When starting a new business, being concerned about its failure may not be very motivating, but it’s crucial for realistic planning. In fact, it should be your main concern as the chances of failure are much higher than success.
If you are starting a small business, the stats are not in your favor. 20% percent of small businesses fail in the first year, and 50% percent close down in the first five years. Although the failure rate decreases slightly, 70% of small businesses still fail within 10 years.
These failure stats are slightly higher than overall business failure stats mainly because small businesses usually have inadequate capital. Despite these statistics, don’t be discouraged to pursue your entrepreneurial dreams. Instead, be prepared and approach your venture with diligence.
In this post, I am going to help you minimize your chances of failure by listing the main reasons why small businesses fail and how you can overcome those issues.
Lack of Market Demand
Lack of market demand is one of the top reasons for new business failure. Nearly 42% of businesses fail due to no market demand. It mainly means that your product or service doesn’t solve a problem or fulfill a need that people may pay for. No matter how good your product/service is and how much you market it, it won’t sell if no one wants it.
If people aren’t willing to pay for what you have to offer, then your business is going to eventually collapse. Unfortunately, it’s difficult, if not impossible, to fix the lack of demand problem because it needs to be researched before the business is started.
How to Avoid Lack of Market Demand Issues
Demand is analyzed in the market research stage of your business plan (more on it later). Before you start a business, you need to research the market to see whether your product/service has demand or not. Although there are many ways to do market research, below I am listing the most reliable methods.
Surveys
A well-structured survey is one of the best ways to gain quantitative data answering important questions about your target market. For surveying at a mass scale, I highly recommend using a survey maker app like Typeform that helps create interactive surveys with powerful analytics tools.
Focus group
You can invite a smaller group of potential customers to ask questions and maybe test products to learn better about overall customer demand.
Research social media and forums
Forums and social media websites where people usually openly discuss their pain points and preferences are great places to learn about what customers want. Search online using keywords related to your product/service to see what people are talking about. Reddit and X (Twitter) are great places to get started.
Use Google Keyword Planner
The Keyword Planner tool by Google is great for checking the demand for your product/service by seeing how many people are searching for it. If your product/service is limited to a specific region, you can also narrow down the keyword search to a specific area.
Analyze competitors
Knowing how your competitors are doing is a good way to guess how customers will react to your offering. Research what your competitors are offering and what is the feedback of their customers (online reviews). This will also help you find potential gaps and opportunities in the industry. Check out this guide on competitor analysis for all the methods.
Test prototype
You can also test prototypes or a limited number of products with potential customers to get real-world feedback. If possible, give the products for free in exchange for honest feedback.
Check public/private databases
Government databases like the US Census Bureau or private databases like MarketResearch.com can also help gain insight into customer behavior. For private databases, you usually have to pay a subscription to get the information.
Using these methods, you need to check market maturity, customer spending power, current competition, and market growth potential.
Cash Flow Issues
Business survival heavily depends on positive inward cash. Your initial capital can’t sustain the business forever, you need stable cash flow to survive in the long run. In fact, 82% of the failed businesses report cash flow issues being the reason for closure.
Cash flow issues stifle growth as you are unable to timely fulfill business financial obligations and invest in growth. This eventually leads to your business closing down as it’s unable to keep up.
How to Fix Cash Flow Issues
Poor budgeting, unoptimized invoicing, and overtrading are some common reasons for cash flow issues. Usually, digitizing your business operations solves many cash flow-related issues as processes are streamlined. There are even apps directly made for optimizing cash flow.
With that in mind, below are some methods and tools that will help smooth your business cash flow:
Use accounting software
An accounting and finance software like QuickBooks can optimize and automate many cash flow-related operations like invoicing, payment processing, income/expense tracking, budgeting and forecasting, tax management, etc.
Get a cash flow forecast app
A cash flow forecast app will help predict future cash flows by looking at history and current projects and warn you of any dangers or possible cash flow issues. I recommend Float for this.
Cut Costs
You don’t have to halt business operations to do this; here’s a guide that will help you cut costs without downsizing business operations.
Set up your business to scale
Make business decisions that not only help your business grow but do it efficiently. This will help save resources in the long run and optimize processes to minimize cash flow issues. You can check this guide for some effective methods to scale your business.
Lack of Proper Business Plan
A business plan is a necessity for big companies to attract investors and have a proper vision. However, small business owners aren’t legally obliged to make such a plan, so many dive right in without clear foresight. However, even for small businesses, a proper business plan is essential.
