New businesses fail all the time. A business may have the most innovative product, outstanding customer service, and a robust business plan, but still fail due to making common mistakes. Learn what those mistakes are and how to avoid them.
According to the Small Business Administration, over 50 percent of businesses will fail in the first 5 years of operation. A small business owner may invest a considerable amount of time, money, and resources into a business, which may still ultimately fail. Why do small businesses fail?
Whether you are starting a new business after working in the same industry or blazing a trail in a new field, there are some common pitfalls to avoid. Common mistakes made by businesses include, but are not limited to:
- not knowing who your customer is
- not having a workable everyday business plan
- losing investment dollars
- being resistant to change
Know Your Target Market
A business needs a constant influx of capital to both maintain everyday operations and expand the business. Without investors, a business cannot keep up with the demands of its customers. Many new businesses fail to live up to the initial promise made to investors, which may lead them to withdraw their support of the business.
Plan for the Worst...Hope for the Best
A business plan should cover how to manage the business in times of crisis. Whether the crisis is a result of lacks of funds or a change in the business climate, your business should be able to overcome any bumps in the road. However, avoid the pitfall of running your business in crisis mode all the time. Learn to anticipate potential problems, rather than reacting to issues without a clear plan of action.
Get Singularity of Focus
A successful business works when all parts of the organization work in unison. In a so-called ideal world, each employee would do a single task as part of creating the product or service. The reality with a start up business is that all employees need to jump in with both feet and do whatever is needed to get the business up and running. Keep the workforce small until the business is doing well.
Adapt to Change
The hardest task for any business after the initial opening will be navigating changes in the market. A business opened in response to customers needing organic household cleaners in a market with few options must prepare for the market to expand. A failure to keep up with the trends in the market will lead to lost customers and revenues.
High-end software, ergonomic office chairs, and a state-of-the-art manufacturing plant may be on your “need” list, but consider the necessity of each expense. The start up costs for a new business will be high. Start by estimating all potential costs associated with initial start up costs, including hiring, research and development, and promotion and marketing needed to start the business. Make a list of lower priority items, which are needed, but not required immediately. As sales increase and the customer base expands look into purchasing these lower need items to enhance the business.
Don’t Underbid Yourself
Pricing too low might work when a business is new, but avoid the pitfall of continued low pricing. Managers should look at the costs of doing business as they price the product or service. The cost of manufacturing the product should be factored in to the price of the item, and you should still have a healthy profit margin.
Carve Out a Marketing Budget
Ads are expensive, but without adequate promotion few will know of your business. A new TV ad campaign may not be in the business’ budget, so look at advertising online, running ads in local newspapers, or marketing through social media outlets like Facebook and Twitter. Determine the budget for promotion needs and grow it as your business grows.
You take the risk of failure when you start a business. Even if you account for the above pitfalls and mistakes, your business might still close down. As you set up your news business, keep your eyes on failures as well as successes.