Have you ever wondered why so many businesses are opened daily but only a few of them achieve success in the business and others fail so miserably? Starting your own business is everyone’s dream but most entrepreneurs see their dreams shattered due to some reason.
Sometimes business fails and even when you feel you have done all your preparations, but things go wrong. It is important to pay attention to every detail required to Start & Run a business. One of the great mysteries of entrepreneurship is why businesses fail. Some people start one successful business after another while others fail to succeed.
“There are no disasters in business that you can’t avoid if you see them coming and make the adjustments”- Bourne T.Pickens.Jr.
In this article, we will discuss Few reasons why businesses fail, by keeping those factors in your mind you can safely start a business. First of all, understand the huge percentage of businesses fail every year so we will find what all reasons lead a business to failure.
As an entrepreneur starts a business there are lots of risks, it is helpful to actually know the percentage of failures of small businesses and the reasons behind it. Which are as follows:-
Poor decisions
Businesses succeed because of smart decisions, good decision-making is important to make money, it is better to examine each and every point rather than making hasty judgments. 42% of small businesses fail because there’s no market need for their services or products, so always analyze the market need or the of the product or service which you’ll be providing to the customer.
Growing too fast
In small-scale businesses overexpansion is a serious error, wanting to be the first in the market with a new product can be harmful, so try to set realistic goals and expand it only according to the requirement. Also in some businesses when you grow too fast you make some serious mistakes but due to the growth, you ignore it.
In some businesses growing too fast is the sign of your business is around a buzz. Once that buzz goes off your business goes to the ground. A good example of this would be “Fidget Spinners”. When it was a buzz so many people started businesses around it but now there is no buzz around it and see how many businesses have almost 0 sales.
Failing to track your finances
If we look for the reasons behind the failure of few businesses we’ll find that many of them took on too much debt and the owner failed to pay it back, so always keep a record of finances and inflow or outflow of money. Make sure you have been tracking all your business transactions. You can use some business Accounting software for it. Even there are many free-to-use excel templates for your business, just google it. Or hire someone to keep track of your money.
Over-expenditure is why Businesses fail
Excess expenditure on unimportant things. Like an expensive interior for your office or unwanted software or devices. One must spend on improving the quality of the product. Expenditure can lead your business towards failure, around 29% of businesses fail because they ran out of cash.
Lack of Reserve Capital
Before starting a business you must be prepared for an unexpected increase in the costs of things like utilities, materials, and labor. Make sure that there is enough reserve capital to carry you through tough times and seasonal slowdowns, according to data collected many businesses failed because the owner did not have any reserved capital for improving the product.
Poor choice of location
Location Location & Location. If you have a business that can flourish only where people tend to walk in more then yes you need to find the perfect location for it. A poor location can sometimes ruin a business for example if more numbers of similar businesses are located nearby there are chances of failure.
Just imagine if you open a Car Repair shop/ Garage on the first floor, will it work? or If you open a restaurant in a deserted location will it work?
Similarly, if the area is not well served by freeways, public transportation, and foot traffic there are more chances of failure according to data 17% of businesses fail because of unsuitable locations.
An inadequate business plan
If you fail to plan, you plan to fail! Read it twice, thrice, until and unless you understood it.
A well-planned business forces you to think about the future and the challenges, it also compels you to improve your financial needs, your marketing strategy and management plans, your competition, and your overall strategy, for example, 23% of businesses fail because they didn’t have the right team running the business.
Failing to change
Remember what Darwin said? “Survival of the fittest”. Yes in order to survive in this business jungle you have to adapt to the changes. To run a business one must be flexible enough to make changes according to the requirement of the current situations or the market.
The ability to recognize opportunities and be flexible enough to adapt is crucial to surviving and thriving. Around 18% of businesses failed because they could not make changes according to the market needs.
Poor marketing skills
Most of the small businesses fail because of poor marketing. It doesn’t cost a lot to advertise and promote your business through online marketing, social media, email, etc. Around 14% of businesses fail because of poor marketing. If you cannot do the marketing you can hire someone who will do it for you. But don’t just waste a dime on marketing that is not converting.
80 20 Rule in Marketing
It is said that marketing uses the 80:20 rule. 80% of the revenue of your business comes from the 20% of actions you take. So make it a habit of spending something on marketing that will bring you more customers.
Ignoring the competition
Customer loyalty needs to be earned, observe your competition and stay one step ahead of your competitors. Do not ignore your competitors they will do anything to earn more sales but are you taking them lightly? Your competitor might be your friend but in business try to create innovative offers and grab more sales.
Outsource when Needed
One of the biggest challenges for entrepreneurs is to get rid of the attitude that you can do everything by yourself. Just don’t do that. Get rid of the belief that only you can do things perfectly. Concentrate on the most important problems or issues facing your business. Let others help you out in certain matters and if possible take advice from a subject matter expert (SME). Analyze every detail from start to end, and work accordingly and you will surely succeed!!
Summary
Remember, failing to plan is planning to fail, so plan your business in advance before starting. Study the market for the product or service you plan to offer. Also, acquaint yourself well with your competitors and their offerings. Talk to people you trust and seek advice if necessary. Choose a perfect location for your business. Additionally, build a database of your prospective customers before launch. Outsource the work that can save your time. Track your money inflow and outflow. Do proper Marketing or hire someone to do it. Adapt changes in the business and move ahead.
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