Entrepreneurship has many stumbling blocks that can lead to failure. Small business statistics from the U.S. show that about 20% fail within the first year, while only 33% survive the ten-year mark.
Some common reasons businesses fail quickly include a lack of money, a poor business model, not understanding the competition and customers, inadequate marketing, and poor leadership. But finally, there is one last element that many people fail to consider despite its importance: timing.
Let’s delve into the reasons why some businesses fail while others win:
Forgetting the Importance of The Business Plan
Overlooking effective business planning, even for a small business, is detrimental. A good business plan includes:
- A detailed and precise description of the business
- The employee and management needs for the company as it starts and as it grows
- An outline of the prospects and threats considering the broader business market
- Projected capital needs and the budget plans of the business
- A clear picture of the business marketing needs
- An analysis of the competition
A business plan helps the business address its needs when challenges arise. To ensure that the business plan remains effective over the long term, adjustments to it are necessary from time to time, ensuring the business is always ready to adapt to changes in the market. Before starting a business and writing up the business plan, the entrepreneur must understand the industry and competition.
Not Predicting Shortfalls in Funding and Capital
Every business owner needs to keep in tune with the working capital required to keep the business operations running. Expenses business require daily include payroll, rent, utilities, vendors, etc. Sales give a business the ability to fund these, but until the company establishes itself, the funding needed often becomes challenging to get. Therefore, a realistic business plan that predicts the amount needed to tide the business over until the cash flow is adequate makes better sense than lowering prices to become competitive in saturated industries – a sure way of setting a business up for failure.
Misunderstanding The Competition and Customers
Customer loyalty is not a given for a new business, especially in a highly competitive industry. Unfortunately, many new business owners forget that even a better product may not draw customers away from a company with an established clientele. Instead, every new business needs to look at its potential customers, understand their needs, and meet these. That is the only way to help boost sales and make them loyal customers.
Overlooking the Importance of Marketing for a Business
Like a good location, some things are self-explanatory for a new business. A good place ensures foot traffic. However, a poor Internet presence and lack of social media make it very difficult for customers to find a company, even if it has a good location.
Marketing efforts must let the right audience know about the products or services sold by the business, whether this is through social media, emails, or even billboards.
Poor Leadership Leads to Poor Management
Poor leadership that can’t make the right decisions is another common reason businesses fail. In small companies, the owner is usually also the management. However, problems can arise if the owner can’t manage employees.
For new business owners with no prior experience, mentorship can help them hone their business skills until they can employ people to help them manage the various aspects of their operation. Poor management leads to poor communication, absence of feedback, and lack of trust, leading to time-wasting micromanagement that stints business growth.
Adam Ferrari describes the attributes of a great business leader in this article. Besides motivation, authenticity, and fairness, he says that a good leader must also have passion and humility. In addition, he firmly believes that knowledge is the key to adapting to a fast-paced and ever-changing world, hence his passion for life-long learning.
Ignoring the Timing
Finally, brilliant business ideas are born every day, but that does not mean they have come at the right time. One of the most critical reasons some businesses fail while others prosper is their timing. When a market is ready, every idea finds its place in the market, but it never does if it is too soon or even when it is too late.
Getting the timing right requires research and sometimes a bit of adaptation to get it all just right before a business launches.
An unclear business strategy and an inability to meet the business expenses or repay its loans are sure signs that a business is failing. However, the high failure rates of new enterprises should not deter anyone determined to start a business. Research and planning can help potential business owners with the flexibility needed in business today!