Posted by Dave Lorenzo - Business Coach

We have all heard the numbers.  Most small businesses will be extinct within three years of start-up.  Some studies have this number as high as a 95% failure rate.  

Have you ever wondered what separates the 5% of business owners who are successful from the majority of businesses that fail?

A big part of it is education.  No, not the kind you get in school.  It is the education you pick up through experience.  You can either gain the experience yourself and risk going broke or you can benefit from the experience of others. 

So that you may benefit from the experience of others, we have included the five most common reasons small businesses fail.

Reason One - Lack of Planning

Anyone who has ever been in charge of a successful project knows that were it not for their careful, methodical, strategic planning - and hard work - success would not have been possible. The same could be said of most business successes.

It is critical for all businesses to have a business plan. Many small businesses fail because of fundamental shortcomings in their business planning. It must be realistic and based on accurate, current information and educated projections for the future.

Planning should not just be done during the start-up phase.  Solid on-going strategic planning is necessary for continuing business success.  We advise our clients to adjust their strategic plans at least every 90 days.  This helps them keep up with changing market conditions. 

Reason Two - Ineffective Marketing and Sales

Contrary to the popular cliche, few products or services “sell themselves.” If you don’t market your product effectively you will fail quickly. Marketing keeps your products selling and money flowing into your business. It’s crucial that you do it well.

Marketing helps stimulate interest in your product or service while sales focuses on converting interested prospects into customers.  In small business both of these activities must function together as one discipline.

Small business owners often become caught up in the day-to-day operational aspects of their businesses and they neglect this key function.  Developing a system that contains at least seven points of customer contact is critical to the success of any business.  Some examples of a point of contact include: direct sales, networking, advertising, public relations, direct mail campaigns, coupons, e-mail solicitation, event sponsorship, etc.

Reason Three - Shame

The same strong-willed confidence necessary for success can also lead to a business downfall.

Self-assuredness can inhibit entrepreneurs from seeking helpful advice-a fatal blind spot at any stage of business development.  This can lead to a business dying a slow and painful death due to foolish pride.

Being ashamed to ask for help is the worst possible reason for a business to fail - yet it happens every day. 

Reason Four - Ignoring the Competition

Business is war.  The leaders of large corporations understand (and never forget) that fact.  If you own a business you have an obligation to do everything, legally, morally, ethically and fiscally possible to succeed.

Small business owners often neglect to make adjustments to their business based upon trends in their industry and their market.  Many neglect this critical aspect of their business because they don’t feel that it is relevant in a small business. 

The opposite is actually true.  The loss of one good customer can devastate small business.  Your competitors are out there and they want to take away your customers.  You need to be one step ahead of them. We advise all of our clients to conduct a periodic competitive analysis.  This helps to ensure our client’s business is always in the best possible position in its market.

Reason Five - Poor Financial Strategy

This includes poor financing, under financing and poor cash management.  Many business owners focus on developing infrastructure before they establish some for of cash flow.  

In addition, start-ups sometimes set up elaborate business plans that require huge expenditures.  When the business owner finally finds himself ready to open his doors he realizes that he has no money remaining for sales and marketing.

This “if we build it they will come” mentality is so common that many smart investors often purchase entire businesses for pennies on the dollar.  They then invest their money on sales and marketing and the business flourishes.

Don’t Let this Happen to You

If you avoid making these five critical errors your business has an increased likelihood of success. 

If you would like some additional information of how to set your business up for success give us a call 888–474–1120.

Filed under: Entrepreneurship - General
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