Businesses are inherently risky. This is why you should be able to mitigate the risks specific to your company while delivering quality products or services at price points that customer demand levels. While some businesses across different industries continuously grow and make profits, 20 per cent of small businesses fail in their first year and 30 per cent by the end of the second year. Only 30 per cent of the companies make it by the end of a decade, resulting in 70 per cent failure.
To establish a successful business, it's essential to understand what can cause failure and how you can avoid or overcome the threats. Below are common reasons why businesses fail.
1. Lack of an innovation strategy
Innovation strategies differ from all other business strategies due to the difficulty of forecasting the innovation's time, steps, and impact. An innovation strategy should guide how resources will be utilized to fulfill your business's objectives for innovation, create a competitive advantage, and add value. The strategies should include a business's analysis of its technological and competitive environment, opportunities and external challenges, and distinctive benefits.
2. Poor planning
Poor business planning results in poor management, leading to failure. To succeed, you should create a business plan describing your goals and how you intend to achieve them. Your plan should include the operational, marketing, and financial aspects of your venture. A business plan gives you a clear picture of your business, enables you to set priorities, and allows you to manage change. With a plan, you have set expectations, meaning you’ll track your results, forcing you to be accountable.
3. Poor leadership
Good business leadership recognizes the tasks they can’t handle and the skills they lack and hires more qualified staff or makes plans to outsource to fill in the gaps. They may also seek professional advice where necessary. Good leaders effectively communicate, direct and recognize, and offer personal growth opportunities to their staff, creating an effective, happy, and loyal workforce. Poor leadership can quickly cripple a business due to demotivated and ineffective employees.
4. Financial issues
Lack of funding or working capital is one of the primary reasons businesses fail. As a business owner, you should know how much money is needed to keep the business's daily operations running. If you're unaware of the revenue or losses generated by your products or services, you may experience funding shortfalls that may put you out of operation. Businesses in highly saturated markets tend to lower their prices to entice new customers. While the strategy may work, you may end up losing your business if you keep the prices low for too long.
5. Poor cash flow management
Poor cash flow management can lead to the death of any business. Even the most successful companies can cripple due to a cash flow crisis that may arise from high stock levels, poor management of debtors, late invoicing, bad debts, and insufficient financing. If you can't access enough growth capital, be it in the form of debt finance, private equity, or personal savings, you may not be able to fuel your business's growth, resulting in failure.
Conclusion
Running a successful, profitable business isn't easy. Knowing the pitfalls to avoid and how to navigate them when they occur immensely contributes to growth. Avoid the above common mistakes for business success.