15 Reasons Small Businesses Fail

 Entrepreneurism is an awesome feeling. To nurture an idea or vision to reality is akin to the birth of a child, yet much costlier. But in the midst of all this euphoria are some startling statistics:  

 Bloomberg states that 80% fail within 18 months

• Websitedesigner com, summarizes the results of three different studies. Basically, after four years, 50 percent of the businesses are open.
• The Small Business Administration (SBA):  “About half of all new establishments survive five years or more and about one-third survive 10 years or more. As one would expect, the probability of survival increases with a firm’s age. Survival rates have changed little over time.”
• Yet Entrepreneur Magazine says since 1977, business failures haslessen by 30%

 In twenty-two years of business I have seen many business closures. Yet, not all closures are failures.  Some sell their business for a profit, others change their legal descriptions, others do close for various reasons.

 Here are my top 15 reasons small businesses fail:

 Bad business idea.  

Some people do not do their homework. Verifying to see if the business is feasible will save money and time.  Sometimes planning will reveal that it needs tweaking or not to proceed.

SOLUTION

Conduct a feasibility study to access the strength of your idea or plan. It is better to find out up front before facing potential funders or starting a business that has a poor chance to survive.

Lack of funding

All of us know of the challenge to raise funds. Yet you cannot start a business without proper funding for startup, operations and preferably reserves. Do not think that you can open the doors and money will bombard you.

 SOLUTION

“If you fail to plan, plan to fail”.  I don’t know who is credited with this quote but it makes sense.  Business planning is essential but includes a plan to attract funding.  Know your business, industry, market keys, metrics and ratios.  Be prepared to make dozens of presentations to investors and banks (do not forget cloud funding and microloans).

 Too much funding spent on startup phase

Yes there are some firms who begin with proper funding but overspend on construction, planning & development.  You will need funds for operations and reserves.

 SOLUTION

If you have a good business plan there will be documentation on funding for every phase.  Hire an accountant or CPA to review your numbers to ensure you have allotted enough for operations and reserves. Be prepared to put up your own money but make presentations for more.

 Poor Leadership/Management skills

Not everyone is meant to lead. There is a fallacy that because a person is a top employee, they will make a good leader/manager. That is false. Leadership is about influencing behavior, empowering and acquisition of resources.

 SOLUTION

Obtain a mentor(s), hire certified trainers, read leadership books, hire key personnel who augment your weaknesses.  More importantly spend time on company culture and vision.  This will guide decisions, work ethic, communication and service.  Do not allow anyone to be in a leadership role without proper training, regular assessment and on-going development.

 Insufficient Planning/No Business Model

Some of my clients started business without a business plan and were minimally successful. Yet they labored for years before realizing something that should have been documented in the initial business plan.  They did not focus on the business model.

 SOLUTION

I have seen business plans on napkins, one-page and 100 pages. Set the vision and company culture first, then plan each stage and document metrics and evaluation.  It is vital that you understand your business model.

The model answers the question of how will you obtain revenue. It will include profit margin, cost structure, audiences and the reason you operating the business.  Another question it will answer:  How long do you plan on owning the business?  Will it be a family succession, quick sale, retirement plan etc…? It makes a big difference on how you manage expenses and revenue.

 Atrocious Customer Service

America we speak loud about customer experiences, but companies do not follow through.  There is plenty of bad customer service and it is not relegated to one industry.  As a small business this is a major competitive factor.

 SOLUTION

People want to be respected. Poor customer service is disrespect. Ensure that leadership is committed to the customer experience.  Yet there is a disconnect:  how you treat your employees, has a lot to do on how they will treat customers. Poor training, low pay and micro-managing could cost you customers and revenue. Invest, inspire and empower.

 Lack of Quality in Products and Services

Even I have been fooled by advertisements, marketing and sales collateral.  In writing the product/service seemed perfect.  Yet when I purchased it, the product/service did not meet expectations. I hear dozens of stories of poor quality which means, customers will not be back. Worse yet, they spread the negative word.

