21 Reasons Why 65% of New Business Start-ups Fail?



Entrepreneurship is a way of life that offers unlimited possibilities to those who truly believe in it and live by it. But at the same time, it is a way of life that can totally alter the course of your life if misunderstood. 

When one is starting a new business, the last thing they want to focus on is failure.

According to a research done on small business, only 50% of new businesses survive for the first five years with half of the remaining 50% failing in next first five years. This means that about 65% of new businesses don’t make it to the ten-year mark.

Another research shows that of every 10 businesses, eight fail within the first 18 months.
Whilst failure is a reality for some businesses, you don't have to go through it to learn from the mistakes of others. Not all business exits are failures. More often than naught, some of these failures are because the owners got blindsided by factors they did not anticipate.

Failure is a topic most of us would rather avoid. But ignoring obvious warning signs of business trouble is a surefire way to end up on the wrong side of business survival statistics. Everyone wants success in all their pursuits, unfortunately, that doesn’t always happen.

In this article we are going to look at some of the top reasons why people fail in new business ventures.

What Causes Small Businesses to Fail?

1. Lack of planning
The most important document that any business has is its business plan. A business plan shows what you intend to achieve during the next 12 months and how you plan to do it. Improvised living will give you unexpected results. A simple plan will increase your rate of success.
Having a complete vision of your intentions prepares you to execute them and you will be more likely to flatten obstacles in your way. A comprehensive and actionable strategy allows you to create engagement, alignment, and ownership within your business. It is a clear road-map that shows where you have been, where you are, and where you’re going next.

2. Starting your business for the wrong reasons.
If the reason for starting your own business is to make a lot of money, have more time with your family or maybe that you wouldn't have to answer to anyone else, you had better think again.
You will have a better chance at entrepreneurial success if you opened a business you have a passion, strongly believe in and love for what you will be doing.  You need also to be physically fit and possess the needed mental stamina to withstand potential challenges, possess the drive, determination, patience and a positive attitude.

3. Insufficient Capital
A common fatal mistake for many failed businesses is having insufficient operating funds. Business owners underestimate how much money is needed and they are forced to close before they even have had a fair chance to succeed. They also may have an unrealistic expectation of incoming revenues from sales.
It is imperative to ascertain how much money your business will require; not only the costs of starting, but the costs of staying in business. It is important to take into consideration that many businesses take a year or two to get going. This means you will need enough funds to cover all costs until sales can eventually pay for these costs. 

4. Survival Driven (Seeking Money before Adding Value)
This is one of the most obvious reasons why most entrepreneurs fail. If your primary motivation for being in business is to acquire wealth rather than to create and add value, then you have started off on the wrong foot. If the drive for money supersedes the drive to create innovative products/services that will add value to your target market, then is time for some serious soul searching.
Entrepreneurs who think on this line never actually attain that level of financial freedom they so much lay emphasis on because the universe will never reward those who seek to get before giving. Wealth is a result of consistently providing solutions to the problems of humanity.
The purpose of entrepreneurship is not the accumulation of money but the creation of value-adding products/services that will help make the world a better place for all.

5. Low Business IQ (Inadequate Business Knowledge)
Any entrepreneur who won’t see the need to develop his/her business IQ is obviously on the path to failure. Such a person believes that business is all about how much you can make. The fact that how much you can make is a function of how much you know and how much you can do is usually ignored.
Business just like every other discipline, requires certain competencies (knowledge, skill and experience) in order to remain functional. As an entrepreneur your ability to do is perpetually limited by what you know. In other words, you are the engine of your business. So, to have more means you have to do more and to do more means you have to keep learning more!
You need to consistently focus on personal development and self-improvement through reading (books, blogs, magazines, etc.), attending seminars, business development trainings, executive mentorship or coaching programs, membership to a business club or network, etc.

6. Location
Location is critical to the success of your business. Whereas a good business location may enable a struggling business to ultimately survive and thrive, a bad location could spell disaster to even the best-managed enterprise.
Some factors to consider:
  • Where your customers are
  • Traffic, accessibility, parking and lighting
  • Location of competitors
  • Condition and safety of building
  • Local incentive programs for business start-ups in specific targeted areas
  • The history, community flavour and receptiveness to a new business at a prospective site
 7. Overgeneralization (Jack of all Trade)
The great Albert Einstein notably stated; “genius is the ability to focus on one particular thing for a long time without losing concentration.”
Trying to do more than one thing at a time will eventually mean not achieving excellence in any. As an entrepreneur your success or failure will be as a result of how well you maximize your strengths.
Your strengths are those activities you naturally enjoy doing and would naturally do for free your entire life if necessary. This is how every great entrepreneur in history made their success; doing what they love and loving what they do. You should be jack of few trades and masters of some.
Stop doing what everyone else can do and start doing what only you can do exceptionally well. Focus on your core areas of strength.

