With half of all small businesses closing their doors within five years of opening, it takes more than just passion to succeed, new research finds.
While being passionate is important, other traits typically end up separating entrepreneurs who succeed from those who fail, according to a study from cloud accounting-software provider Xero. Specifically, prospering small business owners learn from past mistakes, invest in technology, make time for family and friends, and build positive relationships with mentors.
The study revealed that nearly 60 percent of the current and former small business owners surveyed said spending time with family in the evenings is crucial to their effectiveness as business owners, while 53 percent think it's important to keep their weekends free for loved ones.
"Contrary to the stereotype of a harried entrepreneur burning the midnight oil, our research showed that successful small-business owners not only value their personal time, [but also] they view stepping away from work as essential," the study's authors wrote.
To build a business that's sustainable in the long term, entrepreneurs need to ensure the other areas of their life don't get neglected, said Xero U.S. President Russ Fujioka.
"Running a business isn't easy. By taking time out to spend with your family or friends, you often find you return to work energized with a clear perspective on what you need to achieve," Fujioka, said in a statement.
Additionally, successful entrepreneurs aren't afraid to ask for help. The research revealed that one-third of successful small business owners have turned to mentors, family or advisors for support, compared to just 14 percent of entrepreneurs who ran a business that didn't survive.
"Whether it's for expertise or a friendly ear, a supportive community may not only prevent you from feeling like you're in it all by yourself, but [also] help you brainstorm solutions to a problem or give you tips on how to better manage your business," the study's authors wrote. "Working for yourself doesn't mean you have to go it alone."
In addition to keeping their personal lives in order, entrepreneurs must also have a strong hold on their finances, the study found. Of the business owners who blamed their failure on a business issue, as opposed to a personal matter, 65 percent said it was because of a financial reason, such as not enough cash flow, visibility or access to capital.
"My advice is to learn about your cash flow pretty early on, even if financials are not your 'thing,' Emma Lomax, founder of Emma Lomax London, told the study's authors. "It's in the best interest of your new business that you know where your cash comes from and where it's spent."
Marketing also separates successful small business from those that fail. The research discovered that nearly half of surviving small businesses invest money in marketing campaigns, compared to just 20 percent of failing businesses.
The study also found that small business owners have a greater chance to succeed by selling a service. Nearly 60 percent of businesses surveyed that were selling mostly services survived, compared to just 19 percent of businesses that focused on selling products.
Overall, small businesses today rely on technology to succeed more than ever. Nearly half of those surveyed use business apps, with 32 percent using mobile-payment technology. In addition, more than 25 percent are using business-planning tools.
In the end, small business owners need to keep a positive mindset, even in the face of adversity. The research shows that the majority of entrepreneurs are more likely to see failure as a good thing, learn from mistakes and want to try again. Specifically, 71 percent of entrepreneurs who had a business that didn't survive described that experience as a positive.
Matthew Bradley, an investor with Forward Partners, told the study's authors that the way small business owners react to the challenges they haven't anticipated will likely determine their success or failure.
"If you're lucky enough to get it right first time, great," Bradley said. "If you don't, and you learn from it, you'll be greatly increasing your probabilities of success in subsequent ventures."
The study was based on surveys of 2,000 current and former owners of businesses that had 20 or fewer employees in the United States and United Kingdom.