As per Small Business Administration research, only half of all new businesses last for the initial five years. In addition, only one-third of all new businesses can last through 10 years. This is a compelling result because we can see that 50% of the new businesses last for their first 5 years the remaining 50% fail within the initial five years. It’s also possible to say that around 70% of businesses that are newly established do not reach the ten-year mark.
Forbes provides a more tragic statistic, based upon Bloomberg research that shows that of every 10 firms that fail, eight of them fail within the initial 18-month period. What are the primary reasons that companies fail to grow when given a 50/50 likelihood of survival and a product or service that has an appetite? Let’s explore six reasons why companies fail, and the strategies to avoid failing.
1. Leadership Failure
Your business could fail if you have poor management abilities, which could be apparent in various forms. You’ll struggle to be a leader if you do not have the experience to make managerial decisions, supervise employees, or have the ability to manage your company.
Maybe your team of leaders isn’t in agreement about the way your company is to be managed. Your leadership team and you could be arguing in public, or contradicting each other’s directives to staff. If issues that require the leadership of a strong leader and you are hesitant to tackle the issue while your company remains in the process of failing.
How to Prevent the Risk of Leadership Failure: Ineffective leadership within your company will impact all aspects of your business from financial management to the morale of employees, and when productivity suffers the possibility of failure is in the future.
The study, learn, locate an instructor, take part in classes, conduct your own research, and do everything you can to improve your leadership capabilities and gain an understanding of the business. Review other leadership and business best practices and determine what you can apply on your own.
2. Lacking Uniqueness and Value
It could be that you have a wonderful product or service that has huge demand, however, your business is failing. It could be because your strategy isn’t great or you’re not able to provide a compelling value proposition. If there’s a lot of demand, there’s a good chance you’re competing with a lot of competition, and you’re struggling to stand out from the crowd.
How to avoid Value Proposition Failure: What makes your company different from the rest? What can you do to conduct your business in a manner that is distinct? What are your competitions doing differently than you? Create a unique strategy or service that no other company in your industry has and offer it as a powerful value proposition that draws the attention of and draws interest.
This is the way you create your brand. Your brand is what your customers associate with your company. Your branding identity, which includes your tagline, logo colors, as well as the aesthetics, visuals, and business principles that reflect your business should be backed by your proposition of value. It should differentiate you from your competitors and communicate your personal viewpoint to your clients. Do all you can to provide that distinctive value proposition to your customers so that you can gain market share and start building the conversion rate.
To make your brand known and distinguish yourself from others to be noticed, you’ll need to increase the effectiveness of your marketing strategy and utilize the most channels you can for presenting your brand’s message to the general public. It is possible that you are more successful than your competitors, but that will not matter when your customers don’t realize that you’re a player. Utilize social media and word of mouth direct mail, cold calls as well as other tried and true marketing methods. Make sure you’ve got a properly optimized online presence. Develop leads generation, and capture strategies, such as providing top-quality content on your website and a newsletter for subscribers, and information-related giveaways.
3. In no contact with Customer Needs
Your business is doomed when you don’t remain in contact with your clients and learn their needs and what feedback they provide. Your customers might be satisfied with your product or service, but they might not like it when you made a change to this feature or changed this method. What are they saying to you? Are you paying attention? Are you seeing a decline in the market? Do they even have a genuine interest in your product? These are important questions that you need to answer. You may be offering an item or service that’s fallen in line with the current.
How to avoid losing touch With Customers successful company is one that keeps an eye on the changing values and preferences of its current and prospective customers. Contact customers, conduct market research, discover what they are interested in, and stay on top of the latest trends and changes with the help of CRM (CRM) devices. Well-planned use of CRM tools will help you keep your business from going under.
4. Unprofitable Business Model
Similar to leadership failure, it is the idea of establishing a company based on a business model that isn’t sound or operating without a formal business plan, and operating an enterprise for that there isn’t any known revenue stream. The business concept could be great, but failure could occur during the execution of the plan in the absence of established guidelines for strategic planning.
How to Create a Strong Business Model: Research and examine the ways other companies within the field operate. Create a comprehensive business plan that incorporates financial forecasting based upon predictable revenue, strategic marketing, and solutions for managing challenges to deal with potential challenges and rival actions. Create a milestone chart that includes specific goals and tasks on the timeline so you can gauge success and solve issues when they arise and stay on track. A well-designed business model which incorporates the best practices will assist your business in avoiding the risk of failure.
5. Poor Financial Management
SmallBizTrends.com Business news site has this infographic that declares that 40% of small companies make an income, 30 percent of them make even, and the other 30 percent of them lose money.
It is essential to understand, all the way to the last penny to the penny, where the money for your business comes to and the destination it’s heading for your company to be successful. The business could also fail if there isn’t an emergency fund plan or a fund that you can draw upon in the case of a financial crisis. Many people begin businesses with the goal of making money, but don’t have the expertise or motivation to control the flow of cash and expenses, taxes, and other financial concerns. Incorrect accounting practices can set businesses on the path straight toward failure.
Tips to Avoid Financial Mismanagement Make use of professional accounting software such as QuickBooks as well as Xero to record all financial transactions, which includes each expenditure as well as all revenue earned, and then utilize this information to create financial statements (profit as well as loss reports). It is even better if you utilize enterprise dashboard software such as LivePlan which makes it simple to track your financials. This is a valuable data source that you must use to run your business effectively, be aware of where you are at all times, and keep it running in a positive manner. If you’re not proficient in financial management, you should consider employing a small-business advisor and a professional bookkeeper, or a certified public accountant to manage your finances.
6. Rapid Growth and Over-expansion
Every now and again, a business starts to grow faster than it is able to keep up with. When you launch a website that has an item that is trending and then you’re overwhelmed by orders you’re incapable of fulfilling. Perhaps the reverse is the case. You’re so sure that your product will make waves in the market that you spend a lot of money on it and place an order for a huge amount of inventory, and you’re unable to move it. These are two additional routes to failure for businesses.
How to Avoid Growth and Expansion Problems. Expansion and growth in business require an equal amount of strategic and careful planning as managing day-to-day operations. Even established and profitable commercial franchises like convenience stores and fast-food restaurants do thorough research and planning prior to opening the doors to a new site. They evaluate regional and local spending patterns and demographics as well as future plans for development for the region, and other relevant issues prior to deciding to proceed. It is essential to be doing the same for your company to avoid the possibility of failure.
Do your research thoroughly to make sure that the time is suitable and money is there for expansion. Be sure that the business you started is in good health before expanding to a new site. Don’t purchase items you’re not certain you’ll be able to sell, however, you have a plan in place to fulfill orders promptly should the need arise. The key to success in expansion and growth–and also avoiding business failure is strategic planning.
If half of all new businesses fail, that means 50 percent of businesses that are starting out be successful. Beginning a business is an exciting undertaking that requires a clear product or service and an unquestionable demand from the market. If you’re looking to launch your own business or are operating a business, you need to realize that success relies on careful planning and a sound financial management system that begins before the start of the business and continues throughout the lifetime of the company.
Find out more about why startups fail Peter, Jonathan, and Caroline Cummings on the eighth episode of The Bcast, Bplan’s official podcast. (at 9:00):