The first five years of running your own business is no walk in the park. In fact, only 57 per cent of U.S. manufacturing businesses survive the first 5 years. According to the U.S. Bureau of Labor Statistics, this number dwindles to roughly 36 per cent as the years a business is open progresses. Additionally, 44 per cent of mature micro, small and medium enterprises (MSMEs) are either shrinking or stagnating, painting a clear picture of the realities business owners are up against.
As a business owner, you must navigate a continuously changing market exacerbated by external forces like geopolitical tensions and supply chain disruption, which are largely out of your control. Micro, small and medium enterprises (MSMEs) must also fight to remain competitive against a background of rising business costs, labour shortages, commodity prices, exchange rates and digital illiteracy (a lack of digital knowledge).
How can a business owner position themselves for success in 2025?
With these issues weighing on your shoulders, what must a business owner do to get ahead in 2025? Forbes indicates it comes down to scrutinising your level of productivity—where can you optimise it, can innovation like AI-powered tools help, and how can you improve operations? Additionally, MSME owners must learn from things that don’t work, reframing failures and learning experiences.
American entrepreneur Thomas A. Edison once said, “I have not failed. I’ve just found 10,000 ways that won’t work.” Although giving something a go 10,000 times may sound like an exaggeration, the takeaway is clear – success doesn’t come easily, but if you’re a small business owner, you already know that and are likely nodding your head while reading. It takes grit, determination, perseverance, vision and arguably most critical, operational excellence.
Why is operational excellence necessary? Without it, high levels of productivity are elusive, processes are not streamlined, and you have a frustrated, disengaged workforce on your hands.
Defining streamlined operations: what is operational excellence?
Manufacturing operational excellence is the continuous pursuit of efficiency, quality, and innovation, supported by high digital literacy. It allows businesses to be future-ready, with a foundational digital footprint and growth culture in place. It offers business owners a path towards business success that improves key areas that will ensure businesses can keep their doors open five, ten, or twenty years down the track.
To achieve this, business owners must champion operational efficiency. Within the context of a manufacturing plant, this means promoting smooth production lines, strengthened equipment maintenance, and efficient inventory management, allowing them to be agile and pivot when needed. This is especially critical for small businesses, which are continuously evolving to meet the demands of today’s digital commercial landscape.
Operational excellence promotes best practices that centre around continuous improvement, enabling business owners with modern solutions and agile strategies to empower businesses, especially small ones, to adapt quickly to changes in the digital commercial landscape while consistently delivering high-quality results.
The top 5 reasons businesses close within the first 5 years
McKinsey and Co. report that while many manufacturers struggle with current challenges, “high performers routinely review and reimagine how their business generates value,” underscoring operational excellence’s key significance in the sector.
Based on our data, business closures are tragic and often can even be prevented, yet they happen with alarming frequency. Below, we highlight the top reasons businesses close.
Reason 1 – Operational inefficiencies
Operational excellence has the power to make inefficient processes efficient. It can also address the lack of a qualified workforce that can hinder productivity and increase costs.
Reason 2 – A lack of digital literacy
Digital illiteracy is prevalent within MSMEs, but a lack of knowledge about how to improve your business can cost productivity, time, and, ultimately, customers, profits, and your business if this area is not prioritised.
Reason 3 – Ineffective business planning
Business owners may start out with a clear business strategy, but often, the strategy doesn’t pivot or account for poor financial forecasting, weak marketing plans, and other issues.
Reason 4 – Cash flow issues
Poor cash flow management is a primary cause of business closure for MSMEs and can manifest as insufficient capital, postponed client payments, or over-reliance on credit.
Reason 5 – External factors
Supply chain disruptions, geopolitical changes, economic downturns, and regulatory changes can all be tricky for MSMEs to navigate and address, especially with their small workforce.
How to keep your business up and running for 5 years and beyond
Despite the many challenges stacked against small to medium business owners, business longevity is possible and even probable when specific actions are taken.
INCIT’s revolutionary Operations Excellence Readiness Index (OPERI) can act as a catalyst for the operational success of small to medium-sized manufacturers. Consisting of an “all-rounded” self-assessment, micro, small, and medium manufacturing enterprises can leverage OPERI to increase productivity, fast-track digitalisation, and accelerate growth. OPERI’s key features unlock visibility over improvement areas through a star emblem system used to benchmark against industry peers and reporting with in-depth analysis to highlight areas of improvement.
MSME owners may be unable to avoid external factors affecting business success, but they can improve their operations from the ground up. With data from your OPERI assessment, manufacturing MSME owners will gain instant actionable insights that will drive their digital transformation change, leading to business growth and even an increase in profits.
If you are ready to empower your business with the latest approach to achieve operational excellence, contact us and learn more about OPERI.
