Most small business owners are probably well aware of the fact that the majority of small businesses eventually fail, and that can lead to a fear of failure which is almost universal. However, there is some good news about all these failures – they tend to fall into a very few consistent categories and reasons, and if you know what those reasons are, you have a much better chance of avoiding the fatal pitfalls for your own small business. Below are described five of the most common reasons for small business failure, and if you can avoid these, you will increase your chances of survival.
Inadequate market research
A recent study of more than 100 business startups by CBInsights discovered that the most commonly occurring reason for failure was that there was no market need for the products offered by those startups. Doing research for your intended market has to involve more than reading information about the subject, it should also include hands-on research on your part. Whatever your product is, start out by offering it to the public in a small way, such as a table at a farmer’s market, or a kiosk in a mall.
Business is not disaster-proof
There are of course, lots of disasters which could intervene to take down your business, so there’s no way you could adequately prepare yourself for each and every one of them. However, you can prepare against the most common business disasters, so that none of the obvious problems overcome you. First of all, make sure that someone in the organization can replace you, if you have to be out of commission for an extended period of time. Make sure you have enough money to get through six months of an economic downturn, and that you have adequate staff for coverage if certain staffers get sick. Lastly, make sure your business is protected to the utmost by as much insurance as you can afford.
This is a reason for failure that almost anyone can predict, but it still takes down many startups. In order to avoid fatal pitfalls in the first year or two, you need to have more funding than whatever cash on hand you started out with. It’s very important to have a secondary source of income available to you, such as a business credit card or line of credit. Loans are almost unobtainable from banks if you’re a startup, so you need to secure funding via alternative methods.
Lack of business understanding
It’s not enough to have a good understanding of the product or service that you’re offering to the public when you’re in business. You also have to know all about the legal issues, any certifications which are necessary, staffing issues, financing, and employee relations. If you don’t have a good handle on all these areas, you’re not really ready to go into business.
Inability to adapt
Almost anyone can read books and consult with mentors to learn how to run a business. But there is always more to running a business then what can be learned from any of these sources – because the real world has a way of changing the rules every day. If you’re a person who insists on running things the same way regardless of external influences, you probably won’t do well in managing a business. What’s really needed is the mindset that you’re ready to adapt to changing market situations, and then doing what you need to do, in order to compete in your marketplace.
If you’d like to discuss how to prepare for small business pitfalls, Business Partner Alliance is here for you. We provide targeted coaching, consulting and business advisory services to help small and medium sized business owners achieve new heights. We put our passion and experience to work to help business people achieve their goals. Let’s meet for coffee to see how we can work together.