The 8 most common reasons small creative businesses fail. With actions to succeed.

“50% of all small businesses in the UK fail in their first 5 years”

“Creative arts grads in the UK earn £17K, females earn £12K”– source: Institute of Fiscal Study

“Self-employment in the UK has grown by 40% since 2000” – source: RSA

“The average gross income of makers in the 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).

In 2016 I was invited by the Small is Beautiful conference in Edinburgh to do a research project 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 25 years, I have compiled this list of the 8 most common reasons 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 of what it means to be ‘a business owner’ or ‘entrepreneur’ come up.

But the reality is that if you want to make a living from your creative talents, 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.

But they didn’t really set out to become a business.

The metaphor that comes to mind when I work with many small creative businesses is that of a little boat in the middle of the ocean. Happily sailing 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 to aim for.

Nobody is really ‘in charge’.

From my research into successful creative businesses it became very apparent that successful* creative businesses had a very different mindset from many creative professionals.

Successful creatives are different.

From the start they had really set out to create a successful business.

They set a financial goal, that underpins their marketing plan.

They have a very good idea who their ideal clients are.

Also, more successful creatives often …

• Have a very clear idea of what they want to create with their business. Very often they are on a mission and have a clear purpose, beyond just making money.
• They know exactly what their definition of success was, and what they are aiming for
• They are very clear about their own strengths and weaknesses, and how to overcome their challenges and what they need to do (in great detail!) in the next 2 – 5 years to achieve their goal.
• They also tend to spend more money and time learning new skills. Including marketing and business skills!
• Also, the successful businesses often create and focus on more commercial products, often working in giftware. They know their market very well, and create and launch original new products within their niche.

Some of their descriptions of what they wanted to achieve were so visual that I could imagine them very clearly. The respondents who had a turnover of less than £15K often had very vague goals (if any goals at all); often mentioned that they ‘didn’t do it for the money’ (very few of the successful businesses didn’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). This vague future vision was clearly one of the reasons small creative businesses failed.

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.

Take action: Get super clear on your business dream, and how to get there

• What is your definition of success? What would make you feel proud? Think about successful creatives or your role models, what have they got or achieved that you haven’t got yet?
• 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), 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 creative businesses in the UK are started by people who lack basic business and marketing 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 your own business.

In the UK there are no such rules and regulations. And indeed, I sometimes wonder if it is too easy to start your own business in the UK. Especially when I see people who have taken on huge loans or are in debt. Is this one of the reasons small creative businesses fail in the UK?

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 far more likely 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, financial management, 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 I also believe that new creative self-employed business owners need to take some responsibilities for themselves.

So that their 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!

Marketing isn’t just about earning money, 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 for creating 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 learning about marketing and getting to know your clients deeply. Create new and creative products that your clients love. 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.

Take action: 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 or check out our one-day online workshops or our Business Club with a wide range of video recordings teaching you practical business tools and marketing tips. We also recommend a wide range of books on these topics and other online training providers too. For example, the Etsy Seller Handbook is available online for anybody and 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 they will help you (the latter is to keep you motivated!). Then make 3 hours/week available in your diary to work ON your business and learn.

Start taking charge of your business and career. Get into action and avoid the reasons that small creative businesses fail!

3. Your 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!

Very often I see a fundamental challenge:

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, 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 and material 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 50 products or services at £1K. Both of these would generate £50K.

The next questions then are:

• Do you want to make and sell 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 very likely need to outsource and you will need to work on your online and retail sales to reach more people and sell higher quantities.
• How will you create that many products, especially if you 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 haven’t got a 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 struggling the most right now!

What do I mean by that? If you are trying to get to £50K by selling 250 products at £200 (for example) then you will be struggling more than if you were aiming for the lower end or higher end of the market.

Why? A product at £200 is still a luxury product for many of your potential clients, but 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, and your day-to-day job.

All of these decisions are connected to result in:

What business do you really want to create?

Take action: Do your numbers stack up? Is your business viable?

