1. Inexperience
The first reason why businesses fail is due to lack of experience. Entering an industry without having any prior experience is damaging. It is silly to think that one can walk into an industry without having adequate experience and be successful. There’s a certain amount of time that should be invested before venturing out on your own ambitions. Gaining experience will foster confidence in your ability and in your business concept. It will help you develop your product, having first-hand experience in that industry, and an understanding as to how that industry can benefit from what your business has to offer.
2. Poor Business Plan
The development of the business plan is the first step to business ownership and business success. It’s the map that clearly identifies the concept of your business as well as the allocation of funds, market analysis, and competitor analysis. When drafting your business plan it is important to perform adequate research and forecast realistic goals. Failed businesses release poor business plans that feature careless research without enough facts. They improperly allocate funds, and smudge facts to forecast growth. Seeing as business plans are sent to investors it is important to make your business concept appealing to them. However it is equally important to remain true to facts and research in order to maintain a realistic view on the outcome of your business.
3. Inefficient Start-up Capital
Start-up capital is an often overlooked reason for why businesses fail. When calculating how much start-up capital your business will need, it is important to consider how long it will take for your business to begin receiving revenue. In the business plan, the cost analysis should consider the cost of sales, administrative fees, professional fees, technology fees, sales and marketing costs, wages and salaries. Receiving too much or too little initial capital poses a major problem to businesses. The goal should be earning money. Not receiving enough start-up capital coupled with an unexpected lack of revenue will result in a quick deterioration of your business. On the contrary, having received too much will only add to your costs with more investors taking cuts of your business and market share.
4. Faulty Marketing Plan
Marketing is the key to business success. How else will the word spread about what your business is offering? One way businesses fail in advertising and marketing is that they may have an unclear view of who they are providing for. It is easy to believe that you’re servicing a particular market, yet only be providing for a sub-category within that market. Pinpointing the target market helps businesses focus on how they can develop new products and services to foster growth of their company. On the other hand, a business may be positioning their product towards the right market, yet not reaching them in the right way. For example, you could be delivering the right product for baby boomers but using social networking instead of magazine advertising, lowering your brand awareness effectiveness. Right product, wrong channel. When allocating funds towards marketing, it is important to spend enough money to attract as much attention as possible towards your business.
5. Lack of SWOT Analysis
The SWOT Analysis is a grid that is formed in the developmental stages of a business. The grid allocates the strengths, weaknesses, opportunities and threats a business faces. If the SWOT Analysis is done correctly, it brings an awareness of the current trends of the market. It also calls attention to products that are already available and opportunities where there may be needs for new products. This analysis reveals how a business can take charge of the scenarios within their market to develop a unique product. Without a SWOT Analysis it is easy to fall victim to other businesses’ planning and expansion, thus eliminating your business’s own potential for growth.
6. Wrong Location
What good is having the best product and service for your intended market while being unreachable to your customers? Location is extremely important when developing a business. Businesses should consider how far their customers may have to travel to reach them. Also, it is important to identify similar products available to your customers that may be closer to them. Customers have to know where your business is in order for them to reach it. If you are located in an unheard of or sketchy part of town, it his highly unlikely that customers will take the time to travel the distance when there are similar products that are easily accessible.
7. Improper Management
Those selected to manage a business having an extremely important role. They are the go between for the employees and the owner. It is important to select a management team that knows how to balance relationships and also knows how to take hold of authority, while not abusing it. Improper management can result unproductivity by a manager developing chummy relationships with the employees and not developing a collaborative work environment. On the other hand, having a manager who is too much of an authority figure will discourage employees, creating a bitterness about their job and the company itself, resulting in high employee turnover.
8. Failure to Adapt to a Changing Market
Failing to adapt to and service changing markets is a reason why businesses fail, especially older and established companies. Take for example the postal service, instead of seizing the opportunity of embracing technology throughout the past years, it has avoided it as much as possible. When consumers found that paying their bills online and sending emails were much easier than mailing letters and payments, the postal service suffered tremendously and has found itself struggling ever since. Staying abreast of changes in the market and capitalizing on them will only help your business in the long run. Another great example is the shift from traditional marketing to inbound marketing services. Older firms who aren’t adapting are giving way to new agencies, such as StartSmall Marketing!
9. Unrealistic Expectations
In any situation, having unrealistic expectations is only a set up for disappointment. The same is true for business ownership. Having unattainable goals and expectations will only lower morale and cause investors, employees, and often the owner to lose confidence in the product they’re offering. Instead, it is best to establish a system of short-term attainable goals that everyone can work towards collaboratively to reach a major long term goal. In other words, pace yourself. This will sustain confidence in the company and encourage employees to work harder.
10. Inability to Control Costs
The last reason why businesses fail is out of control costs. It is important to allocate funds from the planning stages towards unexpected costs to guard your company from losing money too quickly. In situations where projects are over budget, project managers should have the foresight to make budget cuts that will not only sacrifice the outcome of the project, but also maintain cost levels. The inability to control costs will result in a business heading closer towards debt, often causing major sacrifices from other divisions of the business, creating inefficiencies and ultimately failure.
Can you see the common thread in all of the above reasons why businesses fail? It’s the lack of a sustainable competitive advantage. Don’t ever forget that term. The reason why businesses fail is due to a lack of sustainable competitive advantage.