Why Do Most Businesses Fail?

The advent of the twenty first century has witnessed an increase in the number of entrepreneurs as opposed to corporate employees. As the birth of businesses has increased, so has their mortality rate.
One out of every two startups fails in its very first year. The reasons for this trend are multifarious in nature.

Blurred visions

More often than not, businesses are initiated on entrepreneurial whims. Following these whims is a plethora of misdirected ambitions. Most of the time, entrepreneurs feel it is too soon to draft a strategy and they can take things on an as is basis. Without a clearly defined strategy, few if any businesses survive. In an attempt to establish a workable business entity, owners should not lose sight of the raison d’être of the business and how they plan to realize the business’s vision.

Management is not the same as entrepreneurship

The same abilities that make an entrepreneur successful do not allow him to become a competent manager. Entrepreneurs are often reluctant to delegate authority and to relinquish hands-on control of daily operations. Micromanagement is a sickness that leads new ventures down the drain.

Informality of Procedures

The majority of problems new ventures face stem from the existence of informal procedures. Cash restrained owners undermine the importance of having enough staff and adequately defined standard operating procedures leading to nothing but an abyss of mismanagement. Roles and responsibilities are ambiguously divided and human resource or marketing management exists only in name. It is perfectly acceptable that the owner performs these functions himself till a point in time when the business can afford hiring additional staff but what should be kept in mind is that these functions should exist as identifiable entities and catered to with care.

Lack of Controls

Inventory, finances and human resources, all need a certain level of control. Survival necessitates that businesses hold a perfect combination of the amount and kind of inventory they need with neither shortages nor stock outs for a customer disillusioned is a customer lost. Working capital is too often tied up in inventory. Improper or mismanaged financial controls are also a recipe for disaster.

Inability to adapt to growth

Whether expansion is financed by retained earnings, capital contribution from the owner or borrowing, immense importance should be given to adapting the business to the growth. Most businesses do change the organizational structure and business practices but the managerial expertise falls short of dealing with the problems that have increased in proportion due to the increase in size and complexity of the business.

The question then is how can one avoid such pitfalls? Success depends more on the ability to learn from mistakes than in avoiding them.

Know what you do

Be receptive. Soak up as much knowledge as you can about your customers, suppliers and markets.

Prepare a business plan

It is important to translate what is on your mind to paper. This will only help you see what you have missed out on.

Manage financial resources with utmost care

If your business is financially healthy, it can overcome all other problems.

Be a people’s person

No business owner can do everything alone. Don’t shy away from hiring others and delegating responsibility. Share information and value your employees.