5 Reasons New Businesses Fail

Reasons New Businesses Fail

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January 9, 2016

Pessimism in business is to be avoided. The more time you spend thinking your venture is doomed, the more likely it will be that your thoughts will become a reality; and soon. On the other hand, realism is just good business sense as there’s no getting around the fact that new business start-ups do actually fail. As for how many, the Washington Post decided to tackle that question in early 2014 and looked at various studies from the last 25 years, finally deciding that half of new business start-ups don’t survive the first four to five years. So, if you’re to avoid business failure and be in the thriving 50% of start-ups who succeed, you really need to know why most start-up business don’t make it. Below are some critical reasons new businesses fail.

Not unique enough. 
If your business and your product/service don’t stand out from the competition, why should a potential customer choose you over someone else, someone more established? What’s on offer may be of truly outstanding quality and value but usually the problem is that the customer-to-be can’t see that – often your brand just isn’t clear enough. Ask yourself: How is your start-up business unique? What will a customer receive from you that they won’t receive from established businesses? What are you doing that is so different? Then build that into your business’s brand image – everything about your brand and marketing should help make your business stand out from the competition and clearly represent what’s on offer.

Out of touch financially. 
Many start-ups fail, not because their business concept doesn’t work, but because poor financial planning and management. If you are starting a new business, there are some simple questions you need consider. Do you know how much money you need to finance your start-up business? Where is that money going to come from? How will your business spend it? Do you have a contingency fund? Do you record all your business expenses? Do you know the difference between profit and cash flow? Can you read a profit and loss statement (statement of operation)? If financial planning and management isn’t your strong point then hire someone to look after this side of the business for you. Not doing so can be the difference between the success and failure of your business start-up.

Imagine you’re taken by surprise by the demand for your product or service and are overwhelmed with orders that your business can’t fill. Or maybe it’s the opposite: you gear up, stock up and are ready for orders that never come. Either way, you have a growth problem that is now threatening your business. Expanding too quickly or failing to expand when required can have a significant adverse impact on your business. By carrying out careful market research into demographics, spending habits, external factors such as local development plans, and so on you should be able to anticipate demand and position you and your business accordingly.

Fundraising took too long. 
Blake Smith, co-founder and president of Cladwell.com of Cincinnati, suggests that raising money for your business always takes twice as long as you think it will. Overly-optimistic or poor financial planning can jeopardise your business start-up from day 1 by leaving your business with insufficient funds to develop and sell its products or services, pay staff, etc. Be realistic in your planning, err on the side of caution and prepare contingency plans.

Naïve trust. 
Most start-up business owners begin with the product or service perspective. They are enthused and passionate about the quality of what they offer and this leads them to an almost naïve trust that if the offering is good enough then the customers and clients will appear. In other words, they don’t tell people about it. In essence, this is taking the customer for granted and the way past this failure factor is to stay in close touch with customers (actual and potential). Involve your target customers as early as possible in the process and then keep track of the changing needs, values and requirements of your market.



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