Why New Businesses Fail

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We all know only too well that the majority of new business ventures end in failure. So let’s have a look at the three main reasons why a great business idea may not work in practice. When you are aware of these you can then plan how to avoid them and increase the chances of your business being successful.

1. Running Out Of Cash

Spending more than they are earning is the main reason for business failure, but you have to understand the main causes of this in order to do anything about it. There are two main things that it is really important to pay attention to with a new business. The first is to have a cashflow forecast that is as robust and realistic as possible and the second is to keep your costs to an absolute minimum.

Predicting your cashflow when you have not started trading is always going to be tricky, so get an accountant to help and if in doubt, err on the side of caution. Plan for the worst scenario and you will either be pleasantly surprised or at worst properly prepared.

In terms of controlling your costs, you need to start as lean as you can and build up as your turnover increases. Do not take on staff if you can outsource the function, as this will ensure that you can adapt quickly if you need to reduce your overheads. You need to go through all your business processes and ensure that you are minimizing the costs at every opportunity.

Lower costs are also going to look better at the business planning stage if you are approaching potential investors for funding. The financial forecast you do as part of your business plan is very important in being properly prepared, so take the time to ensure that you have not missed anything and that you are including realistic costs for everything.

2. Because The ‘U’ in USP Stands For Uninteresting

Leaving aside the practical things you need to do to run a business efficiently, such things are meaningless if you do not have a good business idea. You need to be confident that you have a unique product or service and that there is a ready market who will pay you for this. If you do have something truly unique, it is vital to properly protect it, as far as you can. If it is something where patents or trademarks will apply, then you must sort these out well ahead of launching your business. Take care of any copyright or intellectual property issues that require attention. It should go without saying that what you are planning to do should not infringe anyone else’s patent or trademark.

Of course many business ideas are unique but often there is nothing you can do to prevent other people copying them. This is just a fact of life and all you can do is ensure that you are still providing something which is better overall than your competitors. Your unique edge may be in the exceptional service you provide or in giving some other form of added value.

3. Because You Don’t REALLY Understand The Market

Market research should be part of your business planning anyway, and this is where you will uncover evidence about the demand for your product and an understanding of what competitors are doing.

Many businesses fail because they are so convinced that they have a brilliant product or service that they do not take the time to properly test out whether there really is a demand for it. Unless you really understand your customers, you can fail for any number of reasons. Your pricing may be wrong, the people you thought were your customers may not be, or you may not be able to find an effective way to get your business idea in front of the right people.

Good market research and testing will give you all the information you need to make sure that your product or service is right, understand exactly who your customers are, how much they are prepared to pay, whether they will switch from their existing suppliers and why your idea is better than the competition.

Pay attention to these three areas and you will be more likely to avoid the most common startup pitfalls, giving your business a greater chance of long term success.