A business starts with a goal to be sustainable and generate revenue in the long run. But the chances of business failure always exist. 50% of the businesses do not make it to the five-year mark of survival.
When a new business is set up, it seems glorious and profitable. But as it moves on further, there may be fluctuating valuations that surround the business. Almost 69% of the businesses do not make it to the 10-year survival mark and leads to failure. The business failure does not solely depend on economic factors.
Most of the time, several other underlying factors cause failure. Any business having employees should be very careful about its functioning and other factors.
Initially, the business starts to grow but gradually the drop-off rate starts around the second year and goes down gradually.
- Hardcover Book
- Edsel, Alexander (Author)
- English (Publication Language)
- 240 Pages - 10/12/2015 (Publication Date) - Pearson FT Press (Publisher)
Business failure is a crude reality that many businesses have to face in their business life. This indicates that almost 7 out of 10 businesses fail within the initial 10 years of their inception.
Certain reasons cause business failure. Some businesses overlook these factors. These businesses ignore the coming warning and move ahead with ineffective management.
Some businesses try to deal with these factors and find solutions to them. But despite the solutions with improper implementation, these businesses tend to fail.
Many strategies work for businesses to save them from any kind of failure. Many businesses form risk management strategies and a dedicated team to assess and deal with potential risks.
If you are looking forward to growing your business, you have to implement some risk management strategies and deal with the factors that cause business failure.
In the end, it does no matter how many times you failed but how many times you stood up and fought. Even after falling 10 times, if you stand up the 11th time and saved your business from a failure, it will be considered a victory.
The real reason behind business failure
If you are a business owner and you want your business to grow, you have to tap all the opportunities and do not miss any. If you are aware of all the threats present and you have formed the right strategies, you can overcome any failure and succeed in surviving your business.
With these demanding times, it is very easy to fall into a trap and hamper your business functioning. Many reasons pull you down when you are not prepared for any trials and tribulations.
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By not preparing yourself, you will easily find your business on the way to failure. For example, in case of a financial inconsistency, you can borrow long-term loans and fund your business to make it breathe and survive the market competition.
Some things should be avoided on the road to success. You may face some hurdles during your journey but being pre-prepared will help you cope with these hurdles and grow as an entrepreneur.
Some reasons are obvious and are right there while other reasons may not be visible but can be the potential factors to cause a failure to your business.
It is you as an entrepreneur to decide how do you want your business to go in the future? Your goal should be long-term survival and only then you can strategize against these failure reasons.
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Failure reasons for a business
Unable to deliver real value
Every business has certain core values and principles that are the motivating factors behind its success. All successful businesses deliver real value to their customers.
The simple rule is to deliver the best and do not compromise on the quality of your deliverables. You may under-promise but your ultimate goal should be to over-deliver.
Do not start with the aim of getting rich overnight. Every successful business takes time and you have to follow the same strategy. Your business focus should be on providing real value. If you are not offering the same value as your competitors, you need to reform your strategy.
Now the question arises, “Why should the value be added?” If you are a customer and you get an outstanding service from you’re business. What will you do? Will you be disloyal to that business?
The answer is No. You will tell your friends and family about it and they will also be getting associated with that particular business. This is an informal method of marketing i.e. marketing through word of mouth.
Similarly, as an entrepreneur, if you offer the best of services to your customer, you will receive the same response that will add to your business growth. Hence, it is profitable to be a value deliverer than to compromise on the value delivered.
Unable to maintain a connection with the target audience
Your customers are the main ingredient in your business success. In any business, if the customers are not treated as the king, the business tends to fail and survive in the market.
You have to be aware of your target audience and understand their wants and preferences. If you fail to do so, there are high chances of your failure. If you are unable to connect to your potential audience, you are avoiding the main source of your revenue.
Do not be oblivious to their preferences. Give importance to your potential customers as if on satisfied and happy customer gets 10 more customers.
You can ask certain questions to yourself. How can I satisfy my customers? What else can I add to my deliverable? If I am a customer of my business, what will be my expectations from the business?
How can I solve my customers’ problems? What other platforms can I use to showcase my products and services to attract more audiences?
If you are not addressing your customer’s demands and expectations, your business is bound to fail and see a downfall. Many businesses that take their customers lightly do not see the light of the day in the long run.