8. Lack of Vision (Shortsightedness)
Entrepreneurs fail for lack of vision. The entrepreneur on the path to doom is the one that will never think of tomorrow. If you cannot literally see yourself and your business far into the future beyond today, then you are on the path to destruction.
Why would you want to go into business just for today’s sake alone? Why would you want to build a business the world will no longer remember after you are gone? The essence of entrepreneurship is to perpetually be of service to humanity. By not thinking about the future, the need to keep improving your game will be less paramount. As a result, you will end up being eaten up by those businesses that are consistently creating the future today.

9. Reactive attitudes.
This factor is slightly similar to the one above.
Failure to anticipate or react to competition, technology, or marketplace changes can lead a business into the danger zone. Staying innovative and aware will keep your business competitive.
To be successful in business you need to have your finger on the pulse and constantly adapt your business to meet the changing needs of your target market. You should continually carry out research into what your customers want and know what your competitors are doing to meet that need.

10. No performance monitoring
So you have a plan, but that's not the end of it. You should constantly review your progress to ensure you are meeting your business goals and that your staff (if any) are meeting their personal potential.

11. Poor management.
Management of a business encompasses a number of activities: planning, organising, controlling, directing and communicating. The cardinal rule of small business management is to know exactly where you stand at all times. You must know, down to the last coin, where the money in your business is coming from and where it is going in order for your business to succeed. Your business can also fail if you lack a contingency funding plan, a reserve of money you can call upon in the event of a financial crisis.
A common problem faced by successful businesses is growing beyond management resources or skills.

12. Extravagance (Poor Money Management)
Being an entrepreneur means being able to do more with less. An extravagant businessman is one on the path to failure. Being excessively flamboyant, wasteful or spending money irrationally is sure recipe to failure. Thrift or frugality is a requirement for your entrepreneurial journey if you hope to become successful.
A good way to avoid being extravagant is to look into financial management systems and to classify your expenses into two categories; urgent expenses and Important expenses. Your urgent expenses are your recurrent expenses, meaning they are periodic in nature. Your important expenses are your capital expenses; meaning they are not periodic in nature but are necessary for the continuity of the business.

13. Risk-Averse (Fear of Failure)
Nursing the fear of failure is another reason why entrepreneurs fail in business. Entrepreneurship is about unleashing your passion and creativity to do something that you truly care about. It doesn’t matter whether what you have in mind to create is popular or generally acceptable, what matters is that it mattered enough to you that you are willing to do whatever it takes to make your idea become a reality.
The entrepreneur on the path to failure is the one who would never launch out because of the fear of failure, being laughed at, losing money, being called crazy etc.  Daring the un-dared for the sake of making change happen is the essence of entrepreneurship and it means looking your fear in the eye and stepping out in spite of it. Don’t allow fear of failure hold you back, do the thing you fear and the death of fear is certain.

14. Failure to understand and communicate what you are selling.
You must clearly define your value proposition. What is the value I am providing to my customer? Once you understand it, ask yourself if you are communicating it effectively. Does your market connect with what you are saying?

15. Opening a business in an industry that isn’t profitable.
Sometimes, even the best ideas cannot be turned into a high-profit business. It is important to choose an industry where you can achieve sustained growth. To survive, you must have positive cash flow. It takes more than a good idea and passion to stay in business.

16. Failure to understand your market and customers.
It is vital to understand your competitive market space and your customers buying habits. Answering questions about who your customers are and how much they are willing to spend is a huge step in putting your best foot forward.
A successful business keeps its eye on the trending values and interests of its existing and potential customers. Survey customers and find out what their interests are and keep abreast of changes and trends using Customer Relationship Management (CRM) tools.

17. No customer strategy.
Be aware of how customers influence your business. Are you in touch with them? Do you know what they like or dislike about you? Understanding your customer forwards and backwards can play a big role in the development of your strategy.

18. Over-dependence on a single or a few customer(s).
If your biggest customer walked out the door and never returned, would your organisation be okay? If your answer to this question is no, you might consider diversifying your customer base a strategic objective in your strategic plan.
Having a small number of loyal customers is, in itself, not a bad thing. If we follow the 80/20 rule then 80% of your sales will generally come from 20% of your customers, but you need to consider how you would cope if your largest client went bust.

19. Failure to price your product or service correctly.
You must clearly define your pricing strategy. You can be the cheapest or you can be the best, but if you try to do both, you will fail.

20. Excuses – they blame anyone and everything but themselves
“If she didn’t … If I wasn’t living here… If the economy… If that hadn’t happened…”
Excuses and throwing blame are the same way of saying, “I’m not in control.” Now that’s scary. 
Everyone had a perfect excuse when the economy went into a recession in these past few years, but after telling everyone their perfect excuse, they were still in the same mess. Meanwhile, other people did well because they adapted.
Excuses feel good temporarily, but don’t be fooled, they can only hurt you. Accept full responsibility for where you are, and you will have a chance to change it for the better.

21. Growing too quickly
Many businesses, especially in the early stages, try to grow too quickly, funded by lots of borrowing, which results in crippling interest charges. Growing slowly will give you more chance to assess demand, understand your market and expand in a sustainable way.
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