According to a study conducted by Bloomberg, eight out of every ten businesses fail within the first 18 months. The Small Business Administration puts it another way: only 50% of new businesses make it past the first five years.
Now, that’s scary. Your business could easily join that statistic if you are not proactive. The good news is that there are things you can do to forestall such misfortune. Here are five reasons businesses fold up and what you can do about it.
John Maxwell couldn’t have put it any better when he said: “Everything rises and falls on leadership.” It’s great to have a big vision and passion, but those are not enough to run a business.
From the hiring, marketing, production, compliance, finance to procurement, there’s a long list of roles a business leader must have a hand in. You should know what you do best and when you need professionals to help.
What to Do: Put together a competent team and a respectable board of advisors. Have mentors to guide you in leadership strategy. Understudy other businesses and learn from their successes, as well as mistakes. Also, encourage a company culture that attracts the best employees.
Insufficient Capital and Bad Financial Management
True, business isn’t about the money – it’s always about the people. However, without money, a business can’t start or thrive. To start a business, you’ll need to have a funding plan and a sustainable funding source. The inability to manage things like taxes, expenditure, capital, and cash flow can cripple a business.
What to Do: Hire a competent finance officer who would help you track and manage your finances. You should take advantage of finance software such as Xero, QuickBooks, and LivePlan.
Not Creating Effective Business Systems
Managing a business daily is hard work. Most businesses start with excitement but fiddle away because of poor management practices. You should always ask yourself questions. What are the communication channels in your business? Do you have a clear marketing plan? What about an IT strategy and data protection?
What to Do: Have a clear administrative system for your business and use CRMs to handle customers well. Find foolproof systems that do not allow for your data to be compromised. From business-grade software solutions, such as Dropbox Business for online storage, to eFax, for online fax services, there are a number of channels that can help ensure secure file-sharing.
Not Understanding Competitors and the Market
Your competitors can make or unmake you, especially if you’re in an industry where big businesses are firmly planted. The market does not respect good intentions, zeal or passion. It only responds to businesses that deliver real value. Understanding the niche you operate in will help you know which innovations and solutions to offer.
What to Do: Be big on market research. Use surveys, interviews and case studies to shore up your marketing. Always keep tabs on what your competitors are doing to make sure you’re not left behind.
Poor Customer Relationship
A study by Microsoft revealed that the attention span of humans has gone down from 12 seconds to 8 seconds. If your business doesn’t serve and value the customer, you’re in for a tough ride.
What to Do: Let good customer service permeate your culture. Train and retrain employees to serve clients well. Customer-facing platforms, such as websites, should be optimized for conversions. You can use Google AdWords to analyze and optimize your website’s performance.
Running a business is not child’s play. You’re up against some of the most innovative and competitive people you can find. That is why you should always put your best foot forward. Listed above are reasons businesses crumble along with pointers to ensure you don’t end up in the “failure pile.”