Ensuring small business survival by learning from failure

Story and photo by LIZ G. ROJAS

Starting a business is never an easy step, especially when the odds are stacked against aspiring business owners.

According to a study published on statisticbrain.com, 44 percent of businesses fail within the first three years in operation.

Pyramid Auto Sales on Redwood Road in Salt Lake City.

Pyramid Auto Sales on Redwood Road in Salt Lake City.

The Alpizar family owns Pyramid Auto Sales, a used car dealership that has been operational in Salt Lake City for 18 years.

Silvia Alpizar said in a phone interview that she decided in 2013 to open a second location in Pleasant Grove replicating the business model used in Salt Lake City. She invested approximately $20,000 in preparing the dealership for the opening in August 2013.

As months passed, Alpizar noticed that the Utah County location was different from the Salt Lake City location, especially in the demographics of the clients. In the original location, clients were mostly Hispanic and therefore the advertising centered on that community.

But the demand from the Latino community was close to nonexistent in Utah County. Instead, with two universities in the area, college students made up the new market.

For Alpizar, the momentum of working with young adults held for only a few months.

As summer 2014 approached, students started heading back home.

“Sales dropped and we didn’t have enough money to keep on paying rent or [for advertising],” Alpizar said.

Low sales because of the inconsistent market made money tight for Alpizar. And she said cars weren’t being turned over within the 90-day window that is necessary for dealerships to make a profit.

About 10 months after opening Pyramid Auto Sales in Pleasant Grove, Alpizar was forced to close the business.

Since then, the Alpizar family has focused their efforts on the Salt Lake City dealership and have expanded business into online sales and advertising. KSL is currently one of the many platforms in which sales are promoted and increased.

In January 2015, statisticbrain.com reported numbers on business closures from the U.S Census Bureau. One of the biggest problems businesses faced was not enough cash flow through sales. This was either by underestimating the market, lack of planning or not being able to achieve successful funding.

One organization works to help Utah businesses gain sales by educating the public on the importance of buying local. Kristen Lavelett, executive director of Local First Utah, said that out of every $100 spent at an independent business, $55.40 is returned to the local economy. Conversely, only $13.60 is returned to Utah’s economy when people shop at franchises.

Some residents, such as Armando Castillo, a student at LDS Business College, said if given the choice to buy from a franchise or local business, he chooses local. “I work with locally owned businesses so I try to help them be successful,” Castillo said.

The awareness and education that local organizations are offering the public may help in increasing sales for independent businesses, which in turn increases cash flow.

However, entrepreneurship is no easy task and recognizing that the success of the business itself depends on the entrepreneur makes it no easier.

In the study cited earlier about business failures, the No. 1 cause for small business failure is incompetence, which is defined as lack of knowledge about business, or spending beyond means, etc. This amounted to 46 percent of start-up failures. Other causes included lack of managerial experience and insufficient inventory.

Starting a business is not an easy step. Silvia Alpizar closed her second business even though she has 18 years of experience owning a car dealership.

Extensive market research, financial knowledge and determination are necessary assets for success.

“We weren’t familiar with the market; we feel like we wasted time and money,” Silvia Alpizar said.