Metric of Success: Understanding the Fatal 2% Rule

by Danielle Bloom

2 min read

New businesses often struggle to get off the ground, especially during economic downturns, which makes it very important to find a niche to fulfil. Even with exceptional products and top-notch customer service, these burgeoning endeavors often fail to launch due to lacking what it takes to capture just a 2% market share in their industry. Understand and avoid the legendary fatal 2% rule, and break out as a rising star in your chosen field.

Understanding the Rule

The fatal 2% rule states that new businesses incapable of gaining a 2% market share in their industries are doomed to failure. Though that percentage might seem easily doable, a variety of factors can impede new businesses, including lack of resources and capital, multinational corporate or extremely aggressive local competition, and logistics issues that prevent product transport to customers who want it. By understanding the factors involved with market share, you can carefully plan financial considerations, create manageable marketing plans, and find ways to work around transport factors that can sabotage your business before it leaves the gate.

Stay in the Black

Give your new business the boost it needs to succeed with realistic financial planning that accounts for startup costs, advertising, and sales shortages. Having enough working capital to weather the inevitable slump that comes after a grand opening can go a long way to ensuring long-term success, and holding back enough funds to adequately advertise your business keeps your brand in customers’ minds. Consider using a tax-free savings account while putting your business plan together to make sure you have enough cash on hand to survive potential hardships.

Stay Competitive

Aggressive competition from local businesses determined to keep their market share can spell doom for your new business. Many successful businesses have large capital savings, allowing them to drop prices to knock the competition out before it begins, and multinational corporations often lobby government for entry barriers that protect their market share. Stay competitive in difficult markets by offering goods and services that your competitors don’t. For instance, create a social media presence that lets you connect directly with potential customers for a personal touch, or make how-to videos that put your special skills and talents on display. While competitors might offer lower prices and have the advantage of long-term patrons, you can work around those obstacles by providing customers with personal service that makes them feel good about their purchases.

Stay Flexible

In today’s internet economy, even lean e-commerce businesses can grow quickly without tapping local markets, which can help if you operate in an area where old-school brick-and-mortar businesses have the advantage. Working with a wholesaler can help get your product in front of a diverse array of retailers and reduces any logistics issues that might hinder your success, and drop-shipping options that let you send your products to another business for distribution can reduce issues if you live in an out-of-the-way area. Starting a new business often proves challenging if you don’t plan ahead for the bad times. By taking control of your finances, marketing, and sales from the start, you can help avoid the fatal 2% rule and grow your new business into a seasoned, successful enterprise.

References & Resources

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