 SOLUTION

Poor quality or lack of delivery is the downfall for many businesses. You cannot make extraordinary promises with your branding campaign and do not deliver. If your model is built on upon cheap products and low products, poor quality may be expected. All others find a way to create a quality product/service at a competitive price and deliver.

 Poor Training

I am convinced that the majority of employees want to do well on their jobs. Training not only informs, but sets the tone of company culture and empowers.  Poor training will result in errors, mistakes, excuses and lack of innovation.

 SOLUTION

So many companies skimp on training. Training is more than an OnBoarding session.  It is an investment in your business and employees (your most valuable assets).  Invest in a system that trains, empowers, evaluates, provides opportunities and career pathing.

 Poor Segmentation

Segmentation is the process of identifying and targeting subsets/niches and implementing a strategy to communicate with them.  There are two errors in this stage:  lack of research and/or too much focus on a primary audience.

 SOLUTION

Understand who wants/needs your products/services; why do they need it? At what price? Who are their influencers and triggers? Once you determine the top 3 or 4 categories, how to communicate and who influences them.

 No Differentiation

What makes you different than the other 28.4 million small businesses in the United States? It is important that you as the business owner know, but more vital that the consumer knows (and the difference must be important to them).

 SOLUTION

There are so many businesses, some with the same products/services. Why should they select you? Gain an understanding of your uniqueness through focus groups and surveys. Invest in a branding program, design, packaging, imaging and social media.

 Lack of Marketing

Everyone knows the importance of marketing yet most will reduce marketing expenditures to shore up other areas. Marketing is the phase that engages your customers, that understands the client buying triggers.  Without marketing there are fewer sales, less revenue.

 SOLUTION

Market. Market. Market.  Without marketing there are no customers outside of family.  Start with dedicating 8% of projected revenue to marketing campaigns. Focus on your target markets, communication channels and move them from engagement to purchasing. There are some basic effective strategies that can be implemented with little cost:  pricing, social media, customer service to begin with.

 No Industry Experience

Someone in leadership or key management role needs industry experience.  Or you better do your homework to understand trends, best practices and operations.

 SOLUTION

Know the history of industry trends, best practices and key ratios.  Knowledge is power. If you understand the past and current trends it makes decisions easier.  If you do not have enough experience consider hiring a consultant or obtaining mentors.

 Lack of Financial Literacy

I am stacking a lot under this title:  accounting, accounts receivable, accounts payable, auditing, credit, finance, funders, investors, loans.  Initially entrepreneurs are primarily concerned with funding the startup.  Normally that includes personal credit, investors, microloans and banks.  It is important that you know every business decision and strategy will impact the above.

 SOLUTION

It is alright to have a weakness. With presentations it is not necessary to be the sole presenter. Take a key person who understands the numbers. The key is to identify people who have the knowledge to assist in setting up effective systems and hiring those who can implement. You may not know the nuances but you will need to be able to read financial statements and reports to stay abreast of your numbers.

 Price Strategy

To some degree price will be a concern with every consumer. So the amount you assign to products and services will be important to sales, profit and perceptions.

 SOLUTION

Pricing must support branding and positioning.  Effective pricing is affordable to audiences and profitable to the company. Before going to market conduct focus groups and understand your margins.

 Lack of Branding

Branding is the image/personality of the business and establishes differentiation.  With branding you are seeking an emotional connection through a good reputation with your audiences to enhance acquisition and retention.

 SOLUTION

Your brand promises clients/consumers what to expect from your company.  It is your reputation and encompasses images, slogans, customer experiences, packaging, products and services. It will impact on how you advertise, distribute products and design.

 Branding campaigns need extensive planning and feedback before going to market. Start with a tagline, visual and brand standards. Integrate your brand throughout organization. Ensure everyone knows image, emotions and message.