Find out about some of the most common reasons small businesses fail and how you can avoid those to give your venture a better chance of survival.
About 20% of all small businesses fail within their first year. Luckily for you (unfortunately for them) most new small businesses commonly fail for the same reasons, which means businesses like yours can learn from those mistakes and hopefully avoid them and avoid being part of that unlucky 20%.
To help you have a better chance at surviving this crucial first year of business as a small enterprise, here are 10 reasons small businesses fail (and how to avoid them):
1. Thinking Expensive Warehouse/ Office Space Is Necessary
It can be easy to believe that the sign of small businesses succeeding is them getting an office or warehouse as an ‘official business address’. Actually, all that does is pin the business down to a heavy financial burden. Sure, you get a business address but, does it allow for growing pains? Does it suck up money you need to otherwise invest in stock or business development? Don’t fall victim to stunting your growth (or ending it altogether) by putting all your money into warehouse or office space. Instead, utilise virtual offices or affordable self storage space so that you’re keeping costs and commitment down.
2. Moving Forward With Your Eyes Closed
Any new businesses continue to go ahead full steam without any vision, which means there is a huge lack of purpose. In turn that results in lots of resources getting wasted, and the potential for things to go South really quickly. Having a vision so that you know where you’re going as a business, is essential.
3. Lack Of Niche
Too many businesses think that they can come on the market with a great product and be successful. Having a great product is important, but if it doesn’t stand out from other competitors, there is no reason you will get customers from other businesses. Sure, some standout marketing can help, but the product has to be different enough to grab the attention of new customers. This lack of niche can quickly kill your business off, which is why a niche and USP has to be carved out during the development stages.
4. No Business Plan
A business plan is the structure needed to know you have a strong idea of how your business will evolve over the next few years. It should include details like your goals, operations, marketing and financial objectives, risk management and sales strategies. You can find out how to write a business plan in this video as a starting point, further developing and adjusting it regularly as your business grows and changes over time.
5. No Plan For Marketing
If you build it, they may not come, because you haven’t marketed your product right. It’s such a common reason for businesses to fail, assuming a great product leads to sales. Instead, there has to be a really detailed marketing strategy that is measurable, so that you know you are actively exposing your brand to potential customers effectively.
6. A Lack Of Action Plan
A lot of businesses fail because they are all talk, no action. So a business may start and have many of the things listed in this article. They may have an exceptional business plan, ideas, answers to any question presented to them, but there is no action plan to get the business going. Without actionables, even the best idea can’t take off, and a business will never really move beyond the first concept stages. With all the plans and ideas that you have as a small business, there has to be an action plan too, so that everything can actively come to fruition.
7. Thinking You Know It All
One major reason for business owners to see their business fail is having such a strong sense of pride and ego that they cannot take any criticism. They cannot handle being told that there are issues with the product, or problems with marketing etc. Do you have to push past non-believers to take business risks? Yes. However, to blindly ignore those who know better, feedback from customers and consistent trends in complaints, is incredibly foolish. By listening to everything you are told, and measuring that against facts, developing as and when you receive helpful constructive criticism, you are harnessing the power of feedback, not destroying your business because you can’t handle hearing it.
8. No Market Research
Some businesses (often seen on Dragons Den or Shark Tank) will actively present a product that solves a problem, only the problem is something they experienced and then decided to solve it without seeing if there is a wider market for that product. This can result in a lot of money being ploughed into a product that just won’t sell.
The way to rectify this is to ensure you do adequate market research to check your product has a place before investing a lot of time and money into it. You may well have the niche nailed, and other factors lined up, but can you prove there is an active marketplace for your product? If the answer is no, stop investing and do some more research.
9. Communication Breakdown
Communication breakdown is a major cause of both project and business failure. It can even impact major brands if it is not property managed, so it might seem simple enough, but it is certainly worth your attention if you want to see long-term business success. You can improve your own personal communication using tips from this video, but you’ll need to implement various strategies within your organisation to cultivate a communicative culture amongst your team and operations.
10. Being Inconsistent
Inconsistency can kill small businesses in many ways, namely by killing off trust with customers, employees, suppliers and clients. Growth can be stunted by these setbacks, and inevitably, the brand can be damaged so much it fails.
Taking steps like the above (business plans, action plans etc) will help to keep things consistent, as well as outlining and clarifying brand message, vision, voice etc during development stages, and at different stages of evaluation.
Your Small Business Has A Chance To Be A Big Success
By following the tips above, utilising services like affordable self storage and taking feedback onboard, you are going the extra mile with your business venture and so, have a much better chance of surviving not only your first year, but growing and thriving for many years to come.