According to a Bloomberg Research reported by Forbes, every 8 out of 10 businesses fail within the first 18 months. Another research, conducted by Small Business Administration found that a mere 50% of new businesses go past their 5th anniversary and just one-third of new businesses survive up to 10 years.
For many aspiring entrepreneurs, these statistics are scarier than jumping off an airplane.
Is your business among the lucky half? Or did it flounder and fail like the other unfortunate half?
So, you couldn’t make the cut to be among the invincible 35% cruising past the 10-year mark?
To know why your business failed, you need to do some honest soul-searching. You need to discover the point at with your boat started to leak. To help you, I am going to explore seven possible reasons why your business failed or went under faster than the Titanic.
The aim is to help you start again – fresher, wiser and stronger.
Avoiding business failure is possible. Here’s why your business did not become successful.
You were in the wrong business
In the early ’70s, Bill Gates and Paul Allen started a company named Traf-O-Data. They felt there was a need to read and analyze traffic data from roadway counters.
This data was intended to be used by traffic engineers in managing the flow of vehicular traffic.
But the enterprising duo learned to their dismay that there was no market for their brilliant idea. You see, they didn’t do any form of marketing research before launching their products to an uninterested audience. It never occurred to them that municipal authorities didn’t readily commit capital for such startups.
A few years later and after $3,494 in losses, they had to close shop.
Your business has to solve a well-defined problem for a well-defined market. Creating product offerings which do not add much value or have much demand is a recipe for failure.
What problems are your startup trying to solve? And for who?
It’s essential you carry out a detailed market survey for your product and services before hitting the market.
Market survey investigates prospective customer capabilities and buying potential. It helps you to determine features and types of the product/services that your target market will go crazy for.
The feedback received from this audience will also help you to tweak and adjust the product/services for maximum impact. This gives assurance of the success of your new venture.
You did not plan it well
Failing to plan is planning to fail, according to the old adage. Your business will fail without adequate planning – short-term and long-term. If you have no destination, getting there will be impossible.
Having a detailed and practical strategy for your business is a clear roadmap that points you in the right direction.
You can see clearly where you’ve been, your current position, and where next to go. Your plan should include specific tasks and activities with dates and deadlines.
A properly-researched and customized business plan is essential for maximizing ROI, impact, and market. It should bring these questions to the fore;
- Who is your target market?
- Is there a sizable customer base for what your planning to introduce to the market?
- Is there a robust demand for the products/services at a price that will turn a neat profit for your company?
- How much regarding time and resource will be required to get the product/services to the market?
- Who are your competitors? Are you up-to-date with the latest trend in the industry?
Answer these questions thoroughly and in writing and watch your venture take off.
You quit too soon
In 2008, Evernote was struggling. Brokenhearted, Phil Libin had decided to lay off all his staff and close the shop. Before hitting the bed by 3 a.m, he checked his email for the last time.
Right there was an email from a man in Sweden who said he loved the product and wanted to invest. The swede transferred $500,000 which prevented the company from going under.
It quickly gained traction and today, Evernote is valued at more than $1 billion.
Starting a new business is not for the fainthearted. It requires a certain level of tenacity, courage, and perseverance to birth a new venture- and keep it going.
There are bound to be challenges along the way and successful companies today faced a fair share of those. However, they chose to keep going.
If your sales numbers keep dwindling, your losses rising, nothing seems to be working out, and you are on the verge of pulling out. Consider why you started the business in the first place. Most often, what you need might just be a simple restrategizing, a change of approach and your ship will begin sailing smoothly.
Quitting early will deny you the confidence and strength that comes through overcoming tough challenges.
You may not be able to realize your full potential and will always be tormented by the thought s of what could have been.
That said, there are some instances where it will be better for you to cut your losses and run. Take a cold hard look at the facts before making a decision.
You did not have enough capital
Insufficient capital and inability to access working capital and other financing options are the most prevalent cause of business failure. Your lack of working capital could be due to some factors. Some of these include a low credit score, inability to borrow from regular financing sources and poor cash flow.
As a business owner, it’s vital you understand the root cause of your lack of working capital. This knowledge will help you find and evaluate funding options. It will also help you while working with business financing professionals. Business financing professionals can help provide you with financing options to keep your operations going.
To replace your inventories and expand your business, you have to create and sell products or services and get paid. Along the line, several factors could interfere with your ability to meet future obligations. This leads to business failure.
A major problem area is your accounts receivables. When you have customers, who do not pay on time, you end up with unsustainable cash flow over time.
Finding investors and being able to raise some months of cash to bridge your funding gaps is essential for your business. Your business suffers and may possibly fail if you are finding it impossible to get funding.
You lack management skills
Poor leadership and management skills are often cited as one of the leading causes of business failure.
Your business will struggle to stay afloat if you do not have knowledge and experience in making critical decisions, filling vacancies with the right staff, overseeing your employees, or having the vision to lead your fledgling company.
It’s also possible that you have disagreements with your leadership team over how the business should be run. You may fall out publicly with them or counter each other’s instructions to staff.
Poor leadership for your business will end up affecting every aspect of your operations and may result in business failure.
From managing your money to staff morale, bad management will kill productivity and failure is not far. For you to run a successful organization, study, learn, get a mentor, enroll in courses – anything to boost your management skill in your particular industry. Study other businesses to see what they are doing well in that regards and adapt for your business.
You picked the wrong partner
Much like choosing a dorm roommate, selecting a business partner requires some care.
- How well and for how long do you know your potential partner?
- Can you two get along?
- What skills and experience are they bringing to the table?
- Do you communicate well with them?
If you can’t answer these questions readily, then you should reconsider your choice. Toxic partnerships are another common cause of business failure. In fact, a study found that a whopping 65% of high-potential startups failed because of fighting co-founders.
You know you are in a less than ideal partnership if you notice some of these signs:
- You are doing more than your share of the work.
- You disagree almost on everything.
- Your partner appears to have lost interest in the business.
- Your partner has a different interest in the direction of the business.
Failure to address these issues as they come up will lead eventually to business failure. So, if you must partner with someone, take your time to find the right partner and prevent your business from dying before it even gets started.
You did not work hard enough
Starting and running a business requires a lot of work. Humans are inherently lazy. That’s why we are attracted to get quick rich schemes. That is why we play the lottery hoping to become a billionaire overnight.
We want it all now; without putting the effort and time necessary.
Maybe that is why only a handful makes it into the millionaire club. While looking at super-successful, it appears money may come to them more easily; that they are somehow luckier than the average guy. But if you delve in a little deeper, you will be shocked at the sheer amount of work they put in day in day out.
So how much work are we looking at here? No matter how great your business idea is, if you are not ready to commit to a 60-100-hour work week, then you might as well stand back and watch your business keel over and die.