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Top 5 reasons for business failure

Gino Lisondra
15 January 2018 8 minute readShare
Business failure, falling

What are the most critical ingredients that define the success or failure of a business? Here are five of the most important things to consider if you want to build a business that not only stays afloat but soars.

What are the five primary drivers of start-up failure? How can you avoid them? As a business operator, you need to thoroughly understand the following critical ingredients that usually bring about the ultimate failure of most new businesses.

Only by studying and thoroughly understanding these drivers will you be able to devise the best possible strategy to avoid them, and make sure your new business not only survives but thrives. These primary drivers of start-up failure are:

  1. Starting business for the wrong reasons — no real value proposition
  2. Insufficient operating funds and poor management
  3. Bad location
  4. No online presence
  5. Being out of touch with customers and/or target market

Starting business for the wrong reasons — no real value proposition

The core of any endeavour is purpose. This truism applies to, and is especially true, in business. Purpose and value are the heart and soul of a business, any business.

Study the most successful businesses and you will find that purpose and value are the common denominators of these successes. The most successful companies have a solid identity and a clear understanding of their purpose — why they are the kind of business that they are. Also, these successful companies and/or business ventures are successful because they make sure they deliver the most value to their customers and to their target market.

If your sole purpose in starting a business is getting rich fast, you might find out soon this isn’t the way to go. Doing so will, more often than not, only lead you to a dead end.

The most successful businessmen and women who founded and started the most successful companies and business organisations always have a vision, no matter how unclear or solid that vision was in the beginning stages of their ventures.

Also, this vision is very rarely just earning fast cash and getting rich. They built their businesses because they understand they have a purpose to fulfill and some value to deliver.

All these might sound too idealistic for you, and yes, sometimes it might feel that way. After all, the reality is you start a business, of course, to open yourself and your business venture to more opportunities for financial growth, for profits. But should this just be your end goal, your measurement of success?

Besides the financial rewards when your business finally thrives, why not focus on the real value proposition as well? If you’re not offering anything new, anything beneficial to your customers and target market than what is already offered by your competition, then why start a new business in the first place? You need to understand that it is only when you add something of truly beneficial value to what’s already offered in your industry can you be a little more certain your business will thrive.

You add value because, first, you are a new business and you need to make some noise to be noticed by your prospective customers and target market(s). Second, once your customers receive your new product or service that is unique to what’s already out there, don’t you think they wouldn’t keep on buying and/or availing it, as well as telling their family and friends about this new product or service that just blows their mind? Now that you have established a customer niche, and then soon a wider market reach, you need to make certain you deliver value and add to that value every single time.

Be the value deliverer: the business that continuously challenges itself to improve on what is already out there and consistently antes up the value of a product or service, as much as it can. Doing this will not only assure you get ahead of the competition by being the most trusted value deliverer, but this will ultimately define the identity of your business and its future goals — its purpose.

Insufficient operating funds and poor management

A fatal but very common mistake for many failed businesses is having insufficient capital and operational funds. This is because most new business owners do not understand and do not make the effort to effectively comprehend cash flow dynamics and/or place little to no importance on how much money they really need to not just start and put up a business but drive it towards continued and long-lasting success.

Besides an inadequate and/or erroneous understanding of cash flows, many new business owners also have a very unrealistic perception and expectation of income and revenues. A lack of sufficient capital and operational funds, coupled with poor management that is often uninformed — or worse, misinformed — is the ultimate recipe for disaster.

Business owners who just hopped in and started their own businesses without properly understanding the relevant skills of the trade — business and management skills and expertise in the areas of sales, production, customer service, purchasing and finance, among others — should not be surprised when their businesses fail. “When” and not “if” because, really, when you are ill-prepared for anything, you don’t and can’t expect success, especially in business.

Thus, before starting your new venture, you need to first make sure you are prepared and equipped with the necessary skills and expertise to not only ensure your new business doesn’t sink but that it soars and get ahead of the competition. You do this by making certain you have the sufficient funds and the right source(s) of these funds.

You and the people you choose to work with should have all the necessary skills to cope with the demands of a start-up and all its accompanying challenges. You and your business manager (if you decide to hire one instead of doing it yourself) need to have the necessary people skills to make sure you select and work with only the best and right employees.

