Listening to stories of the largest businesses today and the incredible amount of money they make is enough incentive for many people to attempt to duplicate that success. Thousands of business startups occur all over the United States each year but only half of them will be alive five years later. The high business failure rate is often due to five common causes. The good news is that most of these five problems can be avoided.
Making the Decisions Yourself
Few people can wisely handle all the various aspects of a business and do it well. Even when there is a team, some areas of the business are often neglected. It is even more likely to occur if the leaders of the team have never started a business before – regardless of their education. Successful entrepreneurs will make sure that all areas of the business are designated and being fulfilled, including bookkeeping, hiring, product development, marketing, watching social media, and more. A lack of talent or experience can be overcome by getting a mentor who has some successful startups under his or her belt.
Having an Inadequate Business Plan
Business plans are often looked at as being a nuisance today, especially if outside money is not needed. There are differences of opinion, but the bottom line depends on whether or not one can be developed that is actually usable. Taking the time to develop a good one will enable you to think through the information and situations you may face once the business is in operation. Because of the time you spend thinking through the potential problems, you will be better suited to face them when they come. It will even help you to think through problems you may not otherwise even realize could occur.
Marketing needs to be effective and result in conversions within your target market. This requires testing and watching the ROI. It needs to result in a flow of income that will sustain the business and enable it to accumulate enough funds to grow. This will happen if you can use it to grow your customer base.
Creating Only One Product
Technology is developing at an incredible rate today. Products that seem to be high tech today often become tomorrow’s trash. Product development is a must to stay competitive and to know when to stop investing in a product no longer wanted. This requires regular market analysis and watching your competitors. Failure to carefully check the demand for a particular product before launch is the largest cause of business failure – 42% says Smallbiztrends. Kodak is one example of a large company that could have diversified (they invented the digital camera but failed to develop and market it) but did not and went bankrupt.
Watching the Money
According to Smallbiztrends.com, the second highest (29%) reasons why businesses fail was due to running out of cash. This can happen easily if the finances are not carefully watched and a budget established and diligently followed. Reasons for it may include insufficient calculations in the first place, unexpected startup costs, seasonal sales, spending money too quickly, and trying to scale up too soon.
Although the excitement of starting a new business will always be present, the likelihood of small business failure can be reduced by taking the time to do it right. Seeking counsel from a mentor will be very beneficial, but do it before you start. Taking a little more time upfront to ensure business success is worth the investment and it can enable you to join the ranks of successful entrepreneurs.