Reasons Why Many New Businesses Fail After The First Year

Business Failure

It is not of a fallacy, the popular belief that many businesses fail after the first year of creation particularly in countries where access to capital is seemingly impossible and crowdfunding is low. One may wonder and even ask in protest, why would an entrepreneur start a business that he has no sustenance plan for? It is not the plan of any entrepreneur to close down a business which he has  invested time, efforts and resources to build just after one year of its creation, but the realities of the business world often speaks a language only understood by the tough and dogged. Every year, we see many promising entrepreneurs leaving the scene and even many more entering.

According to the small business association (of America) SBA, “30% of new business fail during the first two years of being open, 50% during the first five years and 66% during the first ten years”  in this figures are defiantly higher in other countries around the world. The business world is full of evolving dynamics, and only those who are flexible enough to bend to her smelting are able to withstand the heat that she emits. Many of these businesses are not supposed to fail if only the progenitors understand some basic but highly important things necessary while setting up a business. This article looks at some of the reasons why many businesses fail after the first year as a bid to caution you, my dear reader, on the things to avoid as an entrepreneur while starting  or expanding your business. Read on.

Businesses Fail When There Is Absence Of Proper Planning :

Businesses fail in most cases where there is improper planning. Business planning goes beyond sitting down and putting ideas into paper then going out to start out hoping that a miracle would happen and the business would grow into a mega success after some time. Business planning needs details and facts, details about location, about customer base, about other people involved in the same business as yours, about the prospective competition and how to rise to the top and remain there for a long time.  What kills many new start ups can be traced to the plan on at the initial stage of creation. Dr Graeme Edwards would say “it is not plan that is important, but proper planning”. Before starting out with creating a new business enterprise, every prospective problem and an applicable solutions to them should be laid down in detail, so that when they eventually arise, the entrepreneur would not be caught off guard.

Lack of creativity:

As earlier said, the business world is full of many dynamics and only those who posses flexibility can withstand the heat. However, the best business flexibility any entrepreneur can posses is a flair for creativity. The market is fierce, no product is totally new, yet what promotes seals is creativity. Creativity in design, creativity in layout, in market strategies, in execution of set goals and in time management. In America alone, there are approximately twenty eight million small businesses (28,000,000), according to SBA. Many companies provide the same services and products but only few always make the list of best sales. Over the years we have seen the same services take different shapes and forms and we the swaying masses, have always rushed after the latest. This is what creativity does. As an entrepreneur, you don’t have to be an island of creativity, but business wisdom demands that you surround yourself with creative people and never fail to constantly visit the drawing table to map out new strategies for marketing your products and services.

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Unstable funding:

Fate plays the least role when it comes to serious business. It is rare to find constant sources of funding when it comes to business, but that in itself is not the crux of the matter. What kills many entrepreneurs is an absence of funding forecast. Every business should have an alternative or alternatives to raising funds when the primary source(s) of income become(s) unstable or absent.  What would you as an entrepreneur fall back on if recession hits your enterprise? What is your laid down plan against falling into bankruptcy for the first two years of business, for the next three years. What about the next four years. Do you have a detailed plan? If none, make one now.

Absence of dialogue:

The authors of the Cluetrain manifesto published in 1999 would say “ market is conversations”. Everything about the business world lies in the heart of how effective the service providers communicate with the service receivers. How the marketer dialogues with his customers, as they say “ the customer is always right”

Dysfunctional leadership:

The sole of an enterprise is in the quality of its leader. Great leaders are always great managers, and the leadership of the business world, has everything to do with how effective the person in charge can manage the human resources handed down to him. A good leader must be an excellent motivator capable of spurring the hearts of those under them into action, while money is a good motivator, love and a sense of belonging is a better one. A good leader must be able to spur up the love of his colleagues to an extent that when the road gets tough and the cash are not forth coming he can still have a team of people who are committed to the vision. This alone can increase the life span of any business.

Ignorance of market principles:

Every business has its own market and every market has its dynamics. What is obtainable in the fashion industry may not work for an electronic manufacturing company. Before venturing into any business, as a part of the planning stage, every entrepreneur should lias with people already in the business he plans to go into and learn from them the dynamics that are at play. Learn the ‘dos and don’ts’ in your business and what other people did when the going got though, ignorance of market principles is a minor thing that can change the course of a business within a twinkle of an eye. If your enterprise must survive after the first year, then these things have to be understood and applied into workable principles.

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