Management involves both a certain stubbornness and a sufficient amount of tenderness as well. As owner and manager, you should be “stubborn” enough to know what you want and how you want it. This certain “stubbornness” stems from the fact that you are clear about your business goals and how you want your business to succeed. You should always insist on excellence, not only from your employees but also from yourself.

This kind of “stubbornness”, however, should also be tempered with just the right amount of tenderness. “Tenderness” which is manifested by how you choose to understand certain issues in and among your employees and in your business operations dynamics. “Tenderness” means to also learn from your mistakes and not be disillusioned by them and instead make sure these mistakes enlighten your process and your entire management and operational plans moving forward. With the right balance of both these kinds of “stubbornness” and “tenderness”, you will feel more secure in how you manage and operate your new business.

Being well prepared and doing your homework doesn’t mean you will never make a single mistake, nor does it require you to be perfect. On the contrary, mistakes will teach you very valuable and specific lessons that will help you improve on how you run your business, as well as how you conduct yourself as a business owner and/or manager.

But mistakes that should have been easily avoided in the first place if you were just diligent enough to do your homework by making sure you are sufficiently prepared, equipped and informed before finally deciding on starting your own business — these mistakes are on you, and you don’t have anyone else to blame but yourself. Thus, the importance of diligent preparation in starting and putting up a new business can never be overemphasised.

Bad location

“Location, location, location” is not just real estate lingo; it’s also business 101. No matter how old this business truism gets, it remains as truthful, if not certainly true, today. Location is one of the most important things you need to consider when starting a new business. It is one of the most critical ingredients that will define the success or failure of your business venture.

The best locations even enable struggling companies, new or old, to get on their feet and ultimately survive, if not thrive, whereas a bad location can be disastrous even to the most well-funded, best-managed business enterprises.

To make sure you get the best possible location for your new business, consider the following:

  • Your customers’ and/or target markets’ location
  • Accessibility and safety, and even traffic, parking, lighting and ventilation
  • Condition of the shop or building
  • Location of your competitors
  • Start-up incentive programs offered in the locality where you plan to build your business and its targeted areas for your products and/or services
  • The history and general cultural dynamisms — the community flavour — and overall receptiveness of a start-up business at your prospective site

Thoroughly studying and understanding these factors will not only lead you to further business development and expansion but will also help cultivate your business identity and goals in the long run.

No online presence

It’s no longer a question of whether or not your business should have an online presence or not, because it clearly is a must. The right question to ask then is which channels and/or avenues among the tens of thousands of online platforms will you focus on to cultivate a solid market base and further reach prospective clients and customers.

Here, a well-informed online marketing strategy is necessary. First, you must have a website. Second, you need to establish social media presence. Third, cultivate an online group of customers and prospective market. Fourth, direct all traffic back to your website where your customers can now purchase and/or avail your products and/or services.

Make sure all your online properties are mobile-ready, accessible and user-friendly. Locate where your customers and target markets are. Are they on Facebook, Twitter, Instagram, Pinterest, LinkedIn, etc? Focus and cultivate your online presence where most of your customers and target markets are.

Remember, the first and foremost ingredient of an effective online marketing strategy is to have one.

Being out of touch with customers and/or target market

By now, you should have a clear understanding of the importance of value and purpose in starting a business, the critical necessity of sufficient funding and a well-informed management and operational plan, choosing the right location for your new business, and crafting the most effective marketing strategy that suits your business needs and goals.

One other ingredient you need to have a thorough understanding, and hopefully an appreciation, of is your customers, and how you succinctly understand their needs and preferences in making sure every product or service you offer them brings them added value. Simply, you need to understand how important it is to know your customers well and treat them right. After all, they are the ones who decide whether your products and services — and ultimately, your business — are worth their while and their money.

To do this, employ a sound and comprehensive customer needs analysis and market research. Understanding your customers, their needs, wants and their motivations in purchasing and/or availing a certain product and/or service will not only help you develop these products and services better and get ahead of competition, but it will also help you and your company stay grounded. 

Being grounded as a business means you know your customers and you bring value to them in each product and service you offer. The last thing you want is to be out of touch with your customers, because, really, this only means one thing: the failure of your business. And you don’t want that.

Top 5 reasons for business failure
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Gino Lisondra

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