According to Forbes Magazine, over 80% of start-ups fail within the first two years of business, with 30% of those failing as quickly as within the first six months. Becoming a successful entrepreneur isn’t achieved by chance or pure luck, but rather earned through innovation, creativity, dedication and adequate planning. By understanding what qualities make a successful entrepreneur we can equally determine what the common causes of business failure are.
So here’s some of the main reasons why businesses are more likely to fail in the first couple years of operation, rather than succeed.
Inadequate Planning
This tops the list of reasons for business failure. Many entrepreneurs start a business without having a business plan defined. A business plan details all aspects of your business. These can include your business concept, your target niche market, how to raise capital, your marketing plan, threats, opportunities and recruitment. It acts as a road map and a reference point at every stage of your business. It outlines the goals of your business as well as the strategic plan and objectives you need to pursue to achieve your business goals. If you fail to plan, you are planning for failure. Therefore, you should have a well thought-out and documented business plan created before you think about opening your doors.
Under-Capitalization
This is another significant cause of failure, particularly for first-time entrepreneurs. After starting your business it will take time before the cash starts streaming in. You therefore need a healthy capital to keep the business operating until you start generating revenues and turning a profit. As part of our financial plan be sure to have an accurate estimate of the financial capital that will be required to keep you in business until you are at the point where it is financially stable. Under-capitalization accounts for 75% of business failure according to Bloomberg.
Poor Management
This a major cause of failure. Lack of relevant expertise in areas like finance, procurement, purchasing, production and human resources can drive you out of business very fast. Effective and efficient management makes it possible to produce quality products, respond to customer and supplier demands and manage employees, so you can gain an advantage over your competitors. Good management does not imply you should be a jack of all trades, but rather you should get the right people to help you in some of the areas where you lack knowledge or experience.
Low Pricing Strategy
Is a common entry strategy for startups since many business owners see it as a key element to quickly gain a competitive advantage. However, a low pricing strategy is very difficult to maintain for a small business. Your business should not only bring some money in, it should sustain you, enable you to live the lifestyle you want, and, if possible, more.
So, if you’ve got that entrepreneur itch, how can you make sure your business endeavor is successful?
Well, besides ensuring you don’t make the mistakes mentioned above, you may want to explore the various options available to you when it comes to business ownership. Franchising, for example, could be a good alternative for those looking to fulfill their dreams of entrepreneurship as well as start a business minus the standard risks of a start-up.
Want to see if you have what it takes to run your own business? Take our self-assessment test to find out. Or if you want to learn more about franchising and specifically the WSI franchise opportunity, simply contact us to request more information.