If you’re a fan of YouTube you’ve probably viewed channels that present “fail videos”. These videos are typically humorous in nature and show people falling, tripping, and eventually injuring themselves in unforeseen ways. What makes them amusing is the “victims” should have considered the consequences of their actions, but they didn’t. This certainly makes for online entertainment, but in the context of your business, overlooking potential risks and threats may also have serious consequences.
The harsh reality is that 50% of businesses fail before they hit the 5 year mark. One of the fundamental ways to avoid this common and tragic end is to learn from the failures of other business owners. It pays to spend time online researching why businesses fail or speak with colleagues who’ve lost businesses and discover what went wrong.
I’ve given you a head start and listed a few key reasons why businesses fail. I challenge you to review each of these “fails” and create strategies to avoid them at all costs.
Inexperienced Owners and Leadership
Experience is obviously gained as you manage your business day to day. However, at the start of the journey there is generally a business idea, a strategy, a product / service, but not much leadership know-how. This is a major challenge for many start-ups. The owners are full of passion but often lacking in direction, experience, and sometimes practical sense. This lack of experience can lead to poor decision making in areas such as expenditures, personnel issues, and growth strategies.
If you’re a new business owner do yourself, and your business a favor, and seek the assistance of seasoned mentors. If you’re cash flow and revenues permit, bringing an experienced businessperson onto your executive team is always a good idea. The benefit usually far outweighs the cost.
No Business Plan
We’ve all heard the old saying, “if you fail to plan you plan to fail”. I’ve consulted with start-up owners who were diligent in the development of their business plan. I’ve also witnessed clients who’ve completely dropped the ball in this area. They had loads of great ideas, marketing plans, fund raising strategies etc., but they never knew exactly which way the ship was sailing. A business plan is that important compass to keep your business on track and traveling in the right direction.
Ineffective in Raising Capital
One of the companies I helped start failed within the first six months. The main cause of this short life span was a lack of capital. No matter where you are in the start-up process, at some point you will need to secure funds. As an owner it pays to learn how to pitch your business idea to potential investors whether they be institutional lenders, venture capitalists, angel investors, friends and family, or even the crowdfunders online. If you’re unsure how to raise capital find others who have had success in this area and learn from them, even if they’re not in your industry sector.
Poor Money Management Skills
As important as it is to raise capital you need to know how to manage it. This is one of the primary reasons businesses fail. If you don't have control of the finances in your business, then you don't have control of your business.
Poor financial management can hurt your operations in many ways, such as:
1. Missed business opportunities
2. Lack of competitiveness
3. High debt load
4. Legal issues
5. Problems with Government Tax Department
6. Potential business shutdown / bankruptcy
If you as a business owner don’t have the time, experience, or knowledge to manage your financial resources I would recommend two things. First, find a competent bookkeeper or accountant who can keep your financial picture healthy. Second, ask them questions so you can learn how your company’s finances work. It’s not your accountants’ job to manage your finances without you as the owner having some level of involvement and understanding.