6 Reasons Small Business Fail (And How to Avoid Them)

Statistics about new companies in the United States is rather grim. Barely 20% of startups survive their first year. Of those that do, half are closed in the next five years. All these have contributed to the fact that new business creation is at 40-years low. Even seasoned entrepreneurs can be discouraged by these figures.

Business planning at a desk

Fortunately, not everything is black. Most new companies fail because of several common reasons and once you know them, it isn’t that hard to avoid them. Below we have created the list of the most dangerous pitfalls you can encounter on your way to becoming an owner of a successful company.

Unclear Business Plan

Lack of planning has probably doomed more new companies than all other reasons put together. While there are things in life that you can swing, founding a company on which your future depends is not one of them. There are far too many moving parts for improvisation to work and you need to put everything on paper to be able to see the whole picture. If you try flying by hunch alone, sooner or later you will overlook a crucial step and the landing will not be pleasant. Once that happens, you will probably give a lot to be able to go back and take this advice, but by then it will be too late.

Badly Defined Scope

Also known as overstretching, this is one of the main reasons why startups fail. In an attempt to cover as much ground as possible, these entrepreneurs try to be everything, which is obviously impossible. Before learning that the hard way, take a look at some examples of businesses that avoided that trap.

A financial calculator

For instance, the iGaming powerhouse AskGamblers became the industry leader by not squandering their energy on covering every aspect of their field. Instead, they focused on one thing and one thing only, reviews. By pouring all their energy into reviewing other businesses, they have reached a position every company dreams about. Learn from their approach.

Over Expanding

Slow and steady is the name of the game and those who try different approaches will soon learn why is that. Yes, there will be time to move quickly and decisively, seizing the opportunity, but most of the time, you want sustainable growth is small increments over a long period of time. This gives you the chance to slowly adapt to new situations and overcome any difficulties that come your way. Expand too quickly and the amount of problems you encounter on a daily basis grows exponentially and you will be overwhelmed by them.

Lack of Research

Jumping with both feet into unknown water is a great way of discovering alligators or piranhas lurking beneath the surface. Never make a decision unless you are absolutely positive that you know all the parameters that may affect the outcome. Whether you are launching a new product or expanding an office, research is a key that will determine if such an endeavor can be profitable.

Hard data is the only thing you can trust and obtaining as much of it as possible should be one of your main goals. Market research, revenue and cost analysis, your key demographic’s spending habits are just some of the information you have to monitor at all times if you want your company to be successful.

Bad Management

In startups, entrepreneurs usually hold all the power. Depending on how they wield it, it can make or break the company. CEOs set in their ways and refusing to adapt to new situations can run a company aground just as quickly as those who are constantly experimenting and trying new approaches. As with most things, the middle ground is golden and a balanced approach almost always works the best. Treat your employees with respect, but don’t hesitate to eliminate dead weight and malignant elements from your company.

A lady talking to her customers

Lack of Customer Support

Many people start their companies without a clear idea just how customers will react to their products or services. In their heads, their products are ideal and once faced with criticism, they just can’t handle it. Instead of listening to the customers and trying to find a solution, they experience a classic principal Skinner moment “No, it is the children who are wrong”. Don’t be principal Skinner.

Listen to your customers and do everything in your power to meet them halfway. Remember, no company can exist without them and if you let your pride rule you, you will soon end up with no company and no pride.

You probably won’t face all of these issues, but you will at least a few of them. It is important to identify them as soon as possible, so you can take measures to avoid them and keep your company firmly on the right track.

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