Most small businesses fail at the start of their journey, and another large chunk goes under within their first year. To understand why this happens, we’ll have to cover the basics of good business management. Here are the top reasons for failure for small business ventures.
Lack of touch with customer needs
One of the most important goals for any business is to meet the needs of its customers. While this may seem like a core pillar of business philosophy, plenty of companies starts to neglect their customers’ needs after some time. Taking their feedback and understanding their needs is absolutely crucial if you want to continue growing as a business. The question is—What's the best way to stay in touch with your customers?
Some good answers include market research and asking them directly through surveys. Depending on your business model, you may want to contact your customers and request their feedback with every purchase of a product or service. Alternatively, you can take a look at trends for various similar products in the industry and extrapolate crucial information. There’s no single best way, but using as many methods as possible will get you the best results.
Unprofitable business models
Sometimes, it’s not what you do that affects the success of your business, but rather the business model itself. You might think that recognizing this issue would be a piece of cake, but it’s actually far from it. An unsound business model can be tricky to detect, especially if your business has prospered up to a certain point.
Starting a small business without forming a business plan is the worst way to approach the process. You need to put your plan on paper and do some exact math. If the current business climate doesn’t bode well for your business model, you might be in some trouble.
Take a look at how other businesses in the industry extract their profits. Sometimes, the less obvious solutions may be just what your company needs to succeed.
Bad financial management
Research shows that around half of small businesses turn a profit at the start of their journey, but only a small percentage actually maintain this in the long run. Even with a perfectly viable business model, success isn’t guaranteed. A big factor in the success of a business is its financial management. If you don’t know where every last dime goes in your business, you can’t guarantee that the money is being used effectively.
At the same time, you need to have absolute mastery of your finances in bad situations. This includes having a contingency financing plan and preparing spare money reserves for rainy days. If you don’t have the knowledge to manage cash flow, taxes, expenses, and other financial aspects of your business, you might run into trouble. Hiring a business advisor and bookkeeper may help you learn how to manage finances for your company.
Overexpansion
Growth and expansion are pivotal goals for any up-and-coming company. However, a business that grows too fast is like a fire, it can run out of fuel pretty quickly. Growing much faster than you’re prepared for can spell disaster, especially if you don’t have extensive experience with such growth. Let’s say that you get a sudden influx of customers that are enamored with your products. In this situation, you may be tempted to grow your company and invest heavily into expansions. Unfortunately, this growth may be short-lived, but your expenses from the investment will still affect the company.
Without proper infrastructure, you can quickly end up with an excess of products that you can’t move without adequate logistics. Similarly, you could also run into a situation where you don’t have the production capacity for products that have been pre-ordered in large amounts.
To avoid these situations, you must treat business growth and expansion as you would day-to-day operations. Create a strategy that would allow you to expand according to your means, while also focusing on retaining loyal customers.
A lack of value & unique approaches
A good product seems like it would be enough to propel your company to greatness. However, this might not always be the case. Even if there’s enormous demand for your products and services, this doesn’t guarantee that you will succeed. For example—What if you don’t bring anything valuable or unique to the table? Competitors may outshine your company even if they offer similar products and services.
You must analyze the wants and needs of your customers more directly. Offering valuable products may not add enough value to your company as a whole. You must develop a service and brand identity that is attractive to customers. Set your company apart from the competition by stepping up your marketing plan to match the needs of the market.
Leadership issues
Sometimes, every aspect of your business and marketing plan may be perfect, but you can still fail due to a lack of strong leadership. Running a company is far from simple, and you might have to make difficult and unintuitive decisions to get out of a tough situation. How many business leaders are willing to make concessions and sacrifices to keep their company afloat?
Admitting failure is one of those decisions that can make or break your business idea. What if you need to scale down your operations or make a complete 180 regarding a major decision? Let’s say that your company is in financial trouble, the debts are stacking up, and you might have to start over. Would you be able to get the process going? Deciding to go through voluntary liquidation is a tough choice, but it may be necessary in some situations. Dragging your business down and getting it into more debt once you reach the point of no return doesn’t achieve anything. Make tough decisions and try to salvage what you can when debts get too bad.
Not investigating the market
Remember that the market is constantly evolving. Without a good perspective, it can be difficult to make good decisions on the go.
Every one of the issues we’ve mentioned can be traced back to a lack of research into the market. To understand your company’s place in the industry, you must understand the industry itself and how it impacts the market.
Learn as much as you can about the current business climate in your industry. It’s going to help you build a good business plan that will keep your business afloat.
Conclusion
There are numerous things that can go wrong when running a business. Pay attention to the details and market you’ve entered, and you’ll be able to keep your business profitable and avoid failure.
