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Top reasons why new businesses fail

HomeBusinessTop reasons why new businesses fail

According to several case studies, one in five new businesses fails by the end of the first year. Every second new business and startup disappears within five years. And, in general, only thirty percent are still operating after ten years. This doesn’t look so encouraging for new entrepreneurs at all, especially since the statistics are even worse during crises and emergency situations. However, even without exceptional market situations, we can distinguish several reasons why new businesses fail. Knowing which mistakes to avoid and how to prepare becomes essential in establishing and managing a successful business.

Common reasons why new businesses fail

Running a business requires dedication, thorough planning, and persistence. And above all, it demands the willingness to sometimes take the necessary risks and the ability to mitigate them. Having to deal with competitors, different situations on the market, and prices is far from easy. Numerous situations can endanger your business operations. Taking one wrong step can often lead to problems. Knowing in advance how to prepare and react is the only way to make progress.

Here is the list of the most common reasons why new businesses and startups usually fail:

  • Investments missteps and miscalculations
  • Picking the wrong market
  • Not ensuring competence
  • Not scaling your business properly
  • Choosing the wrong physical location
  • Not investing in the adequate marketing solutions

Investments missteps and miscalculations

One of the reasons why new businesses fail is the lack of initial capital investments. Even in situations when you have enough money, the danger lies in unrealistic expectations. Some companies, if appropriately managed, can lead to profit almost instantly. However, those are rare or in already highly competitive markets. More likely, the majority of businesses will be profitable only in the long run. And by the time you fully develop such a business, you should be ready to face all kinds of obstacles. Not being prepared for incident resolutions can force you to close the company before it reaches its full potential. To avoid it, business owners have to ensure they have additional capital, not to burn out all the available money at the start.

Picking the wrong market

If you have the best possible business idea, the business will fall short if the market is not right. Picking the wrong market can drag and stall any chance for progress. Even if you hypothetically enable an infinite influx of additional investments. In simple words, if the market has no customers for what you are offering, you might have better luck looking somewhere else. So, before you start a new business, carefully research all the market opportunities and targeted audiences. Make sure they are large enough so the business will be profitable in the long run. Also, have a plan B if you have to change the location at some point. You will have to save additional resources for relocation. Firstly, you will need the right movers that serve your area. The consultants from advise always to look for local companies because of their knowledge of the area.  Finally, ensure the proper management of your employees if you want them to follow you.

Not ensuring competence

Another major reason why many, not only new, businesses fail is incompetent management. While finding skilled workers and talented professionals might be the easier part, leading them is a completely different matter. Of course, before opening your new business, you will have to pick the area with a good pool of potential candidates. But, picking competent team leaders, managers, and executives needs thorough examination. And, of course, additional investments. Trying to save money on employees by hiring an incompetent workforce or leaders is out of the question. It may seem like you are making the right move, but it will cost you direly as time passes. One of the solutions may be to find a way to outsource a part of the work.

Not scaling your business properly

If you set unrealistic growth goals, you risk failing to scale correctly. If you push your business into expansion too soon, it will definitely backfire. While expanding on new locations may help you infiltrate into new markets, don’t forget that it includes additional costs. And not only costs but also increases the capacity at which you have to operate. Instead of focusing on a steady pace and optimal growth, you could end up stretched out too thin to be able to keep up with demands at all.

On the other side, delaying the necessary expansion will also be counter-productive. While you might be comfortably nestled in the current market, you need to always look for new opportunities. And, when the moment is right, start opening new offices and moving office inventory into the new premises, for example. Of course, efficient relocation is the key here, and everything else that requires operational investments. But, when properly planned and organized, it may be the only obstacle you have to overcome on your way to success.

Choosing the wrong physical location

For businesses that operate primarily online, physical location may not be so important. However, if you own a brick-and-mortar business, physical location will be crucial. Some of the most influential factors that should be taken into consideration are:

  • The distance from business centers, downtowns, and similar
  • Where potential customers live
  • Traffic in the area, including parking availability
  • Density and proximity of competitors
  • Local laws, regulations, taxations, and incentives
  • and many more

Not investing in the adequate marketing solutions

By all means, marketing is one of the fundamental forces that fuels businesses today. Especially digital marketing, since we live in the era of technological advancements. Owning a business without a significant online presence is a huge mistake. Not only are you lowering your chance for success, but without quality marketing, your business won’t stand a chance at all.

First, you need to invest in creating a quality website to ensure your online presence.

Second, proper SEO optimization is a must if you want your brand to be recognizable. With good enough online traffic, more potential customers will find about you. Not to mention that ranking high on search engines is one of the foundations of success today.

Third, you will need a strong social media presence. If you don’t advertise on social media, you might as well consider you don’t exist. Why? Because the majority of your competitors are already there, establishing close connections with customers. In general, inactivity on social media is one of the main reasons why new businesses fail.

pearls of wisdom
Sophia Perry
Sophia Perry
Sophia Perry has been engaged in writing blog articles for the last 7 years. Today, her range of topics spans from moving across the globe to everyday lifestyle tips, traveling, marketing and software-related news etc. In her spare time, Sophia enjoys running, reading books and spending time with her dogs Loo and Sill. As a great lover of life, she finds something practical and useful in every experience, which contributes to her portfolio as well.


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