Via Rod Begbie
Being an entrepreneur is a stressful job. It takes a strong constitution, a lot of hard work, and a good dose of common sense. Despite the heart and soul most entrepreneurs put into their businesses however, many, many small businesses never really get past a certain level of growth, and many of these eventually fail. The statistics are enough to make anyone with entrepreneurial aspirations wince: 80% of entrepreneurs who start a business don’t last 18 months. Small businesses large enough to have employees are by no means safe either—50% don’t make it to 5 years. Businesses fail for many reasons—it’s easy to run out of money, and not so easy to raise more. If you’re thinking about launching a new venture, it makes sense to study what can go wrong to help avoid those pitfalls yourself. Here are six reasons small businesses fail—so you can work to avoid them.
1. Lacking a Unique Selling Proposition
Think about what your prospective customers gain from your product or service. What sets it apart from your competitors? If you have trouble answering this question, then you may want to take a good, hard look at your business plan and figure out what you can offer your customers that no one else can. Talk to people. Get in your customers’ heads and find out what they’re looking for. What “pain points” do they have that you can solve? Before you get going, solidify your core values and unique selling proposition.
2. Lack of Clear Goals
Goals help motivate us to push outside of our comfort zone and achieve growth. Almost every entrepreneur sets goals for their business, but these goals don’t always help the business get off the ground. The way you create goals will have a big impact on the success or failure of your business. A good tactic is to use the SMART goals method for creating and meeting your goals. Goals should be specific, relevant to your business goals, difficult but achievable, measurable, and have a timeframe for completion. Always communicate your goals to others for accountability purposes. In one study, 70% of participants who gave weekly updates to friends reached their goals, while those who did not only had a 35% success rate.
3. Trouble Delegating and Taking Criticism
Most entrepreneurs are energetic self-starters, brimming with creativity and a hard-working spirit. These are all admirable qualities, but they often come along with other traits that can get in a business’s way. Many entrepreneurs, so used to doing all the work themselves, have trouble delegating when the time comes to outsource or hire employees. Others don’t know when to change direction when something isn’t working. Entrepreneurs need to always keep their skills and limitations in perspective when making business decisions—staying humble and being able to take constructive criticism will go a long way toward encouraging healthy business growth. The smart entrepreneur knows that sometimes it’s important to bring in a business consultant with an MBA, or to let go and allow someone else to take on some of the burden of running the business.
4. Failure to Market and Communicate with Customers
How can your business survive if you don’t market your products or communicate with your existing customers? You can’t. You need to start your business with a marketing and customer service plan for your business to make sure that the word gets spread—and that the customers you attract are happy enough to help spread that word.
5. Uncontrolled Growth
This may sound unbelievable, but some businesses fail simply because they grow too fast and get out of control. It’s easier to control growing pains, new ideas, and the cash you have on hand when you’re growing at a steady pace, but explosive growth can put a strain on businesses that some just don’t survive. It’s better to grow steadily than to experience out-of-control growth and keep pouring money into growth-related projects.
6. Insufficient Cash Flow
In the end, this is the number one killer of small businesses: simply running out of money. This can happen for many, many reasons, and it’s not always because customers aren’t interested in the product. Inefficiencies, an unsustainable business model, too much investment without enough revenue—the list goes on. Even experienced entrepreneurs often run out of money at one time or another. Thirty-seven percent of experienced business owners are sometimes unable to cover business expenses. Some entrepreneurs even leverage their own assets to keep their dream alive—a gamble that can come with a hefty price.