Why your new business will probably fail

Entrepreneurship isn’t for the faint hearted. In fact, the rocky road to owning a thriving business is fraught with danger, risks, demands and complications.

And if that hasn’t put you off, this might. Because the ugly truth is that 20 percent of new businesses fail in the first 12 months, and 60 percent of them fail in the first three years.

But why?

Every new business owner goes in brimming with enthusiasm, high hopes and the desire to do and achieve more. So, what goes wrong?

Well, in the spirit of you not becoming a statistic, we’ll tell you. Because let’s be honest here, we don’t just want you survive, we want you to thrive, so let’s get these stumbling blocks out of the way first.

The five most common reasons new businesses fail

1. Money hurdles

Money may not be the root of all evil, but it’s probably the biggest disruptor to new-business plain sailing. There are a few elements to cover here, but they’re often interlinked…

·       Capital: A funding shortage is a huge obstacle to getting an enterprise off the ground. Aspiring entrepreneurs often underestimate the amount of money needed to get going.

·       Cashflow: Even when upfront cash is plentiful, businesses can experience a cashflow gridlock. In fact, most won’t turn a decent profit until the third year, but it’s easy to overestimate income and underestimate outgoings.

·       Pricing: Tempted to break into the market by pricing something way lower you’re your competitors? It may work, for a time. But longer term, under-pricing will erode business funds, as operating costs outstrip income. Know your worth.

·       Budget: Investors will be reluctant to come on board if they can’t see a solid, realistic, well-thought-through budget. Before someone hands over their money, they’ll want to see that the company has thought a lot about every aspect of the business, along with how much it costs. And that’s not in any way unreasonable.

2. A weak business plan

The importance of a sound business plan cannot be overstated. Before start-ups do anything else, they need to build a comprehensive plan, covering areas like management needs, marketing strategy and an analysis of threats and opportunities.

Why is this so important? Because it tells owners and investors what the business needs and how to meet those needs. And it stops anyone from getting carried away and growing too fast – another danger to new businesses, which we’ll get to shortly.

Business planning isn’t a ‘one-and-done’ process. Successful businesses rely on regular reviews of their plan, honest assessments of changes, and decisions on adaptations to make …all in order to stay afloat. 

3. Failure to assess market demand

If a business isn’t selling what today’s real-world customers are buying, it might as well pack up. It’s easy to assume that every good idea has a market waiting for it, and it’s just not always the case.

Many successful business owners take the time to do an objective ‘test and learn’ phase in the planning stages. This helps refine the offer, which is way easier (and less expensive) than trying to backtrack later on. Test it out – make sure people want it. If they don’t, change it.

 It’s important business owners define their value proposition and USP (unique selling point), as well as work out how to get this across to their target audience.

4. Marketing mistakes

If no one knows about a product or service, they can’t buy it. It’s that simple. Which is why poorly planned or executed campaigns – or a miserly marketing budget – can spell early doom for businesses.

New businesses can underestimate the cost of an effective campaign, and overestimate target audience reach… not to mention how many of those people will become actual paying customers.

There’s no getting away from marketing and PR’s vital role in any young business. So realistic campaign planning is essential. Good marketing takes time, money and the right expertise – which leads us neatly on to our next point.

5. The wrong team

New business owners have to wear multiple hats in the early days, but a long-term absence of a diversely talented team will massively impact a business’ chances of survival.

An entrepreneur may have the ideas and skills to create the product, but could be overstretched by managing a team and keeping tabs on the finer financial details. Do what you’re good at – employ other people to do what they’re good at. Everyone’s a winner.

This is about more than who’s on the payroll though. Getting the right outside support is incredibly valuable in preventing new businesses from going under.

Guidance from someone who’s walked the walk already is like gold dust. Learn from their mistakes rather than making your own. If they’ve been there and done it, they can show you how, not to mention lend a listening ear and offer motivation. Simply put, taking advice from business experts can be a start-up’s salvation.

Business Butler helps start-ups avoid these pitfalls and many more by providing access to vetted business experts. Our panel offer advice and support across more than 120 key services. Get in touch today.