Many people have a dream of starting their own business. The lure of making a living from an original idea has long been a part of the American experience. Unfortunately, about 8 out of 10 new businesses fail within just a short amount of time. Understanding the common reasons why businesses fail could help you avoid making the same mistakes. Consider these seven common ways businesses bite the dust.
Not Talking to Customers
Before you even start your business, you have to understand your customer. Talking to the people who would buy your product gives you a great depth of insight. Business owners who do not start a real dialogue with customers and keep it going are more likely to fail. Not knowing what customers want, not listening to what is wrong with the product or service and not understanding the customer are all a setup for failure. To prevent this, engage with customers in a way that works for them, not you. Keep the conversation going.
Lack of a Unique Value
In such a crowded marketplace, the chances are good that an idea you have has already been tried. A lack of differentiation in the market for your product and all of the similar products means that you will fight for scraps. If your business idea does not offer a unique value to customers, they will overlook it. Businesses fail when the owner does not identify what is unique and valuable about their product or service. You have to explain those value propositions in a way that the customer understands.
Communication Failure With Consumers
Some business owners get so wrapped up in their ideas that they fail to communicate with customers. If you are stuck in the idea that your product will change the customer’s life, but what the customer wants is immediate convenience today, this is a communication failure. Filling your advertising, product descriptions, and marketing spiels with industry lingo might be meaningless to customers who don’t know what you are talking about. Listen to the words that your customers use, and use those words with them when you communicate.
Poor Reputation Management
A company’s reputation is everything. Poor reviews on social media or one person’s bad experience gone viral could lead to a considerable reputation problem. A new business cannot afford to have a poor perception in the eyes of consumers. Digital reputation management on social media and review sites could prevent this sort of problem. A business owner needs to address customer dissatisfaction quickly and publicly in order to prevent the word-of-mouth sharing of negative experiences.
Breakdown of Leadership
Weak leadership skills are another leading cause of why businesses fail. Inexperience is often the reason behind poor leadership skills, but this could be a catch-22. Poor decision-making skills of the CEO also result in businesses meeting an unfortunate demise. No matter how great of an idea you have for a business, you will not succeed if you have issues with self-sabotage, anger management or character. Finding an experienced mentor and engaging in personal development helps you to make better business decisions.
Buying too many supplies or inventory causes a business owner to be over-extended. Accumulation of debts early on in a business could make it challenging to pay debtors, employees, overhead costs and advertising expenses. In such cases, liquidation of the business assets and inventory often takes place when the company closes. In liquidation, inventory and equipment are sold for pennies on the dollar in order to repay the owner’s business debts.
Inability to Be Profitable
Even if you have solid leadership skills, communicate well, do not overextend yourself, make decisions quickly and market the unique features of your products or services, your business will still fail if you cannot find a path to profitability. When you cannot find a way to sell the minimum amount of products or services, engage in lean marketing practices and practice just-in-time fulfillment and inventory management, your business will fail. Profitability margins are tight, and your company must be a lean machine from the get-go. Your business model must include a timeline for profitability, and if you don’t meet it, your business will fail.
Learning the lessons of others helps you avoid repeating their mistakes. Understanding how businesses tend to fail allows you to make an action plan for your own business. Formulating a sound business plan, speaking with consumers and finding an experienced small business owner to mentor you should help you on your journey to success as a new business owner.