No products can be sold on a profit until you understand your customers fully. Also, you have to keep changing your approach from time to time as the customer’s preferences also change from time to time.
Keep your business updated with the changing times else it will lead to stagnation. Use various methods to know your customer’s preferences such as feedback, market surveys, questionnaires, and other things.
Also use better ways to connect with your audience such as calls, face-to-face interactions, etc. Paying attention to the minutest of details is one of the best ways to avoid business failure.
Unable to optimize conversions
Every entrepreneur is busy making profits and growing their business that they forget the heart and soul of the business.
If a business is unable to increase its conversion rate, irrespective of all the positive factors the business tends to push itself towards its end.
Raising money with a high burn rate makes the business dry in the long run. Ensure a positive ROI to lead a growing business.
Unable to maintain effective sales funnel
One of the prime goals of any business should be to create an effective sales funnel. If you create effective funnels, it helps in reducing the hurdles in making sales.
This also helps to put many functions on autopilot and take the business in the direction of success.
Many businesses carry out email campaigns for their existing customers and to attract a new audience. This sales campaign helps the business to build a strong relationship and enhance sales in the long run.
To sell your products, it is important to understand your customers and create a warm relationship with them. You cannot make sales to cold traffic.
You need to have some pre-existing customer testimonials to justify your sales. Forming those sales funnel will help to build that warm relationship with the customers and give a boost to your business revenue.
Not able to compete against the leaders in the market
When the competition is dangerous, staying relevant in the market becomes difficult. Small businesses have bleak chances of survival in the market and are always operating in the fear of failure.
As a small business, if you are not able to withstand the competition from your larger counterparts, you have to find ways and solutions to these problems to survive in the market.
To find such ways, you should have the appropriate business sense and guts to take risks and face the competition.
Exceeding your expenses
Exceeding your expense is a major reason for a business failure. Although several expenses are mandatory and have to be incurred but not knowing about your money leakages and outlets is highly negligent.
This negligence reflects the personal attention and habits of the owner that can prove to be detrimental to the business. As an owner, it is essential to control your money habits and curb any negative spending habits.
Without following the right spending habits, a business cannot survive for long and is bound to shut down shortly. Some businesses that have bad credit history borrow loans and provide no guarantor because of their bad credit.
Such businesses should especially take care of their expenses to avoid being stuck in the debt trap. Getting stuck in a debt trap can be the prime reason for a business shut down.
Lacking effective leadership
Many of the businesses lack effective and strong leadership that does not let them grow as compared to their counterparts. An entrepreneur who has real business world experience will always supersede an entrepreneur who is a new entrant in the market.
The lack of strategic management can be the cause of its downfall. In the case of any problem, real experience is the savior. During that time hit and trial, the method does not work.
Hence, the management and the founders need to find trusted mentors that can guide them on the right path and make them grow under their guidance.
Unable to create effective business systems
As mentioned above, forming an automated sales funnel can lead to business success. Along with the sales funnel, other essential business systems need to be aligned with the business objectives.
For example, CRM needs to be in place and properly implemented and financial tracking procedures and audits need to be implemented and monitored regularly.
Without these systems in place, the work gets disrupted and can go haywire.
Poor cash flow management
You may have heard a hundred times that “cash is king”, but it will not change the fact and businesses work like this.
Poor cash flow management can lead the business to a dead end. Even flourishing and profitable businesses can go into financial crisis if their cash flow is not properly maintained.
Choosing the right type of funding or getting inadequate funding can be factors that can cause cash flow mismanagement. Factors such as debtor mismanagement, high stock levels, late invoicing and bad debt can lead to a cash flow crisis.
Moving ahead in a business with short-term goals is not acceptable. Having long-term goals in a business is the key to success. You have to have long-term planning for every aspect of your business.
Be updated with h current trends and also anticipate future trends too. Do not be left behind in the race and instead move at a pace that will lead your business to success.
Every business faces numerous risks every day especially financial risks. Bankruptcy is one of the nightmares of every business as it leads to the demise of a business.
Entrepreneurs should be aware of their business needs and wants and feed it business from time to time. Also, be aware of the revenue generated and make effective strategies to use the revenue efficiently.
A disconnect with your business can prove to be dangerous. If the strategies are poorly implemented it can drag your business down and make you bankrupt.