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Article posted December 6th, 2019
Business Failing? It’s A Common Thing.
People make bad business decisions all the time, and plenty of them are salvageable. But there are some mistakes that ultimately lead to the downfall of a business. It isn’t always a fun topic to discuss, but it is important to understand the biggest mistake that results in closing up shop.
[If you don’t have the time to digest the many situations that lead to making the big mistake, just scroll down to THE ONE MISTAKE, but be warned you may be making a mistake by rushing to the end ;) ]
According to the Small Business Association (SBA), 30% of new businesses fail within their first two years of operation, 50% during the first five years and 66% during the first 10 years. Only about 25% of businesses then make it to 15 years of operation. So what’s the mistake that ends up killing all these businesses?
Of course, there can be a complex web of mistakes, situations beyond a business owner’s control, and a bit of bad luck that leads to a business shutting down. But understanding what is in your control as a business owner helps you to figure out what mistakes you’re making that hurts your employees, your customer base, and your overall profit margin.
Let’s take a look at some of the key failures of a business and then discover what is the big mistake they all have in common.
1. Failure to Establish Your Niche
Providing high-quality customer service is essential to convert a one-time curious buyer into a frequent customer, and the best way to create a customer base that is loyal to your brand is to establish your niche. There are likely other companies that can provide better quality products and services in the general market, but if you establish your brand as proficient and customer friendly in a unique and underprovided area, you will find a boost in sales and a customer base that was starving for your business.
Without this vital step of establishing your niche, you will be forced to compete with the giants of your industry who already have the credibility, accessibility, and name recognition that will keep customers from considering your business as a viable alternative.
2. Failure to Update and Maintain Your Marketing Strategy
While you figure out when you will be making money, you have to know when you will not be making money. There are times in the year when business becomes limited, depending on what your product or service provides to your customer base. Other changes outside your control like economic turmoil, changes in national policy, and even natural disasters create situations where your business cannot depend on its usual revenue sources.
Cutting costs during these periods of less revenue often means cutting marketing, but this is the most counter-intuitive decision a business can make. Why?
If customers are not buying from you, marketing is the only way they’ll continue to remember your brand. If you want customers to remember to buy your products after a long business drought, marketing to them is the way to do it!
And don’t only maintain your marketing, but remember to update your strategy from time to time to ensure it’s still effective. Marketing that worked like a charm 10 years ago will hardly be effective now, so be sure you always give your marketing strategy a tune-up.
3. Failure To Grow Reliably
Rapid expansion sounds like a great thing, but spreading yourself too thin is a recipe for disaster. Your business may face booms of revenue and promises of new markets, but if you do not take into account the costs of expanding your office, hiring new employees, and the unique demands of the locations you are expanding into, you will quickly turn your business boom into a business bust. Instead of spreading yourself out too thin, look towards your trends in revenue growth and create a plan that maintains a steady increase.
Likewise, you need to be able to measure your revenue and costs effectively to know if you are indeed growing reliably. If your revenue is not offsetting costs, you need to make a change! Either cut costs or increase revenue, otherwise your business will fail sooner or later. The turnaround from the red to black doesn’t have to be done immediately, but having your business plan to make your business profitable is needed to create steady growth.
4. Failure to Weed Out Bad Customers
This is a big cost to your business that drains both time and effort. Customers that require more customer service than needed which results in a diminished ROI will begin to make your usual business operations difficult to manage. A problem customer makes constant complaints, returns or exchanges, and can be a hassle over trivial matters, regardless of the amount of effort given to address their issues. This difficult situation must be addressed and dealt with before a bad customer or client steals away time from servicing other customers or building up your consumer base.
5. Failure to Manage Capital
It’s bad to be working against your budget; it’s even worse to not have a budget planned. Maintaining a good financial plan to hold onto your capital is essential to keeping your business afloat during a bad business season. Business owners that do not know when to spend and when to save face numerous troubles when the time comes to expand and take necessary risks. It will lead to a business downfall when there are market downturns and underperforming seasons, and depending on your sector, they may happen often!
6. Failure to Delegate Workload
As an owner of a business, it’s easy to envision how you want to get each and every aspect of your job accomplished. From managing finances, dealing with clients, and maintaining the office, to the daily grind of the workload itself, the time and effort required to execute all of these aspects in a timely fashion. Even those with an excellent work ethic will face issues to working on all facets of running a business. Delegating your workload and your business strategy to competent employees and business partners is vital to keeping a business alive.
A simple way to convey the power of delegation is this:
If one person is running and business and hires an employee to do the same workload, that workload gets cut in half.
Be sure you aren’t trying to micromanage either, as this just means more work for you as a business owner instead of having a reliable employee to take care of the work for you. If you do not have time in the day to wind down at home or get to work on planning for what’s on the horizon for your business, it’s time to delegate your workload.
THE ONE MISTAKE
From failure in managing capital to failure in establishing a niche, there are a multitude of situations and faults that lead to closing up shop for good. But have you noticed the connecting factor of these failures?
The inability to properly understand your business capabilities (and more importantly your business limits) is what ultimately will lead to failure. Businesses can withstand most mistakes if these mistakes are eventually addressed. But if you as a business owner cannot understand what your business is capable of accomplishing as well as what it cannot accomplish, then these mistakes will bleed out your business dry.
If you can use your strengths and address your weaknesses, you will be able to create a business model that will lead to growth, no matter how small your business starts out. The most important aspect to dealing with any of these mistakes is taking care of the number one issue: What do I have the power to change, and what am I unable to change?
Create your strategy, your method, or your system to address this issue and follow through with it. Then you’ll start seeing how much your business can accomplish.
Are you still curious about more information that leads to business failure? Check out these sources we used to put this article together and get more insights on how your business can be run effectively:
Top 6 Reasons New Businesses Fail - written by Michael T. Dean, published by Investopedia
Seven Deadly Mistakes That Will Kill Your Business! - published by Home Advisor
3 Mistakes That Will Kill Your Company - written by Jeffrey Hayzlett, published by Fortune
5 Mistakes That Can Kill A Small Business - published by Wipfli