According to the Small Business Administration, 66% of all startup businesses will fail before reaching their tenth year.
If you are considering startup ideas for business, this number is no-doubt concerning.
Understanding why so many startups fail is the first step to ensuring that your business doesn’t become part of this statistic.
With that said, here are the most common pitfalls that cause new businesses to fail and how they can be avoided.
Failing to Create a Business Plan
Though far too often overlooked, a business plan is the backbone of any new startup. Without a thorough business plan, moving forward with a new startup is a dangerous gamble.
With a business plan in place, it’s easier to highlight the challenges you might face and prepare for them ahead of time instead of diving head-first into the unknown.
A lot goes into creating a thorough business plan, from detailing your finances to estimating your revenue stream to creating a plan for inventory management to creating a marketing strategy and beyond.
Starting a business plan is not a process that you should gloss over and is something that you will want to put a lot of time into before you invest a single cent into getting your new startup off of the ground.
It is also worth noting that attracting serious investors will be almost impossible unless you have a great business plan to present to them.
Fortunately, there are plenty of great resources available that will walk you through the process of creating an exceptional business plan.
Made to Stick
by Chip and Dan Heath
⏱ 13 minutes reading time
🎧 Audio version available
Not Enough Financing
A lack of cash is the pitfall that ends up being the undoing of many new startups. Entrepreneurs tend to underestimate how much it will cost to make their business a success.
Most end up not having enough funds to grow their business into one that can turn a profit. Again, though, having a quality business plan in place that thoroughly details all of your expected expenses can help you avoid this pitfall.
If you are not in a position to comfortably finance your business after your business plan has been developed, seeking investors should likely be your first priority before moving ahead with your plans.
However, you go about it, though, ensuring that you have enough cash on hand to see your business through the critical early stages where your sales alone are not likely to be enough to support your necessary growth is of the utmost importance.
Expanding too Fast
Wanting to grow your new company as quickly as possible is an understandable temptation.
While growth is undoubtedly a positive thing, too much growth too soon can sink a business. As your business grows, you are almost certain to face new challenges and expenses that you might not have anticipated.
Rather than opening yourself up to all of these challenges at once, it’s better to grow your business incrementally.
It would be best if you gradually adapted as you go rather than throwing yourself into a situation that you are unprepared to handle.
Related: 5 Books Every Leader Should Read to Be Successful
Failing to Adapt
We live in a world that is changing and evolving at a blistering pace. To survive in this rapidly-changing marketplace, new startups need to be incredibly adaptable.
Failing to grow and change along with the market is one of the primary reasons why so many businesses don’t make it past the ten-year mark.
If you are considering starting your own business, rigidity is something that you cannot afford.
Keep your finger on the pulse of the market and the world around you, and be prepared to change your business model as-needed if you want to succeed in an ever-changing market.
Poor Inventory Management
Inventory management is a factor that is often overlooked when it comes to creating a business plan for a new startup.
However, inventory management is certainly something that can make or break your entire business very early on.
Proper inventory management is all about ensuring that you have just the right amount of inventory on hand at all times.
If you purchase too little inventory, you could end up not being able to fulfill customer orders – something that not only costs you profits but can also frustrate your customers and permanently damage your brand’s reputation.
On the other hand, purchasing too much inventory can be likewise a costly mistake that will severely eat into your company’s available cash.
To achieve the right balance of inventory on hand, it is essential to understand your inventory, supply chain, and sales patterns.
One great way to do this is to use inventory management software that can keep track of your inventory, predict your upcoming sales based on prior patterns, and let you know how much inventory you need to purchase and when you need to do so.
Attempting to do it all Yourself
Startup owners are required to wear a great many different hats, especially in the early goings of their business. However, trying to do everything yourself is not a sustainable long-term strategy.
Even the most fervent workaholics among us can’t hope to manage everything that goes into running a successful business all by themselves for an extended period of time.
Instead of trying to do it all, your focus should be on making exceptional hires and delegating responsibilities to talented people who will be able to take some of the responsibility off of your shoulders.
Lack of Data
The value of quality data cannot be underestimated when it comes to making a business successful.
If you look at companies such as Amazon, it is almost entirely their ability to collect and analyze data about their customers that makes them so successful.
If you hope to compete with companies such as this, you will need to do the same.
In addition to collecting data about your customers to build an accurate profile of your ideal customer and determine how to reach them best, you will also need to collect and analyze data regarding your revenue, expenses, inventory, and everything in-between.
All of this data can be used to create a detailed model of where your company stands and what you need to do to make it successful. It can also help highlight any upcoming challenges that your company may face so you can begin preparing for them ahead of time.
Related: Stop Searching for Blueprints – There’s No Formula for Startup Success
Failing to Effectively Market Your Business
There’s an adage in business circles that says, “When business is good, it pays to advertise; when business is bad, you have to advertise.”
In today’s market – where customers have an endless number of options to choose from when it comes to where they will spend their money – it isn’t enough to build a business and assume that customers will find you.
If you want to have any hope of competing with all of the other options that your customers will have available, you have to make sure that they know that your business is an option.
Of course, ineffective marketing can often sink a new company just as quickly as failing to market your company in the first place.
There’s no denying the fact that marketing – whatever form of it you might pursue – can get very expensive, very quickly. If you launch an ad campaign that is not very carefully designed and based on research, data, and testing, you are likely to spend much more in fees than you gain back in sales.
Even with this being the case, marketing and advertising are the things that you cannot afford to go without; developing a thorough and scientific marketing strategy is an essential key to any successful business in the 21st century.
An Inability to Differentiate Yourself From the Competition
One primary reason why so many new businesses fail is that they aren’t bringing anything new to the table.
If, for example, your business plan is to sell t-shirts and apparel online, understand that there are thousands of businesses with this same model already in existence – a few of which are successful and most of which are struggling.
If, on the other hand, you plan to create a unique brand surrounding your apparel company complete with unique designs and a fresh approach to appealing to customers, you have a much better shot at being successful.
Understand that this advice applies no matter what your company is or what industry you are operating in.
No matter what you are selling, you will have competition – and if you cannot quickly demonstrate how you are different or better than that competition, you will have a difficult time attracting customers.
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