Did you know that only 50 percent of small businesses survive the first five years after opening? There are many reasons that small businesses may flop, but some factors are actually quite preventable. If you want your company to be in the half that stands the test of time, read on to find out some of the most common reasons small businesses fail.
Many entrepreneurs think they have a revolutionary new product that will change the world – just turn on any business reality show, like The Profit or Shark Tank. These business owners often have unwavering faith in their product or service, even if it’s not that extraordinary. Before you tell yourself that your product is absolutely going to make the world a better place, do some market research and testing. You have to learn how to package and market your product so that it appeals to more people. It’s not just about the great idea you have. Don’t make the mistake of being overly confident in your idea. Be open to suggestions.
2. Bad Pricing
Market researchers don’t always get it right. The only way to tell for sure whether your pricing will attract customers in the real world is to test your product in the real world. Also, don’t make the mistake of being too greedy. Sure, it’s great to make more profit, but not at the risk of alienating potential customers. More importantly, don’t price so low that you don’t make any profit at all. For your business to be sustainable, you’ll need a healthy cash flow.
Are you and your business partner in constant disagreement? This lingering tension may lead to the destruction of your small business. The leaders of a company need to be a team, putting what’s best for the company first. A team needs to work together, be open to other members’ ideas, and be willing to compromise. Also, don’t fall victim to lack of communication. If one or more business partners plan to leave the company sometime in the future, that needs to be communicated ahead of time. You need to create an exit plan – which usually involves writing up a shareholder agreement, just in case.
4. Lost Passion
When an entrepreneur first embarks on building a business, oftentimes he or she is “all-in” at from the start. Before they know it, roadblocks arise and obstacles stand in the way, and that initial optimism begins to fizzle. Eagerness to succeed is important because it’s the fuel that drives many an entrepreneur. Don’t burn out in the beginning.
5. Poor Marketing
Is your marketing behind the times? Perhaps you haven’t yet taken advantage of the online space, which allows you to reach far more people than you could otherwise. Or maybe you’ve stuck with the same boring strategy, and it’s getting stale. For example, the Avis used the same marketing slogan, “We try harder,” for half a century until the owners finally gave it a much-needed update a few years ago. Now, the tagline reads, “It’s your space,” which references the comfort of the company’s vehicles. Take a page from Avis’s book – maybe it’s time for you to update, too.
Small businesses fail for many reasons, but those reasons are in your control. Plan ahead, and don’t fall victim to these most common causes of catastrophe. For more advice about running your business, visit www.biz2credit.com.