How to Avoid Business Failures

Business fails due to many reasons but broadly they fall under the following 3 categories

1.      Avoidable and preventable causes [most of the business failures would come under this]

2.     Causes beyond the scope of your current horizon[although some part of it would come under preventable causes – which is like identifying the emerging and developing trends and moving in that segment] -e.g., technological changes in the mobile-sets have shrunk the market-size of still-cameras and video-cameras – to a very very niche and small consumer base

3.     Economic factors like business cycles, recessions, wars, natural disasters, government policies, inflation etc

In-spite of having most of the essentials right – the business may still fail.

Why your first business is likely to fail – 48 reasons

1.      Your idea of the product/service is actually not a niche which you assumed. Many times we are blinded by our idea so much that we believe that we are more likely to succeed than others - But the statistics suggest this isn’t really the case, as a mere 2-4% survive for more than 5 years.

2.     You’re inexperienced - If this is your first time starting a business, you won’t have any prior experiences to draw upon when making decisions, establishing a direction or facing harsh challenges

3.     You don’t know what being an entrepreneur entails

4.     You don't bring a significant skill or USP to the table AND You depend too much on others for some of the CEO responsibilities

5.     Being a First-time entrepreneur, your risk appetite as well as perseverance level would be low meaning you can be capable of tolerating financial instability and other forms of insecurities

6.     Having limited professional network – as through our connections, we get in touch with potential VCs, clients, partnerships, suppliers and even employees, investors as well as mentors

7.     Because of your undying belief in your ideas, you are too excited and want to accomplish too much too soon. You would be chasing many different ideas concurrently thereby diluting your efforts as well as the outcomes. AND you may miss some critical fault that can create the downfall

8.    You may also go for very big expansion and growth too early

9.     Overspending resources in wrong channels or ideas, too early in the stage

10. You may take few initial failures as final doomsday message. But the truth is that Your business’s failure isn’t the end. Most entrepreneurs end up starting and running multiple businesses, so if your first one fails, that just means your second one will be more likely to succeed. 

11.  You Started the business for the Wrong Reasons

12. You launched the business before right-skilling yourself and your are under-prepared

13. You have judged the market size and its reaction to your offer

14. Mis-managed & mis-understood or wrong financial perception and assumptions

15. Unable to generate revenue in-spite of attracting enough capital

16. Wrong Pricing Model –keeping too thin margins

17.  Personal misfortunes impact your businesses

18. Opening a business in an industry that isn’t profitable, sometimes even a great idea won't work

19. Failure to understand and communicate what you are selling

20. Not market and customer testing to verify - Is it even needed – what you are offering

21. Not-being pro-actively innovative to respond to the market/product/technological and others changes – Being Reactive

22. Overdependence on a single customer

23. Leadership failure No succession plan

24. No differentiation – Ignoring customer needs 

25. Choosing Partners with Contradicting Agendas

26. Less or no market-research

27. Becoming indispensable to your organization and making organization depends on you too much, centralized decision-making powers Taking the customers for granted - In entrepreneurship– Nothing fails like success. If as an entrepreneur you succeed and get some great customers in the beginning, then taking them for granted

28. Micromanaging & too much interference

29. Holding resources in reserve

30. Refusing to hire people who are smarter than you

31. Being cheap about the wrong things

32. Treating technology as a magic bullet

33. Believing that if nothing is broken, it doesn’t need fixing

34. Confusing “invention” with “innovation - Invention involves creating something totally new from scratch. Meanwhile, innovation takes preexisting products, processes, services, technologies, and ideas and makes them better

35. Letting politics supersede business

36. Not trusting your team

37. Mishandling disagreement and conflicts

38. Insignificant Social Media Presence

39. Lack of organizational skills

40. Poor execution 

41. Lack of core entrepreneurial competencies 

42. Being too stringent (or too generous) with your budget 

43. Setting impossible goals 

44. Not outsourcing some of your responsibilities

45. Focusing more on sales than you do on building relationships 

46. Being too afraid of the unknown to take a risk

47. An inexperienced team

48. Underestimating resource requirements

How to ensure that you have done everything that is possible under your current span of influence and control.

Because most of the situations do not fix themselves and if you ignore taking the decision and action at the right time – you may take your business to a point of no return, where it must close.

Following are few areas, you need to evaluate and work-on – 39 Immutable Laws

1.      Many times businesses lose money in-spite of having an increasing customer base because of negative contribution OR prices which doesn't cover the total cost of delivering that product or service. Ensure that you have a positive variable contribution - When you find situations with a negative variable contribution, increase the price, reduce the cost of providing the incremental unit or stop offering that product or service. There may be rare exceptions to this rule, but in general, you have got to ensure that you are making money to cover your overhead on each sale

2.     In cases you cannot charge more from the customers you need to optimize costs[using the principal of 8 wastages as per lean manufacturing]. This can be done by eliminating all the unrestricted and very less value adding non-people costs [or non-value adding] along with right-sizing the human-power – which may involve taking tough decisions to ask people to go or reduce their compensations. Austerity measures are never easy, but if the alternative is closing your business, it will be better to keep some people employed than for everyone to lose their jobs when the company shuts the doors.

3.     Pay as per the criticality of must have services/materials from vendors [ prioritize on the basis of those first to pay, which can make the business close the shop if don't get] – in order of the essential employees, essential outsourced services/cost of raw materials and essential taxes or interests etc which can get you into deeper financial mess through penalties etc

4.     Ensure that you receive more inflow of revenue from those you owe you vis-à-vis paying those you owe. Plan your cash flow carefully

5.     Proactively communicate with your creditors and lenders – seek and solicit their cooperation by feasible-transparent communication BY sharing your current handicaps and your payment plans

6.     Know what is going wrong create a system to collect negative feedback from your competitors, vendors, customers, employees AND act on it immediately

7.     Be a responsible owner, ensure that yours as well as your employees have a viable salary structure during tough economic phase. Don't siphon all the profit to choke your business

8.    If you can't understand the reason for failing and figure out how to be successful again - engage a professional business consultant. Be open to different and disruptive ideas. Your may have wonderful ideas, but if they are not working then it needs to be modified to incorporate what can make it functional by infusing the outside perspective

9.     During toughest of times Invest in Yourself and your team to transform them into an asset, it may seem to like a cost [AND few on these employees you have Invested in developing – may leave your organization]

10. Create a transparent meritocratic reward based on the type of contribution

11.  Redesign what you sell to the customer - Engage your customers to discover what they truly want from your business. Then align your product model and marketing plan to suit their demands

12. Use social media and internet for Creating awareness as well as word of mouth publicity for your product/services by investing in low-cost advertising methods – to increase your customer base - for full why your first business may fail in success unlimited mantra