If you are starting a business, you are likely to fail. While the exact percentage of businesses which fail within a few years can be disputed, there is no doubt that more businesses fail than succeed.
Fledgling businesses face a thousand pitfalls, but some traps are much more dangerous than others. New business owners have to understand the most common ways they can fail, and prepare in advance to avoid the traps and becoming a thriving, successful business.
Cash Flow Problems
You can talk about passion and great ideas as much as you want, but businesses survive by making money and having a steady cash flow. Richard Branson observed earlier this year that “Poor cash flow is the biggest killer of start-ups” and that even his Virgin Airlines was nearly killed by cash flow issues as a young company. Unfortunately, many businesses create optimistic predictions about how much they will sell, spend money they do not have yet but anticipate receiving soon, and end up in trouble when they do not actually receive said money.
Learning to manage cash flow is a major topic in and of itself, but one of the most important issues is unpaid receivables. Former employees used to receiving a prompt, regular check from their boss can fail to realize that as business owners, they must actively ensure that their clients actually pay them on time. Set a clear policy which incentivizes customer to pay early and imposes penalties for late payments. Above all else, keep a steady amount of cash equivalent to a few months’ expenses squirreled away for emergencies.
Trying to do everything yourself
We read stories about superhuman business owners who work 80 hours a week to get their business to succeed, and conclude that we must do the same thing. But in reality, working 80 hours a week and trying to do everything yourself leads to stress and burnout, especially as CNBC notes that working excessive hours actually makes you less productive in total.
True wisdom is not knowing everything, but rather knowing what you do not know and trusting others to handle those tasks better than you can. Hire skilled workers in areas which you are weak at, and look for ways to automate your business so that you do not have to busy yourself with pointless minutiae. Do not hesitate to give yourself a break now and then, instead of thinking that you must handle every aspect of your business yourself.
Not Having Passion
If you are starting a business to make more money or have more free time, you are a fool. Running a business, even with good delegation, requires a lot of tough work. Even if your business does not fail completely, you will make bad decisions, fail, and have to figure out how to turn an entire ship around from said mistakes. That level of responsibility can wear and break the unprepared.
But if you are actually interested in your product or market, crave independence, and have a history of bouncing back from mistakes, then you have the right mentality. The business in and of itself should be your own reward as opposed to money or free time. Having the right mentality and reasons will keep you going through the hard times and give you the will to succeed.
Not Testing the Market
You may be passionate about your product or market, but do you actually know that anyone else is? CB Insights notes that 42 percent of failed businesses cited “No Market Need” as a reason for their lack of success, and the real percentage is probably higher as startup owners would not want to admit their product was no good.
You do not want to spend countless hours and dollars slaving away for a product which is not worth it, so how can you find out? Surveys and giving away prototypes to interested parties are a good start, but a better idea is to start small by selling your products at a local market. You do not just want people to say they will buy your product. You want proof they will actually buy it.
You can get small success selling products by going to a local market or a self storage facility, but marketing is essential to build a truly successful business. New owners often look down on marketing out of the misguided idea that you do not need to advertise if you have a good product. But the reality is that your business faces a bevy of competitors, which necessitates getting your message out.
This does not mean buying expensive ads on TV. The Internet and social media make it easier for business to advertise, and so set up a well-designed website and Facebook page as soon as you can immediately. Those can be the foundations behind a content marketing strategy which shows that your business truly wishes to help its customers and not just sell them a product.