6 Factors of Business Failure You Need to Avoid
Twenty percent of new businesses fail within their first two years, 45% within the first five years, and 65% during the first ten years,theU.S. Bureau of Labor Statistics revealed.
Brands fail for different reasons. You can improve your chances of success by learning everything about the business or industry and analyzing why some companies don’t make it. For instance, if you want to franchise a lawn care service in your town, it would be good to research lawn care startup costs, franchising options, and business permits in your community.
You can also use other businesses’ failures to your advantage. Here are some of the reasons businesses may fail.
Factors in Business Failure
Following Your Passion
One of the most common pieces of advice given is to do what you love. For some people, however, it turned out to be a mistake. Their hobbies and passions brought them joy, but not a lot of money. They were good at their hobby, but not good enough to be competitive, or eventually, profitable.
If you’re turning your passion into a business, make sure you’re excellent at it so your target market will be willing to pay well for what you offer and you can command a following. Alternatively, if your passion is a dime a dozen in the business world, find a way to be different and stand out.
Jumping into a Business without Planning
You won’t know if your business idea is good until you make a plan. It’s basically the blueprint. Starting without one is like gambling.
It’s also important to note that your plan is not permanent. As you set up and build your business, the details of your plan will likely change. You need to adapt your plan over time.
For people who are planning to start a company, your initial plan should be to test your business idea’s feasibility.
Ignoring Market Demand
Is there a demand for the product or service you want to offer? Many people are easily swept away by an amazing business idea but forget to check if the demand for it actually exists.
You can have the most amazing product in the world but if no one wants to buy it, then all your time, effort, and resources will go to waste. As a result, your business will fail.
Many people bypass this step for different reasons:
- They’re convinced that their business idea is already perfect as it is.
- They fear that doing market research is too expensive or time-consuming.
Determining whether the need exists is crucial since it will be a big factor in your venture’s success. The best way to assess market demand is by conducting market research. You can do this through surveys, interviews, focus group discussions, and other means. You may also ask the help of a research company to do it for you.
During this stage, you will also have the chance to fine-tune your product based on consumer feedback.
Not Knowing WhoYour Competitors Are
Having a competitor analysis section is an important part of planning. The first step is to know who your rivals are, whether you’re operating locally or otherwise.
There are many ways you can find out who your competitors are, starting with the Internet. After all, everyone is online now. You can also check local printed media or drive around the market area.
Once you know the names of your competitors, find out and understand the following:
- Products/services, pricing, promotions, and the like
- Markets and market segments your rivals cater to
- Benefits they offer
- Why customers buy from them and come back
After gathering all of this information, figure out how you’re going to compete against them. Identify and work on your competitive advantage.
Not Having an Idea about Your Pricing Scheme
Finalizing the product or service price can be tricky depending on the industry. For example, there are barely any reference points on how much a company should charge when it comes to software.
If you price your product too high, it can ward off customers. If your prices are too low, you won’t be making a profit which is the entire point of starting a business.
When deciding on your pricing, take into account the following:
- The expectation of your customers
- Your positioning in the marketplace
- Your margin required to break-even
- Cost of producing and supplying your products or services
Working with the Wrong People
Sometimes, businesses simply fail because the team behind it is not cohesive. They have great ideas, but they clash in how these ideas should be executed. Some business owners of single proprietorships have admitted that they needed a partner to balance them out when launching their company.
Starting a business is exhilarating but ensuring its longevity is quite the challenge. To improve the chances of your business succeeding, be aware of trends and changes then make a plan to acclimate in a timely manner.