Many new businesses find that they cannot succeed. Within the first year, 80 percent of all new businesses survive. However, these numbers drop off sharply as the years go by. Only half of small businesses survive for five years, and only a third of the remaining businesses are still in operation by the tenth year. These statistics mean that starting a new business has many career and personal risks.
In order to minimize your risk and enhance the chances of your startup surviving, it is necessary to know why new businesses fail. Vlad Rigenco, Founder and CEO of Dood Inc., shares the reasons why many new businesses fail and offers solutions to help your business survive.
No Need in the Market
If there is no need for your business in the local or online market, it is likely that you will fail. Before you start your small business, you need to be sure that your product or service is needed in the community. Opening a startup business in an area that is already oversaturated with the same type of company will lead to failure unless you are prepared to fight very hard to take over the other companies’ market share. Either way, you need to be able to position yourself competitively and take advantage of all of the services available to your business.
A Lack of Capital
It makes sense that one of the major reasons a startup company fails is because it does not have the capital it needs to succeed. It is challenging to find enough funding for a small business. You should apply for assistance from any and all quarters, including individual investors, crowdfunding, personal investment, or angel investors. You may find that you are beholden to your investors for sharing some of your profits, but these investments are crucial to the health of your business.
If you cannot get enough funding, your business will be unable to keep the lights on and may have to let important employees go. Startup businesses need to be aggressive in securing funding and need to make sure that they have budgeted for every eventuality.
Poor Hiring
Another top reason why startups fail is because they have hired unwisely, explains Vlad Rigenco. You need to hire people who take your business’s success seriously. You may notice that certain employees are distracted from their jobs and spend too much time online or on their phones. You may find that others are not willing to make a strong effort to get their work done.
It can also be risky to hire friends and family members, since you have a preexisting relationship with them that may affect your chain of command. Try to treat family and friends equally if at all possible. This can be a particular problem when hiring your parents or children to work in your business.
Too Much Competition
This problem is particularly hard on tech startups. When startup companies do not focus on their competition, they can find themselves at a serious disadvantage. Business owners need to balance their company’s needs with the needs of the market as a whole.
Pricing Problems
If a company is charging too much or too little for their product or service, they can run into trouble. Pricing too low means that businesses will have a diminished cash flow. Pricing too high can cause the competition to undercut your price and draw away your customers.
User-Friendliness
If your product or service is not user-friendly, that can be another sign that your business is bound to fail. If you are starting an online store or developing an app, you need to make sure that it is simple and intuitive to use. Having a user-friendly product means that you are more likely to gain market traction through positive reviews and customer interactions.
Marketing Issues
If you are not marketing your company correctly, you will run into trouble. You need to make sure that you have a solid concept of the target market for your business, and you need to meet them where they are. This means looking into all forms of advertising. If no one knows about your business, you will fail.
Poor Customer Relations
Having a bad reputation for customer service will lead to failure. Ignoring your customers will lead to serious problems. If your customers complain about a particular aspect of your business, work with them to make it right. If you do not take this seriously, your business will lose its positive reputation.
Friction in the Team
Finally, friction between your team members can lead to business failure. If the focus of your company shifts from taking care of customers to inter-office rivalries and problems, you will certainly fail. You may need to let certain employees go to restore the efficiency in your workplace. This can cause hard feelings, but you need to be clear-headed about making these changes.
Studying the Reasons for Business Failure
When you are planning a startup company, you need to take a hard look at these areas. These tips will help you make a stand and present yourself with as many advantages as possible. While the statistics on startup failure can be disheartening, if you are careful and thoughtful, you may find that you have what it takes to stay in business. Vlad Rigenco reminds business owners to take their companies seriously and to protect their cash flow and their reputation.
