Why do Small Businesses Fail and How to Avoid it?

Small business owners

By Catherine Smith

A small business, and especially a start-up is a bud of a beautiful flower into which it may turn over time. This is possible if you don’t commit any of the typical but fatal mistakes that kill a business. Here we describe some of these mistakes.

  1. Poor planning

You have a great business idea and are already looking forward to seeing an amount with many zeros in your bank account. But an idea is not a business yet. A fatal mistake of many start-up entrepreneurs is that they do not plan their future actions accurately. This is partly because they cannot predict many hindrances they will face and partly because they have little business experience and are thus too impatient.

What to do?

Appropriate planning provides the lion’s share of success. You cannot foresee all details, but you have to plan how your entity will be working before you launch it. Everyone knows the examples when the idea was so brilliant that it ensured the market’s hype while proper planning was done afterwards. But in all other cases, comprehensive planning, which indicates how your business will function, is crucial.

  1. Running out of money

One of the aspects of inappropriate planning is the deficit of funding a business may face. Unexperienced entrepreneurs want to start making millions as soon as possible. They may see the perspectives unobjectively and much brighter than they are. They may take loans without planning how they would be paid back. They may spend the available capital on unnecessary and secondary things instead of paying for the needs of primary importance. And, of course, this is much more likely to happen if appropriate planning is not done.

What to do?

At the first steps of your business, no single cent should be spent without the significant need. This is especially true until the moment when your business starts generating stable cash flow. Even the first trickle of revenue is not a guarantee that it will turn into a strong stream of income. Even if a business lives for some time, do not hurry to take quick actions trying to grow it fast. If you attract external capital, plan the ways and terms of paying it back. When you think of buying expensive equipment, think a thousand times about whether it is feasible.

  1. Poor management

Management of a small business is mostly about mindset and attitude. It is often not strong enough to hire all the necessary professionals, so an entrepreneur is forced to combine several functions. This is fraught with different consequences, from lack of time because of inappropriate time management to bad decisions made because of the lack of expertise and unobjective vision. Moreover, while medium and large business is based on managerial technologies so that it depends little on a single person, in the case of small business, this dependence may be absolute. As one person bears several responsibilities at a time, their physical tonus and mood play a vital role.

What to do?

Dysfunctional management in a small business might harm and nullify every aspect of your business, from managing finance to employees’ attitudes toward work. And if productivity is constrained, it won’t be long until failure comes.

Self-educate, go to training, find a mentor – in other words, do everything possible to improve your managerial and leadership skills and expertise in the industry. Study other domains and find best practices to check whether they can be applied in your own business.

  1. Inappropriate business model

Once again, an idea and a business that is based on it and brings solid revenue streams are two different things. The main question when designing a business model is how the revenue streams will be organised. How will you monetise your idea? Once an inappropriate model is chosen, your idea will underperform and will not completely realise its money-making potential.

What to do?

This is where a business plan would be useful. Imagine that you are a customer who might buy your product or service. Will you prefer it to competing products? Do you think the price is right? How will you pay for the product? How will you know about it? Answering these questions will allow you better to understand your customer and their thoughts about your product. Try to examine other potential mechanisms of sales, such as collaboration and partnership or sales for other audiences. Launch the project only if you are sure that it will be appreciated by the market.

  1. Lack of value and originality

You may have planned and launched the business, but the sales are still low. Your product is good, but customers do not hurry to line up for it. The problem may be that dozens of similar products are already in the market. Customers already use them and know what to expect from them. So, why would customers switch to yours if it does not bring them higher value?

What to do?

Ask yourself how your product differs from those of competitors. Is it better than those? What specific traits does it have? What do competitors do in other ways? The set of particular characteristics of your product and everything which is around it form the brand.  A brand is the customer perception of your firm and your product that sits in their heads. Every detail is important.

You should be different. Make all the traits of your product unique so that each of them tightly associates with your product in the customer’s mind. Tell them why your product is different and why it will bring them more value. Explain how this value can be obtained. Communicate with the client and present them with your ideas about the product. Tell them about all updates, new versions, new tastes and forms so that a client can choose the most appropriate ones. Follow the marketing plan rather than hope for the success of accidental activities. Relevance and consistency are the two key principles of success for a small business.

Catherine Smith is an Online Marketing Manager at PhD Centre, specialising in PhD thesis writing. She is passionate about researching and writing on various topics, including Education, Marketing, and Technology.

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