5 Reasons New Nashville Businesses Fail (And How to Avoid Them)


Music City is booming. Our economy currently enjoys an unemployment rate significantly below the national average (under 3%), retail vacancies are at 3% (meaning space is virtually unavailable), and millions of square feet of all commercial real estate types are due for delivery within the next two years. In addition to our economic and real estate growth, Nashville has consistently benefitted from now-famous population growth. Everyday millennials, families, and baby boomers following their grandchildren move to Music City. Major companies like Amazon, AllianceBernstein, and Ernst & Young have announced locations in Nashville, bringing with them thousands of high-paying jobs to Music City.

Our flourishing economy, plus our rapidly growing population, reads like the perfect formula for starting a business in Nashville. Nashville Guru, a key local news source, constantly covers new restaurants, bars, and other businesses freshly opening their doors. Less advertised, however, are the new Nashville businesses that fail within their first year or couple of years due to one or a few of the same mistakes.

Be sure to avoid these five mistakes that cause new Nashville businesses to fail.

1. Not Enough Parking

Nashville retail space is virtually unavailable (3% vacancy). As a result, new businesses can feel lucky to get a well-positioned, highly visible space at all, let alone achieve seemingly 'cherry-on-top' features such as a certain number of parking spaces. However, the 'build and they will come' philosophy many businesses rely on simply does not work if potential patrons can't access your space by parking their car and walking inside.

Few locations have the traffic from walking alone to support a retail storefront. Even destination centers like the Hill Center in Green Hills has a huge parking garage for its patrons. Despite the rise in ridesharing services and Nashville's push for public transit, cars remain the primary way that Nashville shoppers get around.

Not having enough parking can kill your customer base, kill your sales, and ultimately, cause your new Nashville business to fail. Make sure you have enough spaces for your loyal customers to park.

2. Rent Is Too High

Yes, Nashville's commercial real estate rents are high. However, many businesses make the mistake of overpaying for rent in their space or even purposefully seeking out a higher rent location in hopes of securing higher prices along with the higher rent.

Instead -- consider your actual sales (if you currently have a location and are looking for a new one) or your projected sales without any magical padding you hope to gain from your location. Then, assuming that your location is not potion to triple your sales projections, evaluate whether or not your business can afford the rent that space is requesting.

In other words -- if your office's revenue is projected to hit $400,000k in the new year, don't sign a lease in a premium location for $300k/year in the hopes that being in that space will draw in higher-end clientele and triple your bottom line. Getting the right space is important, but business is won and grown through relationships and high-quality marketing. Don't overpay for space simply because you want to buy a customer base.

That being said, sometimes your business will require a high-rent location in order to be viable. For example, Frothy Monkey on 12 South wouldn't be nearly as successful even one street over. But in their case, 1) their sales figures justified the rent, 2) they have a great real estate team that works to ensure that even on a high rent street like 12 South, they aren't paying above market rates.

3. Not Enough Startup Capital

It is critical -- for a myriad of reasons -- for new businesses to have adequate startup capital in the bank. In a perfect world, every new Nashville business would have 6 months of operating expenses saved up.

Please note that operating expenses is not rent. Rent is a monthly expense that forms a part of your total monthly operating expenses, however, operating expenses encapsulate much more than that. Your operating expenses are your rent, plus employee salaries (including paying yourself a salary), plus utilities, plus insurance, plus materials/equipment, etc. etc. etc. Create a spreadsheet budget with virtually every expense your business will reasonably encounter within the first 6 months of operation. Then have that amount in the bank before you open your doors.

We've seen businesses that have been unable to lease a space because of insufficient financials. Many businesses think that they are failure-proof because they have 6 months of rent saved. While that is a good start, 6 months of rent is probably only enough to cover 2-3 months of operating expenses. In a market as hot as Nashville right now, a landlord isn't going to risk taking their property off the market to lease to a tenant who will default on their lease in less than 6 months.

For the sake of securing a lease and for staying afloat -- have 6 months of operating expenses on hand before you start your new Nashville business.

4. Marketing

In addition to securing a great location and enough capital, marketing is essential in order to drive business. We see a lot of new Nashville businesses that fail because their marketing and brand awareness was not good enough. Take the case of LuLu restaurant in Germantown, for example. They closed their doors in February 2018... less than one year after first opening their doors. Our team enjoys exploring Nashville's restaurant scene and makes a point of visiting new, local restaurants often. Yet, we had not heard of LuLu before they closed.

Use social media, local media press releases, old-school flyers, and a great website to get the word out about your new businesses. In a perfect scenario, your marketing efforts would start months before you open your doors. Create a newsletter sign-up on your website and send interested future customers information and pictures leading up to your grand opening.

5. Improper Build-Out & Space Planning

Finally -- you need a stellar build-out. Problems with build outs and space planning can sink a new business. Customers and clients want to feel good in your space and your space needs to make sense visually and experientially.

We have seen luxury spas cut corners on finishings yet by choosing the wrong contractor, end up with a cheaply made space but an extremely high bill. Don't cut corners... but also don't overpay.

The easy way to solve both of those problems is: carefully vet contractors and get an excellent one. Make sure that you either get your contractor referred to you by peer businesses or that you call up their past references and go see their past projects firsthand to make sure that their workmanship and pricing are both right for you.