Seven common causes of business failure
It is very important to identify and analyze why certain businesses fail, so that we can learn from their mistakes and be guided by the successful ones.
Many businesses fail due to some common causes that many entrepreneurs ignore at the start of the business. These causes must be studied in depth because no university career gives you enough material to study, in topics like this. The most common causes of business failure are:
1. Put more emphasis on the product, rather than the market and marketing
The requirement to identify a market for your idea or product is more important than the product itself. You can have a great idea or product, but if there are no buyers for it, then it can’t be a success. Smart companies first identify market requirements and then develop products accordingly.
Tip: For your business idea to be successful, you must first find out if there is a market for your idea by conducting a market test. Find out if people really want your product and how much they are willing to pay for it.
2. Put more emphasis on the image of the company.
Projecting a high-profile image for the company by hiring expensive office space and a fancy logo and website won’t do much to help your business succeed. In fact, high overheads, due to the high cost of website space and maintenance, can put you out of business very quickly, because the golden rule for the success of any business is to keep overheads low, especially in the time of start-up.
Tip: At startup, keep your overhead low by cutting expenses. Operate from a modest office space. Prospects can’t see where you’re trading from, and they don’t care anyway. Try to invest more in your marketing activities, which will probably increase your income and chances of success.
3. Entering into an undesirable or bad business partnership.
You should form a business partnership only if you find that your ideas coincide with those of the prospective partner, because business partnerships are even more difficult to maintain than marriages. Many partnerships fail due to lack of communication, proper documentation, and deeds. A failed partnership can lead to bankruptcy and sour relations with the business partner.
Tip: Avoid partnerships altogether, if possible. But if you must form a business partnership, make sure that the duties and responsibilities of the partners are spelled out from the start, and that the partnership deed along with the business terms are clearly defined.
4. Try to have a very complex business model
The simpler the business model, the better it is. In a simple and uncomplicated business model, everyone, including your vendors, suppliers, employees, and customers, is well aware of their responsibilities and goals. In a complex model, they have to adapt to new roles that they may not feel comfortable with.
Tip: While designing the business model, follow the “keep it simple” rule. As the business grows and becomes established, it can change to a more radical or complicated business model, if necessary.
5. Try to pioneer a new product or industry
Many companies get into the vicious cycle of trying to pioneer a new product or industry; many times, the whole exercise can completely exhaust you and your company, without much success. Very few and limited entrepreneurs succeed in radically new businesses. Even customers are sometimes spooked by a totally new concept or product, so the chances of success are not assured, despite all the efforts you can apply.
Tip: Try to achieve extraordinary business success simply by improving the business practices of the existing business, rather than trying to pioneer a new product. Once the business is established, you can try to get into the pioneering cycle of new products.
6. Getting involved in a business lawsuit and bankruptcy
Business lawsuits that are not in your favor can take away all of your assets, including your personal assets such as your home, property, savings, etc., and cause you and your business to go bankrupt.
Tip: Always operate a business under the protection of a corporation, courtesy of which you get a corporate shield. In this way, personal liability to the business is limited to what you decide to put into your business. In the event of a lawsuit, simply close the existing corporation and try to start a new one. It is always advisable to engage the services of an attorney and an accountant to discuss your personal involvement in the business, regarding assets and even taxes. With careful planning, you can eliminate nearly 100% of all potential legal threats to your personal assets.
7. Getting involved in complicated divorce proceedings.
In many cases, when marriages fall apart for people, their businesses also come to a standstill due to financial disagreements arising from divorce proceedings.
Tip: At the time of marriage, get a lawyer to prepare a prenuptial agreement that clearly sets out the financial implications of the divorce process, if any, on your business with your partner. Avoid the above pitfalls and the road to trading success will be much easier for you.