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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