Business is unforgiving and much like soup; eventually everything shows up at the bottom of the bowl-good, bad or ugly. And when the broth is slurped away with only ugly left, your customers will eat somewhere else, your employees will make soup for your competitor, and you'll be the one to take care of the check.
According to the Small Business Administration, many new business die in the first year, half will be gone in the first 5 years and 65% of new businesses don't make it to the ten-year mark. That is a lot of eye opening math considering most start ups are risking their life savings betting to win.
Ready for that tough love?
The most misunderstood aspect of business is why they fail. After 25 years as a marketing professional, I get a day-to-day, in your face view of countless small businesses, including my own. It's been my observation that the biggest reason why small businesses fail is not the business, but the business owner and a refusal to look honestly at what is happening around them. Ready for that tough love? It's denial and not knowing what you don't know that causes the death of a business. If the owners knew what they were doing wrong, they might have been able to fix the problem instead of blaming the bank, the customers, or the government.
Here are 10 reasons why many small businesses fail. Learn from them or deny, deny, deny. After all, it's your business, not mine.
1. Follow the latest trends
Some business owners can figure ways to adapt new trends to their favor. Many others get caught up in latest trends and technologies too soon, way before the trend is set and tested. Doing the latest thing is always very expensive. New equipment, new technologies, new services...
"It is always the second rat that gets the cheese."
Personally I have always worked on the assumption that "It is always the second rat that gets the cheese." I even have that written on my email signature and I've been thinking about getting it tattooed (not really). Most businesses do better by growing slow - let the other guy spend the money first. Slow growth gives you time to analyze trends without spending money to test them.
DO NOT BE FAST ON THE DRAW.
If your competitor just invested $25,000 in a new digital sign outside his door, sit back for a few months and see if it, in fact, makes a difference in his business. If after 6 months it still seems to be delivering strong messages and attracting attention, then consider the cost and after that make the buy. Is the cost worth the return? Could you use the 25K to move your business in a new direction without falling into one upmanship with a competitor? What if you spent that money on seminars where you could learn from other successful business owners how to implement a new trend successfully? You may be able to do that for 1k and increase your business by 10%, leaving your competitor with a flashy sign and 25K in debt. DO NOT BE FAST ON THE DRAW.
2. Be too busy to return or take calls, emails...
Every person who contacts you or comes into your business is a potential salesperson for your business. If when the local State Farm guy calls and says he has a good deal that may help your business grow, make sure you treat him poorly and take a little extra time to let him know that the company he works for is a crooked organization. He will go home to his wife and tell her and the kids about the great guy he met today. Heck he might even tell his friends what a stellar business person you are and they should buy from you. EVERYONE IS A SALESPERSON FOR YOUR COMPANY - WHETHER POSITIVE OR NEGATIVE.
3. Put all your eggs in the social basket
Ineffective marketing is a fast way to go out of business. Customers can't do business with you if they don't know you're there. Social media is great, but not a stand-alone marketing strategy. I've seen many businesses fail because they thought they would open their door, post some very friendly messages on Facebook and customers would flock to the business.
SPREAD YOUR MESSAGE AROUND.
The reality is just the opposite. Just because you spend your day on Facebook doesn't mean everyone else does. You have to have other ways to reach a wider market. You can't rule out direct mail, radio, TV, print, promotional events... If you do, you are simply on a slow agonizing path to OUT OF BUSINESS. SPREAD YOUR MESSAGE AROUND.
4. Be the best priced guy in town
The math doesn't work. Being the cheapest guy is, hands down, the fastest way to go out of business. If you price yourself as cheap you will fail because you will not have money to keep your lights on. If you're competitor is experienced, he will not even try to drop his prices because anyone in business knows selling price doesn't work unless you are a super store. He'll just sit back and wait six months or so and you'll be gone.
A business can't provide quality, price and service without going out of business.
