They say that starting a company is a risky business, but few people ever come to understand just HOW dangerous it is. It is not only 10 or 15 per cent of companies that fail in the first ten years, but rather 70 to 80 per cent, depending on whose figures you believe. Those aren’t good odds.
Fortunately, if you can understand some of the reasons why businesses fail, you can do quite a lot to buffer yourself against such a fate.
Reason 1: Failure To Create Adequate Business Processes
Business processes are mostly a series of tasks that you carry out to provide the best service you can to your clients, making them amenable to automation. Most entrepreneurs understand the importance of turning their marketing efforts into a process, but comparatively few go beyond that. Pro tip: if you want long-term success, you need to convert many more things in your business into a series of automated steps, such as communicating with customers, conducting financial audits, and so on.
Reason 2: A Negative Culture
Businesses thrive when they attract the right people. If, however, your culture isn’t right, then you’ll lose staff and, over time, competitiveness. Sometimes a lone employee can spark discontent that leads to a downward spiral in morale and people leaving the firm.
The lesson? If you spot an employee bringing the team down, intervene immediately.
Reason 3: Lack Of Strategic Leadership
Being a great leader isn’t just about keeping team members happy: it’s also about deploying them in ways that generate genuine value for the firm. If leaders in businesses don’t think strategically (that is, how they are going to win), then they lose their unique selling point and fail.
Reason 4: Failure To Rein In Expenses
Doing any kind of business involves costs, but some companies can go overboard with their spending, buying services and hiring people they don’t need. Executives, therefore, need to be ruthless with expenses until they can afford to experiment.
Reason 5: Absence Of Competitive Advantage In Target Niche
If any firm wants to succeed, it needs to have a competitive advantage in its niche. Unfortunately, many smaller businesses don’t offer anything customers can’t get from their larger and cheaper rivals. This fundamental economic reality undermines the enterprise from the start, ensuring long-term lack of profitability.
Reason 6: Customer Trust Issues
Startup entrepreneurs will usually do whatever they can to get ahead, but sometimes this type of behaviour can cost them. Customers, in general, want transparency and authenticity from the companies with which they interact. So, for instance, if a firm quotes a particular price for a service, they expect them to keep to their word (unless there’s an excellent reason not to). Startups, therefore, can find themselves in hot water if they promise the Earth but then come up short.
Reason 7: Lack Of Sales Funnel Automation
All companies need a “sales funnel” to grab potential customers and get them interested in eventually buying. Even if the process takes several months or years, it is worth putting the effort in now for the presumed payoff in the future.
Many companies, however, fail to develop a sales funnel and mindlessly automate their marketing operations. Doing this, however, leads to a host of problems, including cold traffic. Crafting a viable sales funnel, therefore, needs to be a central aspect of the business plan.
Reason 8: Inability To Optimise Sales Conversions
The heart of every business is optimising conversions – or, put another way, getting as many people to buy your product as possible. Some budding CEOs can focus too heavily on all the other tasks that they need to do and lose sight of their primary goal.
Reason 9: Failure To Engage The Target Audience
Companies need to ensure that their products engage their target audience. For that reason, they have to be clear about what they offer. Do their products help to elevate the status of their customers? Do they solve a particular problem? Are they better than competitor products and, if so, why?
Unfortunately, many startups fail to articulate why people should buy their products and they wind up getting the cold shoulder. The solution? Start with quality research and focus groups and then move onto follow-up calls to collect more information on the general customer reception of the product.
Reason 10: Lack Of Real Value
Ultimately, startups fail because they don’t offer their customers something of genuine value. While the product or service might seem like a good idea on paper, the practical applications are limited.