Why Do Small Businesses Fail?
(3 minute read)
Roughly one-third of all small businesses fail within the first two years. Why is the rate of failure so high? Typically, it is not for lack of effort or enthusiasm on the part of the small business owner. Unfortunately, many rookie small business owners simply don’t know what they don’t know. For those who may be just starting out, below is a list of reasons why the road in front of you is fraught with peril. The purpose of this article is not to scare you, or talk you out of taking that leap of faith to pursue your passion. To the contrary, it is to empower you with the hard earned wisdom gained by the many small business owners who have gone before. If you know where the landmines are buried, the likelihood that you will successfully navigate them increases dramatically. Below, in alphabetical order, are some of the small business landmines.
Adapt: Adapt to changes in the marketplace and to maintain your competitive edge. Many of the mammoth brands that dominated the market several decades ago have since faded away without even a whimper, this is likely the reason why.
Administrative: Complete the necessary, but often times burdensome, administrative tasks it takes to keep the business operational. Even though they do not directly generate income, administrative tasks must be executed, routinely and with competency.
Branding: You must set yourself apart from the competition. If you don't give them a reason to purchase your product, they won’t.
Compliance: Understand and comply with the standards that regulate or govern your industry. “Anything goes” is not a business plan, there are some essential rules of the road.
Customer: Embrace the fact that the customer reigns supreme. Customers have collective wisdom. If it's not about the customer, they will sense it.
Data: Even the simplest, most unsophisticated businesses can glean extremely valuable information from their respective markets. Take time to observe and synthesize what is happening.
Delegation: If the captain of the ship is forced to do everything, all of the time, some things must be sacrificed. If the thing being sacrificed, or compromised, is the underlying business product or service, it’s time to delegate.
Financing: Educate yourself as to all of the potential financing options. Don’t skimp on your homework. You may be very surprised by the number of viable sources.
Growth: It must be deliberately managed. Many businesses actually fail as a direct consequence of their early successes. Too much growth, too fast, is very dangerous and difficult to navigate.
Identity: What is the mission or guiding principle of your business. While branding constitutes your public image, your business identity drives the internal values that keep the fire burning.
Inventory: If your business requires “stuff” to make the magic happen, then that stuff must be ordered, shipped, received, stored, inventoried and most importantly paid for. It's not as easy as it sounds and requires coordination, timing and organization.
Legal: Do not promise a service, price, warranty or product, unless you can deliver, as advertised. Failure to do so exposes your business to legal liability.
Management: Even if you are a creative genius who offers an extremely valuable service or product, the fundamental professional activities of daily operations, finances, marketing, business planning, growth, customer service, etc. must be soundly managed. If you are not consciously managing your business, you are probably mismanaging it.
Marketing: In order to sell your product, you need to first pique the interest of prospective consumers with promotion, advertising and messaging. The famous line “if you build it they will come” is an entirely fictional creation of Hollywood.
Neglect: If you are unable, or unwilling, to dedicate the time and energy necessary to maintain a functioning operational structure, failure is only a matter of time.
Niche: Rather than service the market at large, and compete with everyone in that space, it may be wiser to intentionally cultivate a much smaller segment, emphasizing such factors as price, geography, degree of quality, customer values, specialized interests or demographics. Brand loyalty is often a direct product of niche marketing.
Profit: Positive cash flow is not the same as profit. Unless your small business venture is actually a hobby, at some point the owner needs to make a profit. Cash flow can be quite complicated and confusing. Setting aside the proper amount of money for profit, at the proper time, requires a command of the finances.
Plan: A strategic roadmap for your business, even if basic in structure, is a good thing to reduce to writing. The process of putting pen to paper will cause you to refine your thinking and to give thoughtful consideration to purpose, mission statement, structure, growth, market analysis, organization, projections etc. If you want to entice investors, they will very likely want to analyze your business plan, in writing.
Sales: Making the sale is the holy grail of small business. If you are good at this, your likelihood of success increases exponentially. But it requires method, process and attention to detail. Once you discover a sales system that works, embrace it, nurture it and do not ever neglect it.
Technology: If you wear many different hats as the business owner, discover what technology has to offer. There is an entire technological sector out there dedicated exclusively to helping you survive and thrive. Utilize their expertise and wisdom. Chances are they have given more thought to solving your problems than you have, so capitalize on their brain power. Most importantly, they are literally invested in your success.
Let's do this!
