Top 6 Reasons New Businesses Fail

AAA

It's often said that more than half of new businesses fail during the first year. According to the Small Business Association (SBA), this isn't necessarily true. The SBA states that only 30% of new businesses fail during the first two years of being open, 50% during the first five years and 66% during the first 10. The SBA goes on to state that only 25% make it to 15 years or more. However, not all of these businesses need to fail. With the right planning, funding and flexibility, businesses have a better chance of succeeding. We'll go through some of the biggest mistakes that start-ups can make and figure out how to improve your chances of success.

Reason #1: Not Investigating the Market

So you've always wanted to open a real estate agency, and you finally have the means to do so, but your desire to open the agency blinds you to the fact that we're in a down housing market and the area where you want to work is already saturated with agencies, making it very difficult to break in. This is a mistake that will cause you to fail from the beginning. You have to find an opening or unmet need within a market and then fill it rather than try and force your product or service in. It's a lot easier to satisfy a need rather than create one and convince people that they want to spend money on it.

Reason #2: Business Plan Problems

A solid and realistic business plan is the basis of a successful business. In the plan, you will outline realistic goals for your business, how your business can meet those goals and possible problems and solutions. The plan will figure out if there's a need for the business through research and surveys; it will figure out the costs and inputs needed for the business; and it will outline strategies and time lines that should be implemented and met.

Reason #3: Too Little Financing

If you have started a company and things aren't working out, you've got little capital and a struggling business; you're really not in a good position to ask for another loan. Be realistic at the beginning, and start with enough money that will last you to the point where you're business is up and running, and cash is actually flowing in. Trying to stretch your finances at the beginning may mean that your business never gets off the ground, and you'll still have a lot of cash to repay.

Reason #4: Bad Location, Internet Presence and Marketing

A bad location is self-explanatory if your business relies on location for foot traffic. Just as dangerous, however, is internet presence. These days, your location on the internet and your social media presence can be just as important as your company's physical presence in a shopping district. Online presence will let people know that they can give you their business, so if the need is already there, the availability and visibility of your business is the next important step.

Reason #5: Rigidity

Once you've done the planning, established your business and gained a customer base, don't get complacent. The need that you're fulfilling may not always be there, monitor the market and know when you may need to alter your business plan. Being on top of key trends will allow you lots of time to adjust your strategy so that you can remain successful. One must only look at the music industry or Blockbuster video to know that successful industries can undergo huge changes.

Reason #6: Expanding Too Fast

Now that your business is established and successful, it's time to expand, but you must treat the expansion like you're starting all over again. If you're expanding the reach of your business, make sure that you understand the areas and markets into which you'll now be reaching. If you're expanding the scope and focus of your business, make sure you understand your new products, service and intended consumer as much as you do with your current successful business. When a business expands too fast and doesn't take the same care with research, strategy and planning, the financial drain of the failing business(es) can sink the whole enterprise.
Related Articles
  1. Professionals

    Small RIAs: How to Level the Playing Field

    In order to compete with larger firms, small RIAs have to get a little creative. Here are a few ways to kickstart growth.
  2. Entrepreneurship

    Top 5 Startups That Emerged in Denver

    Learn why Denver is one of the hottest markets in America for startups, and identify five of the top startups that are emerging from the Denver market.
  3. Entrepreneurship

    How Does ClassPass Work and Make Money?

    Find out how ClassPass makes money, how the company aims to help both businesses and consumers, and why it has been so successful.
  4. Professionals

    What Kind of Insurance Do RIAs Need?

    Advisors spend a lot of time discussing insurance with clients but they also need to consider their own coverage needs as small-business owners
  5. Entrepreneurship

    Top 5 Startups That Emerged in Detroit

    Learn how startups are changing the face of Detroit, a city long dominated by large corporations, and identify the specific Detroit startups leading the trend.
  6. Entrepreneurship

    Top 5 Startups That Emerged in Boston

    Learn why Boston is a hot market for startups, and familiarize yourself with a few of the top startups that have emerged from the city.
  7. Entrepreneurship

    Top 7 Startups That Emerged in Mexico City

    Learn why Mexico City has the potential to emerge as a major player in the startup scene, and identify several companies leading the way.
  8. Entrepreneurship

    Elon Musk Success Story: Net Worth, Education & Top Quotes

    Read more about Elon Musk, the South African immigrant turned technology and engineering entrepreneur and inventor worth $13.6 billion.
  9. Stock Analysis

    How Rollins Inc. Transformed from Radio to Pest Control

    Discover how Rollins, Inc. grew and expanded, making numerous acquisitions, transitioning from the radio industry to the pest control industry.
  10. Markets

    How TheSkimm Works and Makes Money

    Obtain information on the popular news digest newsletter, theSkimm, and understand how email newsletter publishers generate revenues.

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!