At one time or another, most of us have thought about starting a business. The temptation of being your own boss, making your own schedules, and working for your own company can sometimes be irresistible.
However, launching a new business can be a risky proposition. According to research by the Small Business Administration, only half of new businesses survive for the first five years and only one-third of new businesses are able to survive for ten years.
When you’re starting a new business, the last thing you want to focus on is failure. But the chances of failure fall off if you address the common reasons in the very beginning.
If you want to avoid being one these business owners, you need to know why businesses fail and the ways to prevent it.
- Not having a proper business plan in place: There is a famous saying, “If you fail to plan, you plan to fail.” It’s vital to have a proper plan in place for your business’ success.
If there is no potential business model or strategic guidelines in place, failure may come even if the business idea is good. Hence, research the ways other niche businesses are operating. Develop a foolproof business plan that includes growth and revenue forecasting, strategic marketing, extensive market research, documenting industry trends, and competitor analysis. Also, have an algorithm in place to measure success and stay on track.
A sound business plan that incorporates best practices can help your business stay afloat. The SBA provides resources for small business owners to develop their business plan before they launch their efforts.
- Not managing finances properly: In order to run a business successfully, you must know where the money is coming from and where it’s going, down to the last dime.
Cash flow is the lifeblood of any business. Always keep an eye on cash flow and work closely with the accounts department to maintain the flow. Effective cash flow is the bedrock of business success. A business having a poor or consistent negative cash flow is as good as dead.
Your business may also fail if you lack a contingency funding plan—a cash reserve that you can use in the event of crisis.
- Not valuing the needs of the customers: “There is only one boss; the customer. And he can fire everybody in the company, from the chairman down, simply by spending his money somewhere else.” – Sam Walton
I know plenty of businesses who either don’t understand the needs of their customers or don’t entertain them. Mike had started his own website development business few years back. Nobody had any doubt about his skill sets, his potential, and ideas. But he never paid any heed to the opinion of his customers as he was very much convinced and proud of his designing skills.
Unfortunately, the path Mike had chosen led him nowhere. He had to close his business within a year and half from the date he started.
- Underestimating the competition: As a small business owner, it’s your duty to know your niche, the market, and your competitors very well before you get into the business.
Jonathan was initially into import and export. He was doing well. However, one fine morning he changed his mind and became a wedding photographer, a niche he was very passionate about. He bought equipment worth thousands of dollars—top-notch cameras, lenses, and the best editing systems.
Unfortunately, he had no idea about the market and his competitors. By the time he had entered the market, it was already saturated. There were hundreds of professionals pursuing a single client. Moreover, since he had invested in high-priced gear, he was asking for high fees—much higher than his competitors. Again, since he had no experience, he had no work to showcase.
He failed miserably and couldn’t manage to get a single assignment in the first six months. Afterwards, he sold all his equipment which was mostly unused, and went back to his import business.
Hence, understanding the market and the competition is crucial to set your business apart from your competitors. Think what you can do that is unique and sets you apart from your competitors. See what your competitors are doing and consider what additional value you could offer.
- Not having sufficient knowledge or leadership ability: Your business can fail if you exhibit poor management and leadership qualities. You will struggle as a leader if you don’t have substantial knowledge of the industry, enough experience in making management decisions, skills to supervise employees, and vision to lead your company.
Incapable and unpromising leadership will bring down and affect every aspect of your business, from operations to employee morale, and once productivity is hampered, failure looms large on the horizon.
Learn, research, look for a mentor, get training, study hard—do whatever you can to enhance your skills, knowledge of the industry, and leadership qualities. Look for the best practices of your competitors and see which ones you could apply to your own business.
Finally, small setbacks may come along and cause you to feel defeated, but success is walking from failure to failure with no less enthusiasm.
Author: Patricia Sanders is a regular contributor at Debtconsolidationcare.com