According to statistics, about 56% of start-ups survive beyond their 4th year. Only a handful make it past the 10 year mark. If you have ever tried to start a business, then I am sure you agree that it's not a walk in the park. Whilst the world of business might seem highly competitive and fairly hostile, some of this failure can be attributed to the start-ups themselves.
There are numerous factors that result in business failure but the common ones are:
Product does not satisfy customer needs
This often results from a failure by the founders of small businesses to carry out thorough research. Many small business owners do not actively go out to find out what their customers really need. I've been there a couple of times: caught up in my own hype. Just because an idea sounds great to you, does not always make it worth pursuing. Talk to real people and find out if they would be willing to pray for your innovation. Extensive market Research might seem costly and unnecessary but it could also provide the key to saving your business.
Failure to manage cash flows resulting in funds running out
Whilst the ultimate business objective is to make super profits, these will not always solve business problems. It takes a holistic approach to managing business finances as well as a deep understanding of cash flows and how they impact the business. If your business is selling goods on credit, it might seem great when customers order all your stock but this however poses a threat to the business if those payments aren't carefully planned for. Business owners must always ensure that they maintain an adequate supply of cash to facilitate the day to day running of their business as well as to cushion it from any shocks that could happen.
A poorly assembled team
Due to inadequate resources, many new businesses fail to attract high performing talent. They therefore settle for that nephew who's been struggling to get a job or anyone willing to work at an affordable rate. Many start up founders also make the mistake of assuming that their personal relationships and friendships will automatically translate into a dream team. This is not always the case. It is wise to invest in recruiting the best talent to ensure the longevity of the Business.
Superior competitors
It goes without saying that the world of business is extremely competitive. New businesses therefore need to assess their competition so as to come up with strategies to gain leverage over them. This might also mean staying below the radar for a while, or pursuing a totally different niche. Laying your cards on the table disadvantages many small businesses as bigger companies with deeper pockets can easily outmuscle them in business.
Failure to set competitive and yet profitable prices
Running a business requires one to have a fairly decent level of understanding of how the pricing mechanism works. It also include understanding managerial techniques such as using break even analysis and how they can help set prices. Also as a result of their inability to take advantage of economies of scale, many small businesses find themselves forced to price their products much higher than they would like. This makes competing based on price much difficult and consumers simply turn to their less expensive competitors.
A badly designed or faulty product
Having a faulty product is also a guarantee for business failure. It is therefore important for new businesses to test extensively and invest in research and development. For small businesses, this could start with a simple trial involving relatives and friends. They are more forgiving and could provide useful feedback.
A failure to successfully monetize the product
This is a common challenge when introducing new ideas and innovation. Oftentimes the product pr service still needs to be clearly defined and packaged in a manner that would allow potential users to see value in it. A good example is a social networking app for teenagers. They might enjoy using it to interact with their friends, but are they attractive to your potential advertisers? New business owners need to come up with ways to profit from their ideas and inventions that also are in harmony with the needs of their consumers. This might require some trial and error to find what model to use for monetization. A simple way to solve this would be to answer 5 simple questions. What product are you selling? Who is your ideal customer? What need are you satisfying? How will you sell to them? How much are they willing to pay for your product?
Inability to effectively market the product
Many products fail not because they are substandard or useless, but because consumers do not know that they exist or they have not been educated enough to understand their need. You've set up shop and are ready to go. You put up a few posters and hope for the best. Running a successful business involves getting your customers' attention and then using that to build a loyal support base. This starts with having a dialogue with your audience. It also involves reminding them on a continuous basis so as to build a reputable brand.
No relationship with customer base
Getting customers is the easy part of running a business, the harder part is keeping those customers and making them return buyers. Many new businesses do not put in place measures to retain customers and this costs them dearly in the long run. Building relationships with customers involves getting their emails or building a community in which you can interact with them. Social media has made this a lot easier and it is important for new businesses to take advantage of this.
Market not yet ready for the product.
Timing is also an important aspect in business decision making. We live in a dynamic environment and the entrepreneur is supposed to understand trends and position themself strategically. In some instances, this might be sooner than the rest of the world realizes it.... In such a case, the entrepreneur might simply need to educate the world and bring them up to speed. In some cases however, this new idea might arrive a bit too late. Many small businesses fail due to poor timing and thus, entrepreneur needs to stay well aware of trends and market patterns.
Now that you know why many businesses fail, the secret is to avoid these mistakes and take advantage of the opportunities that they bring for your business.
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