[caption id="attachment_42582" align="alignright" width="300" caption="Survival rates are shown to decrease for small businesses over time in this graph from the U.S. Bureau of Labor Statistics, though the average number of employees for older companies is higher."][/caption]
Older small businesses are less likely than new companies to have an updated strategic plan, an oversight that North Bay advisers say puts them at higher risk of becoming less competitive or folding in a fast-evolving economy.
Those advisers blame a number of factors that cut across industries, including the sense of economic uncertainty confounding long-term planning and business owners who think they can stick to a business plan that worked in the past.
The risks of not frequently revisiting a business plan for a small company loom large. At best, owners face missing opportunities — at worst, an outdated strategic plan can lead to a preventable death blow.
“New businesses -- they’ll go through the process. What’s happening now in our ever-changing markets is that you can have somebody who was a great restaurant three years ago, but because of the needs of their target market, they’re no longer playing. They need to reinvent themselves,” said Elizabeth Pratt, director of economic workforce development at the Small Business Development Center at Napa Valley College.
Those businesses, which the U.S. Small Business Administration describes as “an independent business having fewer than 500 employees,” involve approximately half of the country’s workforce.
Only 26 percent of small businesses survive longer than 15 years, according to the Bureau of Labor Statistics.
That rate is the product of many factors, but Ms. Pratt and others said that a common failure to update a business plan affects the curve significantly over time.
At many of those companies, owners are simply too engrossed in the day-to-day operations of the business to revisit their strategic plan, much less look back at it throughout the year, Ms. Pratt said.
That is despite a bundle of high-profile, unexpected events that, seemingly overnight, have hit bottom lines throughout this year. International crises like the Japanese earthquakes and the Arab Spring have raised prices for fuel and products, adding pressure to even the smallest of small businesses and highlighting the importance of revisiting a business plan often, said Lorraine DuVernay, director of the Small Business Development Center at Santa Rosa Junior College.
“It’s really hard for small business owners to take their blinders off. It’s not that they don’t want to grow, but as a small business owner, you’re doing so much just trying to make sure that the bottom line stays positive and you make payroll,” Ms. Pratt said.
In Napa, Ms. Pratt said she’s seen firsthand how one factor, changing customer habits, has caused many well-known restaurants to recently shut their doors.
Small business are inherently better than big companies at reacting to market changes, Ms. Duvernay said. Yet as an outdated strategic plan diverges from the reality of the modern business environment, that flexibility might not be enough.
Developing a plan doesn’t take long -- unlike large companies, a small business owner has to deal with “less moving parts” and can start reevaluating their strategic plan later in their business cycle, Ms. Duvernay said.
“When your plan depends on your peak and your valley, a lot of retail businesses need to start planning a year ahead of time. What are they going to carry for the holiday; how much they are going to carry … production businesses have a different cycle,” she said.