Write down for yourself:

1. What salary do you need to earn in the next 12 months?
2. What turnover do you need to get to pay yourself that salary + your tax + all your business costs?
3. How will you achieve that? How many products and services will you need to create and sell at what price level?
4. 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 for 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 are very few pots of funding around to start a business. This isn’t due to the recession, or Brexit or Covid. For many years now most creative business funding (which mostly came from the EU by the way …) went into providing free business support or creating marketing opportunities and events or trade shows.

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 generally work from home, 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 introductions, 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.

The biggest financial issue 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 niche and talents much better and have identified in more detail 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 and troughs. You are often still not able to pay yourself a proper wage.
• After 3 years you will find it gets easier as clients start to come to you. You have got a better profile and more credibility. Appropriate and proactive 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 the increase in craft and trade shows. (More about this later).

Get into action: 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 ones were loss makers? Do you know what your bestsellers are?
• (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 earlier, 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!’.

Take action: Stop undervalueing yourself

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 help you to tackle this issue:

• Overcoming Underearning by Barbara Stanny. One of my most recommended books as it really delves deeply 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 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 or service.

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 15 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 fewer sales and commissions, often because they relied heavily on craft galleries (who have closed down or decreased their sales) and certain craft shows.
• They aren’t used to having ‘to sell themselves’ and aren’t used to having a lot more competition.
• They might have a very limited social media presence or a less 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 platforms.

I worked for Etsy on an online training programme for new Etsy sellers and I observed that many creatives expected that by just opening an Etsy shop the clients and sales would come. They were disappointed and some even seemed to blame Etsy.

The reality is that Etsy (and other platforms and your own website too) are just online marketplaces 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.

Get into action: Selling online is hard work! Do you put in enough time & energy?

To get more online sales you’ll need to put the work in. Expecting to get sales without doing any marketing is just very unrealistic and one of the key reasons small creative businesses fail.

• Are you driving traffic to your website? Have you got a database and do you stay 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 marketplace then your keywords 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 and business)

You need to be a bit naïve and very positive to start a business, don’t you?

Otherwise, you wouldn’t start one in the first place!

Apparently from every 1,000 people in the UK questioned nearly 1/3^rd wanted to start their own business. Only 3 out of 1,000 (!) 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. Not preparing for the future is one of the main reasons small creative businesses fail! Being prepared can help to overcome the storms ahead! (Back to our ‘boat in the middle of the ocean’ metaphor.)

In my research I also looked at key moments in creatives’ lives.

As so many creatives are sole traders or work mostly by themselves they are particularly vulnerable to changes in their personal lives.

Some very interesting (and quite unexpected!) observations came out of this:

• Starting a family had obviously a major impact, often being the key reason they started working for themselves. But it had two rather opposite effects: either work became much less of a priority, or it became a key focus to provide a living for the family (while raising children). A few of the highest earning creatives that I researched had children at pre-school age.
• Divorce was also a very interesting topic which had a major impact. It seemed to have a bit of a delayed effect, with women who were divorced 5 years ago being really ready to 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 groups of creatives is 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 and the numbers were relatively small, but it’s very interesting to note.

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.

Successful business owners had similar challenges as less successful businesses but they seem to enjoy the challenge, rather than use it as an excuse. They realised that running their own business isn’t always straight forward, and that challenges are part of it.

Less successful businesses had more excuses for 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 observation was that many successful businesses don’t think in terms of success or failure … they continuously saw the work ahead of them as a challenge 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 often 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.

Get into action: Are you prepared for change?

• 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 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 got 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 and ‘the air sandwich’

As a creative sole trader, 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 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. That’s one of the key reasons small creative businesses fail.

Especially creatives who have a strong passion or started their business as 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. 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, workspace, 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 to 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 at 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 created DREAM PLAN DO, the planner journal for creatives who want to succeed. It helps you to look at your Big Picture and turn all your ideas into reality. It helps with looking at ALL aspects of your business, from planning and finance to production and marketing. It connects the dots and will help you to turn your idea into a more successful creative business.

Did you find this blog post on the most common reasons small creative businesses fail useful? What is your own experience of starting or growing your own business? Which of the action tips above did you find most useful? Share with us in the comments box below. We love to hear from you!