By: leon@enterpriseknowhowe On: February 21, 2017 In: Business, Market Research Comments: 0

5 reasons why business fail

While conducting research for a blog article I come across the top 20 why start-ups fail by CB Insights. It’s a really interesting read if you like me are a small business owner whether you have just started or have been in business for a while.

The article reveals the top 20 reasons for business failure from a survey of 101 businesses that failed and the full article can be found here: https://www.cbinsights.com/research-reports/The-20-Reasons-Startups-Fail.pdf

It really hits home the many issues we as small business owners face and it highlights many of the issues I’ve helped small businesses, social enterprises and innovators with. The top 5 reasons for business failure are as follows:

1. No market need – Not understanding your customer needs will ultimately end your business. It’s critical that you understand your perfect customers, what issues they face and how you can help. It’s common that many innovators I’ve met provide a solution to something that’s not really a problem – they create the need, not the customer. Always put yourself in the customer’s shoes and evaluate what does the customer need. You also need to understand from the outset who will use your product or service and who will buy it… these can be two different things. I watched Dragons Den recently and a fella had developed a great device for wood burners, however, he did not understand the need for this device AND he did not understand the who would use and buy the concept. It’s important to get this right from the outset.

2. Cash flow – Running out of money was the second biggest failure. As the saying goes “Cash is King” and it’s so true in business. Managing incoming and outgoing finance is critical and I’ve seen too many businesses fold due to this problem. This, from my experience, occurs when a small business or social enterprise relies on 1 or 2 customers. If a late payment occurs or if you’ve agreed to 60-90 day payments terms your going to struggle to make in the short term. I’ve also witnessed a lot of businesses not being paid at all – especially from some well known big businesses. It’s critical you get a handle on this. I’ve seen some good businesses fold due to this reason alone.

3. Wrong team – It’s difficult enough running a business on your own, your sometimes isolated and things can be tough, however, if you have the wrong team this can be even worse. You’ll soon find out how your partner handles the stress when things are not going to plan and whether they have the right skills, experience and integrity to help each other through. A great team will make your business, a bad one will break it. If you are having difficulties at an early stage, don’t shy away from the problem, it’s hard yes, but tackle it before it fails.

4. Competition – Outcompeted is given as the 4th reason for failure but you should know about your competition from the outset, the bare minimum who they are, their offer and price. Sometimes competition can squeeze you out depending on the market you are in, but you should be aware of this. Business is tough, only the best survive. Get some research done and understand what your competition does well and not so well.

5. Pricing/costing issues – It’s very difficult to get this right first time, particularly as a start-up but if you get it wrong then it’s good night sweetheart. If finance isn’t your thing, get some help. Understanding this from the outset will help you and your business but start discounting at an early stage will inevitably have consequences – you’re in this to make money.

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