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Why Startups Fail?

A number of statistics published state that “almost 50% of all small businesses fail with the first fours years in operation. Other statistics on small business start-up success include;

  •  The Small Business Administration (SBA) keeps the stats on business failures and claims that more than half of new businesses will disappear in the first five years.

  • A study done by Inc. magazine and the National Business Incubator Association (NBIA) revealed that 80 percent of new businesses fail within the first five years.

  • Businesses with fewer than 20 employees have only a 37% chance of surviving four years, according to Dun & Bradstreet reports.

Although small business growth contributes significantly to a nation’s continued economic expansion, new entrepreneurs must know that it takes more than a good idea for a small business to succeed. The term “People don’t plan to fail, they fail to plan” can also pertain to small business start-ups.

The following are ten reasons why small business start-ups fail –

  1.  Limited Business Planning

  2. Poor Business Models

  3. Inefficient Pricing Models

  4. Management / Operational Issues

  5. Ineffective Marketing

  6. Lack of Competitor Knowledge

  7. Credit / Debt Issues

  8. Inaccurate Sales Forecasting

  9. Poor Accounting / Financial Management

  10. Lack Proper Training for Management and Employees

There are a number of ways for a small business to withstand most external and internal problems, and keep its doors “open for business.”

i) Advance Preparation – This involves assessing the risks of the business in relation to external factors. Conducting a comprehensive discussion with a professional small business consulting firm can help in considering any potential problems or challenges the company may face.

ii) Market Assessment – By conducting a thorough market research analysis of the potential marketplace, an organization can identify its competitors, the target market, industry limitation and much more.

iii) Business Plan Development – A business plan can provide details about the business idea (market, competitors, target market, financial requirements, ROI, etc.) The business plan can also be used to monitor performance against targets, once a business has been in operation.

iv) Training – Most entrepreneurs know their products/services very well, but they lack in other areas of running a business. Such areas include; marketing, customer service, accounting etc. Although some of the business areas can be outsourced to a professional small business consulting firm, it is important for the business owner to have a solid understand of the areas of their business.

v) Adequate Cash Flow Management – As a start-up business, it is important to keep a tight control over credit and cash flow. This will help a company reduce any financial problems, which can have an impact on its daily operations; keeping the company financial stable.

Small business owners seeking to enter a particular marketplace can eliminate from being one of the statistical figures by; taking the proper steps, identifying potential problems, developing long term strategies, and seeking professional advice from a professional small business consulting firm. Studies have proven that small business owners that have access to business management information plus assistance from experienced business advisers have a higher success rate than those that don’t.

Related:
  • How Small Businesses Can Achieve Growth And Success
  • Competitive Advantage: Ways to Outsmart Your Competition
  • 4 Critical Reasons to Monitor Your Product Performance

Filed Under: Business Planning, Markteting Research

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