It’s never simple to turn a good idea into a successful company, but small firms find it especially difficult.
Small firms face a particular problem since they lack the resources of larger organizations: they must make a profit quickly without sacrificing the quality of their product.
It’s a challenging undertaking, which explains why 20% of small businesses fail in their first year, 30% fail in their second year, 50% fail by their fifth year, and 70% fail after ten years.
What causes so many small firms to fail in less than five years, and why is this? It turns out that knowing the common mistakes entrepreneurs make can help others avoid them.
Since the 1990s, these figures haven’t altered all that much and have remained largely stable.
There are still a lot of firms closing down every year in the United States, despite the fact that the odds are better than widely held perception.
The BLS reports that 843,320 new firms were founded by entrepreneurs in the year that ended in March 2021.
We can anticipate that 168,664 of these enterprises will fail during the first two years based on past statistics. Businesses have a better chance of success with the correct planning, funding, and flexibility.
We’ll go over some of the most common mistakes startups make and come up with ways to raise your chances of success.
1. Not doing market research
You’ve always wanted to start a real estate agency, and now that you can, you decide to do it. However, your enthusiasm prevents you from realizing that the housing market is currently in a slump and that there are already too many agencies in the area you want to work in, making it extremely difficult for you to succeed. This is a mistake that guarantees failure right away. Instead of trying to force your product or service into a market, you must first identify an opening or unmet demand there. Instead than creating a need and persuading people to spend money on it, it is far simpler to meet an existing one.
2. Issues with Business Plans
A successful firm is built on a strong and practical business plan. You will describe your business’s realistic goals, how it can achieve them, potential issues, and remedies in the plan. Through research and surveys, the plan will determine whether there is a need for the business, determine the costs and inputs required for the operation, and describe strategies and deadlines that must be reached.
Once the plan is in place, it must be carried out. You are setting yourself up for failure if you start increasing your spending or changing your tactics. If your company plan hasn’t shown to be overwhelmingly wrong, stick with it. If it is incorrect, it is better to identify the problem, address it, and implement a new strategy than to alter your business practices in response to imprecise observations. Your business will cost more money and have a higher probability of failing if you make more errors.
3. Insufficient Funding
You are not in a good position to request another loan if you have established a business and things aren’t going well, have little capital, and a struggling enterprise. If you start out being realistic, you can plan to have enough cash on hand to last you until your firm is up and running and money is actually coming in.
Trying to stretch your budget in the beginning could result in your firm never taking off, leaving you with a big debt.
4. Poor Location, Online Visibility, And Marketing
If your firm depends on location for foot traffic, a bad placement is obvious. A weak online presence, however, is equally risky. These days, your company’s online presence and social media presence might be just as crucial as its actual position in a shopping center. If there is already a need, making your company accessible and visible online is the next crucial step. This will let customers know that they can do business with you.
It’s comparable to marketing. You must ensure that marketing not only reaches people, but also the correct people. Therefore, be sure that the marketing strategy you choose is appropriate for the target market. For an online firm, large billboards might not be the best option, just as online ads might not be the best option for a heavy-construction company. Make sure you’re reaching the audience that requires your product or service if the demand has previously been identified.
5. Remaining Stubborn
Don’t grow complacent once you’ve completed the planning, started your firm, and built a clientele. The need you’re meeting might not always exist. Keep an eye on the market and be aware of when your business plan might need to change. Being aware of major trends will give you plenty of time to modify your approach and continue to be successful. One only needs to look at the music industry or Blockbuster Video to understand how drastically successful industries may alter.
6. Growing Too Quickly
It’s time to grow your company now that it’s established and profitable, but you must approach the growth as if it were a new venture. Make sure you comprehend the regions and markets into which you will be spreading the reach of your company if you do so. Make sure you comprehend your new products, services, and intended client as well as you do with your current successful organization if you are broadening the reach and emphasis of your enterprise.
When a company grows too quickly and doesn’t exercise the same caution in its research, strategy, and planning, the financial drain of the failed firm or businesses could bankrupt the entire company.
Conclusion
Even though there is a 20% failure rate for businesses in the first two years, this does not indicate that you must. By doing your homework, making plans, and being adaptable, you may steer clear of many startup snares and join the 25% of companies that survive for 15 years or more.