It is the dream of many people to have their own business and the reasons for this differ. But, sadly, it has been reported that majority of new businesses do not last up to 10 years before they fold despite the initial enthusiasm of their owners.
Failure of startups starts from the very first year. Roughly 20 percent of new businesses fail within the first year and about 50 percent in five years, according to 2018 data by the Small Business Association. By the 10th year, about two of every three businesses have dropped by the wayside.
The state of the economy has little to do with the high rate of failure. A combination of other factors is mostly to blame.
We discuss in this article some of the common reasons businesses fail within their first 10 years. Your business, whether already existing or proposed, can avoid becoming a part of the bleak statistics when you know these reasons and take proper measures against them.
Inadequate Capital
There can be no argument about this being a major reason for business failure. It is very easy to see people with failed businesses citing inadequate capital as the cause, even though they might have failed in other ways as well.
Many new owners do a poor job at estimating how much money they are going to need to effectively run a business. They lack a good grasp of cash flow principle. It is not uncommon for such to overestimate potential revenues relative to costs.
It is vital that you consider not only how much you will need to start a business, but also how much capital you will require to run it on a day-to-day basis. Be realistic and objective about how long it may take you to break even and start making profits.
Planning Inadequacies
This is related to the previous cause of business failure in a way. Insufficient capital is a possible symptom of poor business planning.
You will be committing a grave business error starting without a proper, well-detailed business plan in place – sadly, some people make this mistake. Even businesses which do have a plan sometimes make unrealistic assumptions, exposing themselves to potential failure.
A proper business plan must include, among other things, goals, visions, financial requirements, market analysis, likely challenges, and marketing and other promotional activities. It must be accurate and include reliable information and figures. A good business plan can make it easier for you to secure more capital from other sources.
Wrong Motives
Why do you want to start your own business? Your answer to that question may serve as a pointer to the likelihood of it surviving past the 10-year mark.
Many people whose businesses have crumbled started them for wrong reasons, or reasons that are not good enough. Some start a business because they wish to spend more time with the family and others because they want to be their own bosses.
You shouldn’t decide to start a business for such reasons. Ideally, you should do this because you have a passion for whatever you intend on doing. It is this passion that will keep you going in the face of challenges that may come later.
You need to possess qualities such as optimism, creativity, drive and determination. Failure, to you, should teach a lesson and not mean the end of the road in order to succeed in business.
Lack of Genuine Value
Ability to deliver true value is something that will certainly help a great deal to keep your business around for a long time. But this is an area where many businesses fall short. They focus more on what profits they can make than how they can impact positively on the life of their customers.
It’s the value that you deliver that will help to bring you new businesses or deals. If you are able to please a customer, it is very likely that they will return for more. Satisfied clients may also help to pitch your business to other people.
Aim to provide customers with genuine value. Make them feel that they are getting so much value for little money, but this doesn’t mean that you should run into losses. What we mean is that you should not let your desire for profit outweigh the benefits you deliver.
Poor Access to the Right Market
Being able to provide real value is one thing, but having access to the right market is another, crucial thing. If you don’t have the right audience, the value you have to offer is wasted and your business may, sadly, be well on its way to failure.
It is important to ensure that the service or product you’re offering is what the market you have easy access to requires. Market surveys and email campaigns are two of the tools you can use to have a feel of what consumers need. Be sure that your product solves the problem(s) of the ones you have easy access to.
All these also mean the location of your business is vital. It should ideally be, or close to, where you have your target market. The other factors that are also worth paying attention to when setting up include accessibility, parking, presence of other competitors, safety and warehousing.
Lack of Online Presence
In this day and age, no business should fail to maintain online presence – that is, have a website and social media accounts. But it is not uncommon to still see businesses that don’t have any of these for connecting with their customers. It is not really surprising then when such businesses fail.
Significant rise has been seen in the number of people using the internet in the past one or two decades, with this leading to massive increases in online sales. Therefore, you will be missing out greatly if you don’t take advantage of this to put your business in front of more people.
The interesting thing is that you don’t really need to have huge capital outlay to maintain online presence. For example, it costs next to nothing to set up social media accounts or profiles for your business on platforms such as Facebook or Twitter. You also don’t need to empty your bank account to have a website. These tools enable you to easily connect with customers and provide information on how you can help.
You are especially at considerable disadvantage if your rivals maintain online presence while you don’t. Don’t make that mistake!
Competition Challenges
Some mistakes you make, such as the one above, can cause you to find it extremely difficult to withstand competition. If you aren’t able to compete effectively against your rivals in a market, it is probably just a matter of time before your business folds.
You will need to be on top of your game to succeed. This is particularly so if you’re competing against larger rivals. Creativity, innovation and grit will be crucial to your ability to grab a share of the market, enough to ensure profitability. Ideally, you should already have idea of how you intend to compete against rivals when developing your business plan of choosing a location.
Poor Leadership
Continuing from the foregoing; the chances of your business being able to gain upper hand against competition and succeeding depend greatly on quality of leadership. Many businesses have failed because this aspect wasn’t properly covered by them.
People who are new to entrepreneurship, in particular, may fall short in terms of good business and management skills. Their knowledge of production, distribution, selling, purchasing, human resources management or financing may be limited. They often lack the experience to effectively tackle challenges as they come up and, before you know it, they are soon overwhelmed.
It is important to learn about the different aspects of a business you intend starting. Connect with more experienced or successful entrepreneurs for guidance. You may also hire employees possessing the necessary skills or you outsource some aspects of your business.
Expanding Too Rapidly
There are business owners who think that operating on a large scale will make it easier for them to succeed. As a result, you will see such making constant efforts to expand their businesses, not necessarily because more customers are already coming. While expansion is good, it can also cause your business to collapse, as experience has shown.
Business experts usually advise a slow and steady approach. You should first have a sizeable customer base and stable cash flow before thinking of expansion. One of the signs that can suggest genuine need for expansion is inability to fulfill orders at the right times.
Of course, you still have to do your homework to be fully sure that any expansion is indeed necessary. It is crucial to also bring on more, suitably skilled people that would make such expansion deliver desired results.
Inefficient Expenditure Control
Failure to properly regulate expenses has led to the demise of not a few businesses. This is more common with single-owner ventures. Often, the line between business and personal money becomes blurred. There are many a business owners who dip their hands into company purse when making irrelevant or frivolous expenses.
Accountability and restraint are crucial when it comes to overcoming this mistake. You need to realize that company money isn’t personal money. Safeguards against frivolous expenses should be put in place.
Poor Employee-Employer Relationship
Many businesses are made to pay for somewhat perceiving employees somewhat as mere “tools.” The management team of such companies often didn’t seem to care so much about their workers. This contributed to eventual collapse of such businesses.
It is important to value your employees, if you have any, and make them to be aware of this. An employee is more likely to care about the success of your business and put in his or her best if you show that you care about him or her. Without that, you will be losing the best hands and brains on regular basis to other companies, possibly direct rivals, with this having adverse effects on potential for growth.
There you have some of the reasons most businesses fail within their first 10 years. Knowing these should enable you strategize properly so that you can succeed where others failed.
REFERENCES
10 Reasons Why 7 Out of 10 Businesses Fail Within 10 Years (https://www.entrepreneur.com/article/299522)
Why Small Businesses Fail: Top 7 Reasons for Startup Failure (https://www.businessknowhow.com/startup/business-failure.htm)
