Almost 50% of the new companies formed in the US and Canada fail within the first 3 years. Just because that happens to be the case, it doesn’t make seeing a business that somebody worked so hard for die any easier to watch.
I hope the following information will make an impact on curtailing the business death rate.
Why Businesses Fail
Under capitalization. Money is the root of all evil and it may well be the leading cause of small-business failures. Far too many small-business owners underestimate how much money they’re going to need, not merely to get the business started, but also to survive the inevitable up and downs that occur while trying to make a spot for themselves in the market.
Not having enough money from the onset of your business can start a spiral that you may never get out of.
Bad cash flow. This is the often-unseen relative of a lack of capital. Even businesses that move past the embryonic stage often collapse when incoming cash doesn’t at least offset expenses and other costs.
Your business can be making a ton of revenue but if the inflow of that revenue is less than the outflow of expenses, you have bad cash flow, which will spell trouble no matter how much revenue you generate.
Inadequate planning. Not surprisingly, this is the reason problems like capitalization and bad cash flow happen in the first place. It’s critical that you map out as comprehensive a business plan as possible, covering financial issues, marketing, growth and an array of other elements.
Granted, it can be time consuming, as a well-prepared plan can take weeks or months to complete. That time may also tell you that the new business venture or company expansion is not worth the time and money it will take to accomplish.
No target market. This is a two-part issue.
Part 1: Not setting a target market is a huge mistake made by many business owners, even in established businesses. Who will think your products/services are useful? It’s essential to develop a marketing strategy not merely to identify who might buy from you, but why.
Make certain your marketing strategy sets you apart so customers can clearly see why they would rather go to you than a competitor. More importantly, break down your target market as much as possible, especially if your product/service is not something used by a general audience.
Part 2: A solid target market should also keep you from making the mistake of trying to provide too many services or products, which will cause you to spread yourself too thin. Small, and especially new, companies often tend to look for a way to make money in any form they can instead of sticking to core products and services.
If this happens, the company will not be able concentrate already limited resources to selling and servicing the things the company was built for.
No competitive edge. Once you have determined a target market, now you have to make them know why you are special compared to the other guys selling the same thing. To gain an edge on your competition, you need to go into business with a Unique Selling Point (USP).
This is critical to gain some mustard behind the company and having something to exploit over the competition. Whether it’s a slightly different product or customer support that goes beyond your competitors; earmark that one element that sets your business apart.
Sometimes a “me too” operation works, but that usually happens when you are the first to bring a product or service to a market that has yet to be exposed to it. Figure out your USP and that will give you something specific to help market your company both online and offline to your target market.
Inadequate flexibility. This is where being one of the little fish is much better than being a goliath company. Big business has a lot of advantages when it comes to things that cost money and resources but they are fat and very inflexible. The small company has the ability to change directions on a dime.
Never forget to remain flexible. If a product isn’t quite right or a marketing campaign isn’t really flying, don’t be afraid to tinker. Making those sorts of on-the-fly adjustments is much tougher for the big guys.
Ignoring customer service. Don’t give the farm away and do tons of things free for customers or potential customers but be prepared to give a little extra. You and your employees should be looking to help out a customer when needed to show your appreciation for them providing a paycheck.
An overbearing customer is a problem but showing a little extra courtesy that doesn’t cost too much time and effort should be a given. That’s what keeps people coming back.
Trying to be everything to the business. As an entrepreneur or manager in a smaller company, you often have to wear many hats. The thing to avoid is wearing more than what fits on your head. Don’t try to be all things to your business.
If you can’t build a website, don’t try to become a website guru or do a half baked job, get some help. When a legal issue crops up, don’t rely on your self appointed legal skills to evaluate the legal ramification. Establish a long-term relationship with an attorney, preferably one with small-business acumen.
Great boss, so-so staff. A solid business with a knowledgeable, enthusiastic owner can often be brought down by inexperienced and unmotivated employees. Make certain your employees are well-trained, fairly compensated and somehow share in the desire that you have to be part of a great business.
Uncontrolled growth. This may make no sense, but it’s true; a small business that simply succeeds too quickly often pushes itself into an early grave. If your production fails to keep pace with demand or necessary expansion coincides with insufficient cash, the growth you dream about as an entrepreneur can actually threaten your business’ very existence.
Again, cover foreseeable growth in your original plan and track it adequately to make certain that it never gets dangerously out of hand.
Copyright (c) 2007 George Sierchio www.actionbusinesspartners.com
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