We have a great idea and we are anxious to go into business and become an entrepreneur. You are advised to do your market research, consult with focus groups to test the market, determine your competitors, and write that business plan. You look for investors and put your own money and probably friends and family money into the business. You plan, strategize, write and then you are on your way. You are energized with the hope that your business will be great. But what can go wrong?
Here are five common reasons why new businesses fail:
- Lack of Sufficient Capital
Opening a new business, no matter how small or large takes a lot of money, and many new owners do not foresee this. I recommend planning your strategy and write a formal business plan. It is important to understand the difference between a startup budget (money you will need to open your doors) and an operating budget (money for your monthly costs and expenses).
- Insufficient Marketing
You may think that you must hire a public relations firm to write your news articles and keep your name out front. But as a startup you do not have the money to do this. There is so much out there that is free or relatively inexpensive in the way of social marketing tools, like, Constant Contact, Twitter, Instagram and Facebook. You can use these initially. You can even have a presence on the Internet by creating a website. In today’s world, especially with the Millenniums and their use of the smartphones, you need to have a website.
- Not Understanding your Target Market
You need to know that the market you are entering is growing or self- sustaining. It is foolish to enter a market that is declining; you will be unsuccessful and waste the investment you have made in the business. You need to understand the demographics of the area and what their buying habits are and what they like to do. Gearing products to the wrong group of people are recipes for disaster. If you find that you have targeted the wrong market, you may not have enough time to pivot to another market.
- No Experience in the Business
It is beneficial to have some experience in the type of business you want to establish. If you want to open a restaurant, and never have been in a restaurant’s kitchen or know what the margins are for running the business, you are wasting your time and money. You will need to know what you are getting into.
- Going into Business for the Wrong Reasons
The entrepreneur Guy Kawasaki says that going into business to get rich is the wrong reason for going into business. You should go into business to fulfill a need of society, or what can make life better for us. It takes a lot of time to run a business, probably up to 80 hours a week, and the entrepreneur can become overwhelmed with the responsibilities. It is important to have a support group, especially your family, going into it.