14 Common Reasons Businesses Fail, and How to Plan Around Them
Did you know that 20% of businesses fail and shut down after operating for one year? And only 25% of companies remain active and running after 15 years of being open. As you can see, success rates are low.
The reason why businesses fail little after being open is that they commit the same mistakes over and over again. What are they, and how can you stir away from them as a new business owner? Don’t go anywhere because you’re about to find out.
- Financial Miscalculations
Starting a business means investing lots of money to get things up and going and keep operations running smoothly. However, one reason why companies end up shutting down after a short period of time is that they were not truly prepared for the financial setbacks.
As a business owner, you need to make sure you calculate all costs well and make sure you have enough money for any possible economic issues that may arise. Include expenses such as rent and utilities, products and inventory, and renovation costs.
One other factor to think about is how much you decide to price your products or services. Most new business owners assume that pricing their items lower than their competitors will drive in more clientele. And even though this strategy has worked in the past, most companies close down because they priced their products too low for too long.
When pricing your products, be reasonable. Yes, you want your products and services to sell, but the cost of running a business might outweigh what you earn on sales.
- Bad Management
As a business manager, your job entails developing skills in finances, administration, training and education, hiring, decision making, problem-solving, etc. Without good management skills in these fields, your business will fail.
Poor management is another reason why lots of companies close down. They fail to carry out essential aspects of the company, such as overseeing employees or mismanaging important financial matters.
If you want to succeed as a new business owner, you have to build a strong management team. It’s hard to take on all responsibilities on your own, which is why you should hire one or two people with good management skills to join your team.
Your job as a manager includes understanding how operations within your industry work and what adjustments need to be made in case things go south. You should also learn how to identify high-potential employees and how to put together the perfect assets for your company.
- Not Hiring the Right People
Not everyone youinterview will have the suitable skills and qualities of a great employee. And hiring family members and friends, or promoting loved ones just for the sake of it, is a way of taking a step in the wrong direction.
Your staff will contribute greatly to your business’s identity, brand, reputation, and customer experiences. Hiring people just because you care about them or because you have a close relationship with them might jeopardize your company’s future.
Effective team-building consists of seeking out potential employees who have both the personality and skills of a valuable asset. The employees you hire should know how to work together as one towards the main objective.
- Lack of a Good Plan
Detailed and careful planning is a must when starting a business. If you haven’t sat down to plan out a strategic business plan, don’t even think about advancing.
A good business succession plan will help you know how to build a solid foundation for your business and will help guide you throughout the way, even in the moments where you’ll feel stuck. A solid business plan should include:
- Employee needs, both for the present and future goals
- Opportunities to take and goals to work towards
- Possible obstacles and setbacks, and solutions
- A thorough analysis of your competitions
- Marketing strategies
- Potential threats you may face
The more you prepare in beforehand, the less you’ll be caught off guard by an unexpected business crisis. Also, when creating your business plan, you should design it to be flexible and adaptable.
No matter how much you may have thought things through, things never go as planned. And if your business plan is flexible enough to adjust to possible changes in the future, then you’ll have a safety net for your company.
- Poor Marketing Skills
Marketing is a crucial part of a successful business startup. How will you draw in customers if you don’t implement strategic marketing techniques into your campaign?
Lots of industries have quality products that can practically sell themselves. But sadly, they’ve lacked the accurate marketing skills to advertise themselves, resulting in low sales and customer interaction. So, you need to develop sharp marketing skills before getting started.
First off, you need to evaluate the costs of marketing campaigns and secure the finances for it. Not only that, but you have to ensure you’ll be able to set aside enough time to invest in continuous advertising.
For example, businesses use social media as a marketing tool to promote their brand. Using the internet is the fastest way to create awareness and visibility, as well as obtain new clients.
In this current generation, people spend most of their time on the internet. According to research, about 80 billion people on earth are active social media users. With these stats in mind, you can use social media to your advantage.
You can partner up with influencers, create flattering content to showcase your brand and use the social media’s platform tools to interact with your audience in order to establish trust and credibility.
Another thing to consider when planning your marketing campaign is to set realistic goals. What can you achieve with your current budget, and who’s your target audience? Knowing the answers to these questions will orient you into molding the perfect marketing strategy.
- Choosing the Wrong Location
Picking the right location is key to success. You might have a great team, great marketing skills, and great products, but if your business is inconvenient or inaccessible, you won’t be gaining much clientele.
