A survey by CB Insights has compiled ranges of study on businesses that failed. The report found 20 top reasons, naming absence of market, lack of capital and a startup team which did not fit for the job in the top three.
Whilst the report listed 20 reasons, I decided to only focus on 7 most deadly reasons you need to pay more attention to and how to overcome it:
- You start your business for the wrong reasons
- Poor Management
- Insufficient Capital
- Location. Location. Location.
- Lack of Planning
- No Website
- Final Two Cent
1. You start your business for the wrong reasons.
This is among the main reason businesses fail. What was your initial intention when you first decided to start out your own? Was it to escape the 9-5pm job? Or perhaps the privilege of not having to answer to anyone? Or simply just to make more money? If your startup lacks ingenuity, you will experience lack of success.
Contrarily, you will find better chances of success starting your business for the following reasons:
- Be passionate for what you are doing. Believe that your product would fulfill a real need in the targeted market. Most important of all, enjoy what you’ll be doing.
- You do not only possess the physical attributes but also the mental strength to withstand obstacles in the entrepreneurial world. Remember, running a business takes up more of your time and energy due to more responsibilities unlike your 9-5pm job.
- You are determined, patient and always have the ‘can-do’ attitude no matter what the odds. While others surrender, you march on.
- You always bonce back from defeat. You never back down. You always learn from mistakes, and use it for your next startup. It’s also important to take note that successful business owners often built upon previous failures, they use it as learning platforms for success.
- You succeed on independence. You do not lack the skills of taking charge whenever solution is needed.
- You get along with everyone and always capable of dealing with all kinds of individuals.
2. Poor Management
Poor management has also been found as the primary reason for failure. It is true many business owners lack the expertise in areas specifically finance, procurement, selling, production and human resource. While some don’t recognize their weaknesses, others that do, lack the initiative to seek aid, or outsourcing the relevant business activities to experts.
Many a report on business failures cites poor management as the number one reason for failure. New business owners frequently lack relevant business and management expertise in areas such as finance, purchasing, selling, production, and hiring and managing employees. Unless they recognize what they don’t do well, and seek help, business owners may soon face disaster. They must also be educated and alert to fraud, and put into place measures to avoid it.
Neglecting your business could also be considered as poor management skills. Initiative must constantly be taken to analyze, identify and respond to finding solutions. What I’ve discovered lately, many businesses also lack to continuously study their market research and data. This is risky as market audience often shift it’s demands through time making it crucial for businesses to continuously adapt to changes.
Another often overlooked is the need of a good leader. Successful businesses often contributed by successful managers who is capable of driving the team towards company’s goals. A competent leader does not only rely on his or her technical abilities, but also great at hiring the right people, train and delegate jobs accordingly. In addition, good leaders are fine strategic thinkers, and do not shy away from change, challenges, transitions and the unknown future.
3. Insufficient Capital
It is sad to see businesses with great idea fail due to lack of financing. Business owners tend to forget the importance of having the right budget which most startups end up closing before they even had a fair chance to succeed. Certain businesses could also become to optimistic about their revenues, leading to failures.
Be specific about your budget. Extend it to at least two years of running operations – take note of all activities. Consider other things that you feel could influence your business such as economic recessions or government’s additional policies. Be specific how much funds and time needed to cover all costs until sales can eventually recover it. Here’s a great tool I found which is useful for you to have some ideas about the amount of money needed to launch your business
4. Location, Location, Location
Yes, it is never enough to stress to you the importance of location in order to succeed. I always tell myself that “A good location is about accessibility. But a great location is about being memorable.”
Here are some factors to consider in selecting business locations:
- Where your customers are
- Traffic, accessibility, parking and lighting
- Safety and security in the area.
- Location of competitors
- Condition and safety of building
- The business community in the area. E.g. If you run an organic juice bar, take part in the local health conscious event, yoga or health fitness programs. Define and specify your market.
- Local incentive programs.
- The receptiveness to a new business at a prospective site
5. Lack of Planning
This is where all the result of failing to ‘do your homework’ or ‘plan your business’ advice that you often hear from experts.
There is no denying it’s importance. It is critical for every business to have business plan. Do not trust the ‘One page business plan template’. It’s more of a marketing gimmick than useful. You need to be precise in your planning. The devil is in the detail. Like every precision report, it contains countless of info and solutions.
Click here to receive my full business plan back when I started my startup in 2014. The whole plan for FREE. Components may include:
- Business, vision, goals, and keys to success
- Work force
- Potential problems and solutions
- Financial: capital equipment and supply list, balance sheet, income statement and cash flow analysis, sales and expense forecast
- Analysis of competition
- Marketing, advertising and promotional activities
- Website Build, Operations and Maintenance.
- Budgeting and managing company growth
- Return on Investment
In addition, also keep in mind that most bankers request a business plan if you are seeking to secure addition capital for your company.
“Expansion: Venture out when you’re ready.
Overexpansion: Venture out when you think you’re ready.”
It is sad to see promising businesses that expand end up becoming victims of failure. This is a classic tale of business owners getting confused, misinterpreting success with expansion. It’s a tricky topic to some if you don’t get the fundamentals right.
Let’s be clear one thing. Success has little to do with expansion. Think about it, just because you’re successful in a particular area, doesn’t mean it works similarly elsewhere. Environment changes every mile you branch out of the local area. Consider the people, culture, the affordability, the communal problems, local policies and so forth. Do they react or respond similarly to your local market?
What needs to be understood by businesses looking to expand is to shift their focus to that market instead of replicating the same business model to new market. Use the successful experience to help you build another business plan that fits that market. Identify what makes your business a success and incorporate with the intended new market. Adapt to local markets if have to. Focus on filling customers’ wants and needs.
Once business expansion appears warranted, focus on the logistics and procurement to achieve the newly-found goals and objectives. Find the right group of people to help you drive your business. Find local partners too that can help you build and grow in the local market. Do more on operational thinking at this stage.
7. No Website
Get your own business website if you haven’t. You need it. Full stop.
According to the statistics, there are a total of 282 million internet users in the United States alone. In China, the number of internet users is doubled compared to the US reported to be at a whopping 680 million. In 2015, 52.7% of the global mobile phone population accessed internet using their mobile devices. It goes without saying how much your business needs it’s own website.
You don’t need fancy, top of the line website with the latest encryption and advanced online security features. It costs too much for small businesses.
Instead, simply have a professional looking and well-designed mobile website enabling internet users to find and get to know your business, products and services. Pay attention to the flow of your website, it’s loading speed and make sure it’s search engine optimized (SEO). You can always add other additional features to generate more revenue; selling ad, affiliate products and so on later on.
Keep in mind that your business is likely to lose customers to other businesses that own a website. It only makes sense to extend your reach to them, by going online.
Final Two Cent
I can’t deny there are other primary contributors to business failures out there too. But these are well known facts identified by experts that you need to pay attention to.
At the end of the day, it takes how much you – as the business owner, want to succeed. How will you carry yourself to face the sheer experience of a startup? Are you determined enough to see out the problems and overcome the overwhelming challenges? Arm yourself with the desire of wanting to learn new things all the time. Be in it for the long haul.