A business plan gives the business a clear direction to move forward and make strategic decisions based on proper business analysis. A proper plan ensures the smooth working of business operations and minimizes mistakes that could lead to business failure.
Tips to Create a Proper Business Plan
I am not going to help you create a business plan from scratch here; each business has its own business plan needs, so you need to devise one yourself. However, I will give you the tools and tips that will make it easier for you to create a good business plan:
Use templates
Premade business templates can greatly decrease your work and also give you ideas for a better plan. Many websites offer free business plan templates, Bplans and PandaDoc have nice templates to get you started.
Try the business plan maker tool
You can also try a dedicated business plan maker tool that helps create a business plan using an interactive step-by-step UI and advanced features like AI automation tools. LivePlan and Cuttles are some good business plan makers.
Use graphs and charts
A business plan is usually comprehensive; make sure you take advantage of graphs and charts to make information more digestible. You won’t be the only one who needs to look at it. Maybe even add infographics as well.
Seek professional help
As I already said, a business plan is crucial for your business success. So it’s worth getting help from a professional to help you create a business plan. You can either hire a local one or even find a freelancer who can help create a plan remotely. There are also websites like SCORE where you can hire a mentor for one-on-one sessions.
Poor Marketing
Bringing your product/service to the market isn’t enough to be successful. You need to promote your offering to potential customers and gain customer trust to convert them.
When it comes to competition, marketing is one of the first things a business competes on with its competitors. Your business won’t thrive if your competitors beat you in marketing, even if you have a better product/service.
Poor marketing is responsible for 14% of failed businesses. To make matters worse, marketing is extremely competitive in the current times, mainly due to digital marketing. You need to promote your products/services both offline and online.
Tips for Successful Marketing
Which marketing strategy will work best for your business depends on your business nature and your goals. Therefore, I am going to list some general tips instead of a marketing strategy that should improve your overall marketing campaign.
However, before the tips, I am listing some resources that should help you learn more about marketing.
- Beginner digital marketing courses
- Advanced digital marketing courses
- International marketing guide (for global reach)
- Improve marketing operations efficiency
- Audience segmentation tools for targeted marketing
Understand your customers
Knowing your customers is crucial for creating your marketing strategy. If your customers are mostly young people, social media marketing will have a major impact.
Keep your brand consistent
Throughout your marketing channels, keep your brand consistent. Your audience needs to remember you for your unique points and resonate with you. A consistent brand image that delivers on its promise increases customer loyalty, distinguishes you from competitors, and creates overall brand authority.
Have a proper online presence
Having a proper online presence is very important for digital marketing, as most of your marketing activities will link back to your brand’s online profiles. Here are some reliable ways to build an online presence.
Create an email list
Use both offline and online means to create a customer mailing list, as it can be used for many marketing purposes. An email list typically represents people who are interested in your brand, so your marketing efforts are more effective on them.
Ignoring Proper Analytics
Proper analytics of business operations is crucial for knowing where your business stands and making strategic decisions. You can’t make proper business decisions based on what you feel is right, you need data and numbers to back up those decisions.
The business failure reasons I have listed here and other reasons as well, mainly stem from bad decision-making. Statistics play a very important role in making good decisions for the business.
For example, improperly tracking business income and expenses can lead to cash flow issues, or not checking actual market demand before launching a product can lead to market demand issues.
Improving Business Analytics
Digitization of business operations should be your first step toward better analytics. Digital analytics tools need data in digital form to be able to process it. You can start with digitizing documents and then move to digitizing main operations. Thankfully, most of the business apps have built-in analytics tools to provide insight.
Below are some examples of business tools that can digitize business operations and provide analytics.
- Zoho Inventory to track and manage business inventory.
- Salesforce to manage relationships with customers.
- HubSpot for all your marketing needs.
- ADP Payroll to digitize payroll process.
- QuickBooks accounting and finance management system.
- Monday.com for project management and remote collaboration.
You can also use all-in-one data analytics tools that will help centralize all the business data and provide deep insights using easy-to-understand tables and visuals. Zoho Analytics is a good example of such software.
Remember to always choose tools that integrate well with each other. You can check the app integration page of each tool’s website to see if it integrates with your current set of tools or not. If your business tools don’t integrate, then it will create data silos and negatively impact business analytics.
Final Thoughts 📉📈
Like I said before, the chances of your business failing are statistically not in your favor. However, lack of knowledge and bad decisions cause issues that eventually lead to business failure. Since you are here and reading this, it shows your commitment to learn and make the right decisions to be successful. As long as you make business decisions backed up by factual data, the chances of success are in your favor.