Why Businesses Fail
Exclusively written for entrepreneurs & new businesses
Much research has been done on what makes some businesses succeed while others fail. The statistics for business failure are alarming, however, because we know a great deal about the reasons and statistical data we can help improve your chances for success.
Avoid these common mistakes:
- Lacking demand or poor sales for your product or service. Just because you think your idea is wonderful might not be as well received by the public. You’ll need to do some repeated market testing to get your answer.
- Poor pricing model. If your gross profit margin is just too narrow it won’t deliver meaningful profitability. If you are competing with larger companies that price their merchandise low because they can take advantage of economies of scale, eg. reduced per unit costs due to buying in bulk – you’ll need to figure a way to match their prices and still make a profit.
- Rigid management style. Successful entrepreneurship is all about vision, flexibility and constant adjustment to new demands. Having set goals and a plan is critical to effective management.
- Lack of experience. Just because you were good at your job, doesn’t guarantee your experience will transfer well into a business. Successful business owners are typically experienced not only in operational processes but in the art of business management, negotiations, and leadership skills.
- Unexpected growth. If you haven’t prepared to meet unexpected demand you might just discover a rival waiting in the sideline to mobilize efforts and fill in for your inability to deliver goods or services.
- Poor accounting. If you don’t know the numbers or aren’t tracking your finances, we can almost predict your business is not going to make it any time soon.
- No cash cushion. One thing we see repeatedly is the difficulty of trying to develop a business without any financial backing. If you are relying on cash strictly from sales, you might run out pretty quickly since businesses typically don’t generate enough money their first year in business. Successful entrepreneurs start businesses with enough cash to hold them over the first 6 months to a year.
- Operational inefficiencies. Wasted space, underused equipment, obsolete inventory, and idle employees all contribute to financial stresses which small businesses cannot tolerate for too long.
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