The 3 Biggest Reasons why New Businesses Fail
Ever wondered why your marketing efforts delivered poor, or no results at all?
It’s always been tough for small businesses to market themselves, especially in the first 5 years of business. Let’s look at some statistics really quickly.
According to the U.S. Bureau of Labor Statistics (BLS), data shows that approximately 20% of new businesses fail in the first 2 years of being open, 45% fail during their first 5 years, and approximately 65% during the first 10 years.
While there are different reasons those entrepreneurs fail, there are a lot of common causes and obstacles in their way that made them shut down their business activity.
On the other hand, those entrepreneurs who invested their time in creating a proper business plan before launching their entrepreneurial activities have noticeably experienced a better performance in business, and overall had a competitive advantage on the market.
So, without going too much into data analysis, let’s explore 3 of the biggest reasons new businesses fail in their first years of being open.
1. Not Researching the Market
Well, that happens a lot. And we’ve all seen it. Having a great business idea is not enough to build a business that brings consistent revenue. You know, whatever we think is a great idea, may not have enough traction on the market.
Keep in mind, any business must solve some kind of problem or desire (otherwise nobody needs it, right?). Ok, so, if there is no demand, that means product/service might be destined to fail. Don’t get me wrong, I’m not against new products/services. I’m against unreasonably wasting budgets on market experiments. To keep it simple – it’s a lot easier to satisfy an existing Need, rather than create a new one and convince people they need it.
So, make sure you do a thorough market analysis – Competitors, Product/Service, Prices, etc.
2. Business Plan Problems
Look, we all make mistakes, and sometimes we have to, in order to adjust, improve and optimize. And when it comes to a business plan, some inaccurate details can lead you in the wrong direction, most of the time that happens because theory is just a blueprint, and adjustments are needed on the go.
“Everything looks great in Powerpoint” – Elon Musk.
Following the plan is important, but always monitor all the aspects at all times. As some expenses may get higher, your ability (or inability) to adjust accordingly may save it, or fail.
3. Bad/or No Marketing Strategy
I remember one of the classes with a marketing prof. Who kept saying “There are 3 secrets to a successful business: Location, Location, Location”.
While I cannot disagree at all on its importance, you cannot rely on this type of strategy alone. To me that sounds like “If you build it, they will come” (Yep, just like in that movie – “Field of Dreams”). Sidenote – this works for certain industries, but when I say “works” it means it keeps the doors open, bills paid, and a little bit of revenue at the end of the month.
But was that the reason you decided to launch a business?
If not, then investing in your marketing cannot be ignored. Look at it this way, in order to stay in business, a company needs to generate revenue (which means Sales).
In order to sell anything, guess what you need? Exactly. You need to get in front of People who want what you have to offer. How do you do that?! – That is Marketing.
Marketing itself is such a big beast, that it would require a lot more time to go over than I have dedicated in this article.
Now that you are aware of the biggest mistakes entrepreneurs make in their new ventures, I hope you won’t be another statistic, but rather build a successful brand with consistently new customers and sales .
References:
- U.S. Bureau of Labor Statistics. Table 5. Number of private sector establishments by age.
- U.S. Bureau of Labor Statistics. Table 7. Survival of private sector establishments by opening year.
Serge Moisei
Digital marketing strategist at IQ Avenue Marketing. We have created our SEO & Digital Marketing Agency to help succeed all enthusiastic entrepreneurs, small business owners and life changing ideas.
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