Selling price works for Walmart and Best Buy because they can buy in big lots. You can't. As a small business, you should focus on the quality of your product or competitor and the service you can provide your customers. When people walk into Walmart, they expect to serve themselves. Quality and service are the things big companies have a hard time providing to customers. A business can't provide quality, price and service without going out of business. IT IS IMPOSSIBLE to provide all three and stay in business. You have to pick two of the three and run with it. SELLING CHEAP IS EXPENSIVE.
5. Be everything to everyone
You can't be everything to everyone. Sorry Superman, it’s impossible. Work hard and provide a quality service or product. If you find yourself in need of being everything to everyone, that is an indication that you are not doing what you need to do to make money. You may need to get an outsider's view of your business or at least a hard look at what you, the business owner, is doing wrong. THAT'S HARD TO DO. KNOW YOUR NITCH.
6. Do it your way
We all love the idea and the Sinatra song really hits it on the head. I'm independent and doing it my way. Yup, no need to listen to my customers. No need to listen to my employees. No need to listen to other business owners. What do they know anyway? Sell the products you want people to have. No need to understand what people want, right? Nope. You get the idea. In many cases, you can identify this problem with a business owner, and they will acknowledge that you are correct - and then, continue to make the same mistakes over and over and over again. BE OPEN TO IDEAS.
7. Network 'til it hurts
Networking is great. Joining your local chamber of commerce makes sense. But keep in mind that many small town organizations have been in play for many years. It takes time to crack those nuts. You have to be realistic as to what sort of return you will receive by joining groups and networking organizations.
...we all get the same 24 hours...
Keep in mind, that we all get the same 24 hours, so every hour you take away from making your product or service better, you have to get back. Having a shoe store may not be the type of business that gets the full networking benefit that the local radio station or newspaper gets from attending a networking meeting. BE GREEDY WITH YOUR TIME.
8. Just do business with people you like
Doing business with your friends only or people your friends like will quickly sink your business. You need to be unbiased in business and do business with anyone who can pay. If you fall into the gossip, friend solidarity way of doing business, you will cut your market in half from the get go. You need 100% of the marketplace to survive.
BE UNBIASED AND PROSPER.
I don't care if the owner of the local coffee shop hates you, or the chamber has a whisper campaign raging against you, or the church down the street feels you are not right for the community - you need to offer your services to them in the same manner you offer to anyone else. Word will get around that you are a fair person and your business will grow. Also, it helps to hire from outside your networks. That grows your market share as well. BE UNBIASED AND PROSPER.
9. Failing to track your finances
Many businesses fail because they take on too much debt or they started without funds to run a business successfully. You have to pay strict attention to your finances, and keep careful records of all money coming in and going out. Without that, you are running blind. You have no way to track yearly trends or make adjustments for next season. You have no way to plan next year's budget. You have no way to track your marketing effectiveness.
Many new businesses burn through their startup capital before they get their cash flowing. This happens all the time because many entrepreneurs are convinced all they need to do is go online to learn about how business operates. This is not the case (seriously, how many business owners are going to post valuable business information online? That would be foolish!). If you structure your business by looking at other businesses online, nine times out of ten, you will be heading the wrong way.
LEARN HOW TO DO OLD SCHOOL BUSINESS FIRST.
What works for a small business in Dallas may not work in Fredericktown. What works in St. Louis may not work in Cape. What works in Cape, may not work in Farmington... you get the idea here. There could be thousands of idiots out there copying each other, all doing the exact wrong thing. I see this online all the time. If you're just starting out, seek out seasoned business veterans you can turn to for advice before making big expenditures. LEARN HOW TO DO OLD SCHOOL BUSINESS FIRST.
10. A declining or over-saturated market.
Think about what people want to buy before what you want to sell. If you like going to garage sales and finding cool stuff, the temptation to open your own shop is strong. But consider how long it took for you to collect all that stuff before you open your shop. Will people come into your shop to buy the things you like? Will you be able to replace the things you sell -the stuff that took you 5 years to collect? How many other thrift stores have you seen open and close in your town faster than a gold ring at a yard sale? Changes in technology, consumer demand, and competition from huge companies with more buying power and advertising dollars are making retail shops more difficult to survive. SELL WHAT PEOPLE WANT.