Why Some Businesses Die Prematurely

Starting out a new job, business, idea almost always comes with euphoria. But it doesn’t always last. Like the proverbial bubble, it bursts suddenly, and reality sets in. 

It’s about that time of the year when preparations are in top gear for the new year, and I bet the bright lights of entrepreneurship are calling, again. How do you handle that?

To be fair, who doesn’t want to be addressed as CEO or MD? But before glitz is work, and it has to be done. Here is a scary statistic: according to a Bloomberg report, 8 out of 10 entrepreneurs who start businesses fail within the first 18 months.

Scary, huh? Just a meager 20% chance of survival for new businesses. As a result, it behooves small business owners or aspiring entrepreneurs to tread the business path with circumspection, and endeavor to get necessary business information or they will end up adding to the failure statistics. Fair enough, right?

Another truth is: when starting a business, the last thing you want to focus on is failure. But if you make efforts to address some of the common reasons for business failure up front, you will be much less likely to fall victim to them yourself.

Expert opinions abound about what a business owner should and shouldn’t do to keep a new business afloat in the perilous waters of entrepreneurship, but there are key factors – if not avoided – that will certainly weigh down a business.

A good place to start is that the many reasons for business failure can be better understood using the ‘Iceberg Principle’ – which posited that in many (if not most) cases only a very small amount (the ‘tip’) of information is available or visible about a situation or phenomenon, whereas the ‘real’ information or bulk of data is either unavailable or hidden. Based on the foregoing, at the surface level the primary reason businesses fail is they simply lack adequate capital or they run out of cash. But in reality, the cracks in the business foundation can be traced to other factors.

Today, permit me to share my top five reasons why businesses fail and tips for avoiding them:

#1 – Starting a Business for the Wrong Reasons: Why did you start that business? – Is it so you can be your own boss? Or have more time for yourself and be free from the dreaded 8-5 work hours? So you can make lots of money and become rich over-night? Newsflash! Entrepreneurship is the very opposite of these reasons. It is not a bed of roses as many believe – this is so because there would be cash fluctuations at the earlier stages of the business, which means you would need to work for every penny you make which then leads to you working 24-hours a day and 7-days a week!

For a better chance at entrepreneurial success – start a business you have a passion and love for; a business that you are well knowledgeable in; a business which you have the drive, determination, patience, a positive attitude, physical and emotional stamina for.

#2 – Starting a Business with a ‘Me-Mentality’ without Business Continuity in Mind: When a business is set up with the ‘me-mentality’, it is being set up for business failure! The ‘me-mentality’ connotes a situation where every parts of the business run on the business owner alone, without the owner moving nothing does in the business. I agree, while this may be beneficial at the early stage of a business start-up, it becomes more of a minus on the long term in the business life-cycle. Dear Business Owner, you are not alpha and omega! You must know that only businesses that are built on structure outlast those that are not! Hence, endeavour to get a business structure to cover organizational design, management, finance, human resources, strategy etc., so as to ensure business continuity. These you can achieve by getting experts to help you out.

#3 – Starting a Business based on Mere-Mental Projections: Often when a business owner has been part of a successfully run business before, such may feel starting a business is a piece of cake. They often make an error, which many make, based on a mental projection that once they start their business there would be smiles all the way to the bank. But, the hard reality of this assumption soon became evident with time. Contemplating starting a business? Then, never start based on mere mental projections. Do your homework – feasibility study, market research, business plan etc. Never start a venture you are not equipped to finish, be wise!

#4 – Starting a Business with Poor Business Management Skills: New business owners frequently lack relevant business and management expertise in areas such as business operations, finance management, selling, marketing, hiring and managing employees. Unless they recognize what they don’t do well, and seek help, business owners may soon face disaster in their business venture. Hence, business owners must be educated in areas they are inadequate in. Recognizing your weak-spot as a business owner and seeking help in that regard, can prove to be your greatest strength.

#5 – Starting a Business without Adequate Plan for Expansion: When you fail to plan for your business growth, then you are planning for business failure. Often, business owners start to expand their business before they are ready for it; this usually happens when business owners confuse business success with how fast they can expand their business. Remember, with every expansion comes over-head costs which in the long run eats into business profits and may lead to an ‘unhealthy balance sheet’. Dear Business Owner, focus on slow and steady growth for your business venture. At the same time, you do not want to repress growth. Once you have an established solid customer base and a good cash flow, let your success help you set the right measured pace.

Summarily, it suffices to say that when it comes to the success of any business venture, the critical success factor is YOU. Put simply, your business success is in your hands. I wish you great success in your entrepreneurial voyage.

*This article was first featured in The Start-Up Digest column of The Businessday Newspaper.