Finally, going on the road to becoming an entrepreneur? Well, here is a disclaimer! There is a good chance that your budding business might fall down in 2020. The good news is by knowing a few things you might be able to save your business. Want to know Why Businesses Fail? Read further and find out.
What is the success rate for a new business?
Failure is the hard truth of every entrepreneur’s life. As per the recent statistics, 50% of businesses can not even survive their first year and 70% of the businesses fail within 10 years of their start! Painful but true! With every year passing the survival of start-ups get harder and harder. Only 30% of them are able to survive out of which only a few are actually making a real profit and ruling the industry.
What makes these successful entrepreneurs different from others is the biggest mystery ever. Of course, it is not a cakewalk or else anybody can do so. But knowing a few things in advance and being aware of some major reasons for the collapse of new businesses might help you to save your dream. As per the recent research, we have made a top 10 list of the reason which could make your business fail in 2020.
What are the main reasons why businesses fail?
A proper strategy and planning is the first step for every business to succeed. Proper planning gives a clear direction to the business to achieve its objectives. Solid long term and short term planning are necessary for a business to survive. Unrealistic and faulty planning can be a big reason for a business to fail.
Lack of Proper Execution
“Ideas are meaningless without a masterful execution.” ― Alejandro Cremades
A foolproof plan is not enough to run a successful business. Most of the times a failed business is a failed execution of the plan or the strategy. An entrepreneur should pay attention to the execution part in order to achieve the goals and objectives of the business. Great planning backed up by proper execution leads a business to success. This is one of the common reasons why businesses fail.
Every business needs particular resources to function be it tangible or intangible. Lack of a single crucial resource can waste all the efforts to build your business. Plan the availability of the necessary resources in advance to avoid the crisis of sudden resource scarcity.
Lack of Attention
The Life of an entrepreneur is hard and constantly challenging. He has to be very attentive to every minute detail of the business. He has to identify the shortcomings before it will lead to huge losses. Frequent audits and tracking is to be done in order to know whether everything is going right or not. Identifying the upcoming risk and minimizing their effect is what makes a successful business different from the failed ones.
Not Paying Attention to the Target Customers
Understanding customers is the key to success for every business. Not able to understand them could be the prime reason why businesses fail. The ultimate goal of every business is to satisfy the needs and wants of the customers. Lack of proper research and not paying attention to what the customer wants might lead to a huge failure of the product or service. The more you deliver the value to the customers the sooner your business will flourish. If you are not able to satisfy the needs and wants of the customer, you are preparing for a failed business.
“Entrepreneur, you have to be known for something, not anything, but something specific, why? That’s your distinction.” Onyi Anyado
Your product or service has to be unique in terms of something or else it will never be able to achieve sustainable growth. It should give value to the customers. Unique value propositions provide strong roots to your business. Differentiation helps in eradicating the competition or else it may wipe out your offerings.
No proper financial management
The most common reason start-ups fail is they run out of cash at the end. Poor money management leads to this problem. which could be another reason why businesses fail. Cash is the most important resource which needs proper management. A big factor in deciding a company’s survival is how to minimize expenses and maximize profit. If your company’s cash flow and financial management are poor then it might exhaust the resources and collapse very soon.
Fear of Change
Nothing is constant but change! The business world is very dynamic and gets affected by many external factors like change in political parties, social issues, environmental factors and so on. The Inability to quickly adapt and resisting change can make a business prone to failure. Successful entrepreneurs embrace change and do the necessary adjustments required to sustain in the market. So, do not fear change or else your offerings will become obsolete.
Before jumping into the business you should ask yourself whether you are ready for it. You reflect on your traits in your business. To get a successful business the leader should have entrepreneurial qualities. That does not mean every entrepreneur has the same personality. Though there are few key traits you can find in almost every successful businessman. An entrepreneur is patient, confident and does not fear struggles. He or she should be a problem solver and a quick decision-maker. Last but not least, an entrepreneur is the one who is very passionate about his business.
Choosing the wrong business
This is the most neglected reason for business failure recently. You have to perform a thorough competitive analysis and identify industry barriers that can hinder your growth later. There is no point in entering into an industry with the cut-throat competition with big giants already ruling the industry unless you have a better strategy to beat them.
How can small businesses avoid failure?
“What do you need to start a business? Three simple things: know your product better than anyone, know your customer, and have a burning desire to succeed.” –Dave Thomas, Founder, Wendy’s (Source: Forbes)
Running a business is backbreaking but if you pay attention and keep yourself informed you can significantly reduce the chances of failing. An entrepreneur should observe the shortcomings and do regular internal and external analysis. Though no business is fault-proof, we can at least accept the mistakes and learn from them.
So in the end, never giving up attitude is what makes all the difference. Thomas Edison had said that right. “I have not failed. I’ve just found 10,000 ways that won’t work.”
I hope you consider these points about why businesses fail and consider avoiding these mistakes for your business.
Wish you luck with it.