Small business of today play a vital role, why it succeed or fail is crucial to the stability and health of the economy.
On this article, we will define Small Business to be an enterprise that is independently owned and operated for profit that is not dominant in its industry.
It is widely agreed that the growth of small businesses contributes greatly to the nation’s economic expansion, especially if is developed and manage the right way.
Still, others argue that failure occurs if the firm fails to meet its responsibilities to the stakeholders of the organization, including employees, suppliers, customers, and owners.
From a theoretical standpoint, entrepreneurial process is defined as the set of activities through which innovations change existing combinations of factors of production.
The most widely recognized sources of inspiration for an entrepreneur are market efficiency and technological process.
From this viewpoint, a business failure is the termination of an entrepreneurial initiative that has fallen short of its goals.
Every business has a lifespan that is depicted by its business life cycle. A business life cycle is normally defined by four stages; Introduction, Growth, Maturity, and Decline.
Most business life cycles will experience a slow introduction and growth stage, a short maturity stage and a rather quick decline stage.
Entrepreneurship is linked to the creation of jobs, in the country in general, as a result of handling things the right way.
Small businesses help create new jobs, introduce new products and provide specialized expertise to large corporations.
Small firms represent about percent of employers, employ about half of the private sector workforce and are responsible for about two-thirds to three-quarters of the net new jobs.
The purpose of this article is to better understand why small businesses fail and how those causes can be avoided by putting the right mechanism the right way.
At the end, a framework is presented to evaluate the existing resources and understand their influence on the factors of failure from a firm level.
The intent is that this is one way that will promote adoption of necessary preventive measures and a plan of action to avoid such failures. Nobody starts a business expecting to fail, but sobering statistics indicate that many do, in fact, go under.
Three out of 10 new firms with employees fail to survive for more than two years, and about five out of 10 close up shop within five years. The survival rate is even lower for sole proprietors.
There are many external causes for small-business failure, including market size and customer demand, but other equally important factors can hobble a business in its earliest stages — and prove fatal in the long run.
Let Us Look At The Reason Why Small Businesses Fail:
Small Business Fail Because They have Flaws in entrepreneurs thinking.
It’s vitally important to know why you want to start a business. Because certain character flaws may crop up again and again when a business fails.
If you think that you’ll make money quickly and easily or that, just because you work for yourself now (and not someone else), you’ll have more time to spend with your family, it’s time for a reality check.
Without a passion for what you do, without the mental and physical stamina to put in long hours, and without the attitude that you can take setbacks and keep moving forward, you might as well cut your losses now.
Small Business Fail Because They Are Not Really In Touch With Customers Through Deep Dialogue.
An amazing thing happens when an entrepreneur sees a potential opportunity in the market or dreams up a new idea for a product/service: they retreat to a cave.
In my experience, this is the worst move an entrepreneur can make because a complete understanding of your customer is imperative to your success. Your customer holds the key to your success deep in their pain, behavior, dreams, values and the jobs they are trying to accomplish.
Markets are conversations and dialogue is key. And 140 character tweets don’t count. Real dialogue with real customers (via whatever channel is best for them).
If I may ask you, which would you rather do — talk to customers now and find out you were wrong or talk to customers a year and thousands of dollars down the road and still find out you were wrong?”
Small Business Fail Do To Poor Planning
A business can’t succeed without a business plan. This is where you work out the crucial elements that every business must have — finances, marketing, management, and both short- and long-term strategy. What is your vision for the business? How many people will you need working for you?
What will the budget look like? Can you foresee likely problems and how to address them? Getting everything down on paper before you try to get the business started greatly increases the odds of success. Failure to communicate value propositions in clear, concise and compelling fashion.
Many entrepreneurs work hard to discover a point of differentiation then blow it because they do not communicate their message in a clear, concise and compelling manner. I watch many entrepreneurs bleed to death through their failure to communicate.
It’s pretty simple. Learn how to communicate better. If they speak Hausa, then please stop trying to speak Igbo or Yoruba to them.
Listen to the words they use and then use them right back at them. Do so through a focus on these 3 points: Be Clear, Be Concise and Be Compelling.
- Are your customers unclear about who you are and what value you bringing to them?
- Are you somewhat clear but go on and on and on in your messaging?
- Do the words you use to persuade your customers to take the action you want them to?
Small Business Fail Because Of Lack Of Funding
It’s easy to underestimate the capital required for everything from equipment and inventory to staffing and utilities. As part of the planning process, thoroughly calculate potential startup and operating costs.
So before the business starts making money, your prospects for Success are not good. Consider both business and personal living expenses when determining how much cash you will need.
Small Business Fail Because Of Inability To Nail A Profitable Business Model With Proven Revenue Streams
Startups need to move swiftly without spending tons of cash to figure out their secret sauce. Using tools and methodologies such as Minimum Viable Products, Lean Marketing and Experimentation is critical.
Small Business Fail Because Of The Wrong Location
Any bricks-and-mortar enterprise must operate out of a viable location. This means selecting a site that’s customer-friendly (convenient to get to, ample parking, clean and comfortable, etc.)
Small Business Fail Because Of Ineffective Marketing
If customers don’t know who you are or even that your business exists, what hope is there to succeed? Successful business owners know — or enlist the services of professionals who know. They also understand the value of advertising through online marketing, social media, and other digital resources with the right way syndrome
Your Small Business Will Fail When You HireThe Wrong People
Your business will never prosper if you employ the wrong people — that is, employees who lack the willingness to work hard and who exhibit poor customer-service skills.
Small Business Fail Because Of Leadership Breakdown At The Top (Yes — Founder Dysfunction)
Self-sabotage through extremely poor decision making and weak leadership skills. Wake up to realize it’s your baby. You’re the founder. Which makes you the leader.
Matters not if you’re a business of one, or 1,000. Lack the ability to strongly relate to people? Gain the skills necessary to do things the right way. Entrepreneurs who succeed spend time with personal development.
Small Business Will Fail When You Miscalculating The Competition
An entrepreneur foolish enough to underestimate or even ignore his competitors is setting himself up for failure. Regardless of your product or service, every business has competition.
Look into obtaining a competitive analysis of your niche market and set up the right way. Stay updated on changes in competitive behavior or strategy.
Small Business Will Fail When Believing You Can Do Everything Yourself
You’re full of energy. The sad truth is, you’re wrong. Seek out the advice of mentors or others with experience and know-how.
Invite suggestions and ideas from family and friends. Understand that as resourceful as you are, there will always be parts of the business you shouldn’t handle yourself.