When picking out the location for your company, think about factors such as parking, competition, visibility, your budget, and the image you’d like to have. Your customers should feel motivated to visit your company, and if it’s in a good spot, they’ll most likely want to stop by.
- Not Knowing Your Market
Without researching your market, you won’t know how to advertise or target your ideal customers. You should never jump in and improvise a plan along the way, which is what lots of businesses do before shutting down.
Get to know your market. Who will benefit and enjoy the most from your products? When you understand who your target audience is, it’ll make it easier for you to tailor a marketing plan.
Step into the shoes of potential clients and see why they should be interested in your product. Understand their concerns and needs and find ways that you can address them.
Researching your market includes knowing their average budget, how often they’re willing to spend, and what they like about your competitors. Having as much knowledge of your target audience as possible can help you stay on top of your game.
- No Transparency
All new business owners want to satisfy their customer’s needs and make them keep coming back. You might have a great week, but that doesn’t mean that all weeks will be as successful.
When making adjustments or improvements, you have to keep in mind the demands of your customers. What are they asking for? What do they want more of?
Asking for customer feedback and listening to their wishes is what will give your business transparency. While delivering quality products, make sure you work hard towards meeting their demands. Doing so will make your customers trust your brand and will encourage them to make more purchases with your business in the future.
- Relying on One Customer
At first, you’re going to have one or two loyal customers that will help set your business on track. And even though you should do everything you can to keep them happy and maintain them as a client, don’t depend on only those few customers for your future success.
Search for new and creative ways to attract more clients. The idea is to be influential, not dependant on any favorites. Your goal is to grow and broaden your audience.
- Not Knowing Your Competition
You might feel intimidated to compete with the big competitors in the market. After all, competition is getting heavier and heavier, and businesses are always searching for new ways to outdo one another.
If you’re a new entrepreneur, you will have to start out small before being able to rank high on the market. That being the case, you should never ignore your competition or consider them to be impossible to compete against. Those colossal competitors started out the same as you’re starting out, and now they’re successful at beating their other competitors.
What are they doing that helps them succeed so much? What are their methods, and what can you learn from them? Use your competition as inspiration and motivation to grow your industry.
Don’t copy their strategies nor follow in their same exact footsteps. Yes, you should observe their every single move and learn from them, but that doesn’t mean you have to steal their ideas. Remember, in order to stand out from your competition, you have to be original and authentic.
And don’t let your guard down. Pay attention to their moves and tricks, and be prepared for whatever a competitor might attempt against you and your business.
- Failing to Adapt
As mentioned earlier, facing challenges and obstacles are inevitable. Not all obstacles will be caused by internal business factors. You may face situations that are beyond your control, such as a natural disaster, a change in your personal life, economic struggles, or a sudden change in trends.
Whatever the case, you must be prepared for the worst-case scenario. Make sure you’re up-to-date with what’s happening around you and be ready to respond immediately.
- Not Asking For Professional Help
If you researched all there is to know about running a business, then good for you! It’s great that you’ve informed yourself about the ins and outs of starting out a new company. However, that does not mean you should take over everything yourself and not seek out advice.
No matter how much knowledge you’ve obtained on the subject, you’re lacking one important thing: experience. That’s why you should never hesitate to ask for professional advice from a fellow entrepreneur.
If their business is successful, it’s for a reason. What’s their secret? Keep an open mind and try to be receptive to any advice a business owner can give you.
- Quitting Too Soon
And, of course, the biggest reason why companies fail is that they call it quits way too soon. It’s perfectly natural for things to run slow at first and to face setbacks in the beginning, but that doesn’t mean your business is failing.
The only thing that’ll make you fail is if you stop trying. Don’t expect a business that is only halfway finished to succeed. You have to preserve, learn from your mistakes, and keep going in order to beat the odds.
- Not Investing in Yourself
Don’t expect to grow as a business owner if you’re not doing anything to learn. Aside from gaining experience on the job, you should invest time and money into gaining more knowledge on how to develop good leadership skills.
You can search for seminars and workshops to attend in order to help you develop good attributes. If commuting is hard for you, search for online courses.
The Reasons Why Businesses Fail—Explained
Now that you’re well aware of why businesses fail, do everything you can to avoid making the same mistakes. Your goal is to form part of the small 25% of striving businesses that survive more than 15 years! And by following these tips, you’ll no doubt meet your end goal.
Do you want to discover more ways how to make your business prosper? Keep exploring our blog for more helpful entrepreneur tips.
