three is definitely fine-tuning all areas of your business, according to Inc.. Figure out what areas of your business you can grow, recruit a solid team, plan for risk, work on your leadership skills and dive deep into your numbers to see what products or clients are driving your business and where you can cut expenses.
Year Four +
An “overnight success” is usually a company that’s just being discovered after year four. Many businesses that are called an overnight success have actually been around for about 10 years, according to Inc..
Instant success is a miracle not a rule of thumb and small businesses shouldn’t look at them as models of growth. It’s more reasonable to expect lots of mistakes and tiny steps forward, or as Forbes puts it, “failing forward.”
At year four and beyond, a small business can look for the following markers of success:
- Sharper brand positioning
- Effective marketing
- More efficient management team
- Refined process of customer acquisition
- Better product development
- Stronger profit margins
- Figuring out what customers actually want
Successful Business Examples
Walmart is a classic example of how a small business typically grows and becomes successful, according to Forbes.
Walmart was started in 1945 by Sam Walton but it took seven whole years for him to open a second store. Rapid growth took 25 years, until 1970 in fact. It’s now the world’s biggest retailer. Walmart’s story shows that slow growth is completely normal—even successful companies take a long time to get things right.
MailChimp is another example. MailChimp helps small businesses with their marketing. They’re most famous for their newsletter platform. They were founded in 2001 and through slow and steady growth they pulled over $400 million in revenue in 2016.
It was a hard path to success, according to the New York Times. There were many competitors in their space, ones with more funding. Mailchimp succeeded because they were a small business too and understood what their customers wanted. And they worked quickly, adding customizations and new features, all while charging less than their competition.
People also ask:
- How Long Does It Take to Start a Small Business?
- How Long Does It Take to Build a Business?
- How Do I Build a Successful Business?
How Long Does It Take to Start a Small Business?
You can start a small business in three hours, according to Inc.. Although the common perception is that starting a small business is difficult, the administrative and legal tasks required can actually be done quite quickly.
That said, these tasks don’t include some of the deeper work you’ll need to do like finding funding or writing a business or marketing plan. The Small Business Administration has an excellent guide to taking care of these tasks with ease.
Here’s what you can do in three hours to start your business:
- Register your business name
- Apply for an Employer Identification Number (EIN)
- Check what other licences you may need
- Look at your tax obligations and download forms
- Get a seller’s permit if you plan to sell physical products (select by state)
- Set up a business bank account
- Set up simple accounting software and link your new business bank account
How Long Does It Take to Build a Business?
Building the fundamentals of a small business can take about a year but most small businesses take at least two to three years to reach profitability.
It’s also important to note that about 75 percent of startups survive their first year, 69 percent survive the first two years and only half reach five years, according to Forbes. Building your business relies on survival.
How Do I Build a Successful Business?
Building a successful startup relies on working hard and moving quickly while being aware that success can take years, according to Forbes.
Here are some additional tips a small business owner can use to build a successful business:
- Write a business plan. Even if you’re not applying for a loan, writing a business plan will help you in the future by identifying your market and their needs as well as a profitability time frame.
- Limit expenses. Many small businesses fail thanks to cash flow issues. Spend money on what you absolutely need, not on what your competitors have.
- Pay your business, not yourself. Any money you make initially should go into marketing or anything else your company needs. Pay yourself later.
- Be selective. Only spend time on what moves your startup forward and say no to any opportunities (like marketing ideas) that don’t stimulate growth.
- The customer comes first. Do lots of market research and make sure your service or product is solving your target market’s key problems. You shouldn’t be convincing your customers they need your product, you should be making a product they already need.
- Network. Connect to other new business owners or established companies in your field.
- Watch the numbers. Get comfortable with your accounting software and learn what numbers you need to be watching to monitor profitability. This article will show you how.
- Wait for success. Overnight success is a myth. Your startup probably won’t be profitable in the first year, or even the first two to three years. Give yourself enough time to be successful before closing up shop.