According to the Small Business Administration, only half of all new establishments survive the first five or more years. And one-third survive 10 years or more. It’s tempting to think your business will be one of those that thrives. But even if your company does everything right from funding to marketing, it can still fail. Here are some leading reasons why businesses fail and what to watch out for.
All the market support in the world won’t push your business into success without a strong leader at the helm. Angel investors, funders and even some of your own customers will research the leadership before deciding to invest their time and money in your company. Leaders should cultivate the necessary background, skills and education that are needed to take control of their companies and navigate them through pitfalls.
But it’s more than just background, skills and education. Leaders often fail because they won’t get out of their own way and check their ego at the door. Effective leaders need to be willing to adapt and offer constructive criticism to improve their business. Leaders are also responsible for communicating with their staff to set expectations and the right culture. For example, set the tone from the top down if you want a productive and honest culture and an ambitious work environment.
Do you have the right type of insurance from fire to flood to cover your business in case of a disaster? According to FEMA, almost 40 percent of small businesses never reopen their doors following a disaster. They also warn that even a few inches of water costs tens of thousands of dollars in damage.
Disasters can cause more than just damage to your office furniture and equipment. Remember, if your servers and drives are destroyed, so is your data. Migrating to the cloud can help, but won’t do you much good if you’ve never tested the process. CIO recommends having a disaster recovery plan that is actually tested.
You should also use a service that backs up your devices. In case of data loss or a disaster, your employees can get up and running remotely by restoring either the files or entire systems needed to start working immediately.
Lack of Market Need
The most brilliant idea in the world won’t necessarily scale into a viable business without enough market need. Yet businesses often chase concepts instead of doing the research, surveys and competitive analysis that are needed to launch a successful company.
Start by evaluating what your competition is doing and how you can do it better. Does your competition corner the market? Is there room for more than one big name?
Next, consider specializing. Trying to compete against Home Depot and Lowes as a small hardware store owner won’t get you very far. But specializing in high-end, hard-to-find home tools that can be rented and come with a free tutorial can position your company as an expert in your field.
Not Listening to Customers
Maritz Research found that companies replied to only 29 percent of complaints on Twitter. Listening to complaints can help curb negative buzz while giving your business the opportunity to give customers what they really want.
Business owners can also send surveys to customers, and offer reward points to loyal fans who want to help spread the word and share insights with your company. The more you know what your customers want, the more you can cater your products and services to their needs.