By: Rayanna Anderson
Over the past 25 years, I have had the opportunity to work with thousands of small business owners. Some were great successes and others failed. According to the U.S. Small Business Association, almost half of businesses survive at least five years and about one third make it 10 years or more.
If you are thinking about starting your own business, the last thing you probably want to focus on is failure. However, if you address the top reasons businesses fail, it is more likely that you will be one of the successes.
From my perspective, it comes down to three things: you, the customer and the money.
Therefore, here are my top three reasons why businesses fail and how you might prevent them from happening to you.
You. Poor leadership may be the No. 1 reason businesses fail. Frequently, new business owners lack business skills in areas of finance, marketing and human resources. The key to success here is to recognize your lack of expertise and do something about it. That may mean taking classes to gather information so you can move forward, or hiring the expertise to avoid a disaster in the meantime.
Remember, the owner is ultimately in charge of all company operations and its success. Being a successful leader includes building a great team. This requires the owner to be able to hire and train employees while continuing to strategically plan for the future of the company. Again, consider if your experiences and personal abilities are ready to take on these challenges. Most successful business owners I see have had years of leadership experience prior to launching their own venture.
The customer. You may have a limited understanding of who your customer actually is or what you are really selling. Customers are your key to success and knowing why they are buying your product or service is vital to being connected to them. Listening is the best thing you could ever do relative to marketing success. Therefore, establishing a process that keeps you in dialogue with your customers is key to your survival.
You may think you are selling a product or service, but what you are really selling is the benefit of buying that product or service. Consider Apple’s iPhone. Are they selling only a smartphone — there are many on the market — or are they selling a coolness factor? There are certainly cheaper phones out there, but many people are willing to pay for a cooler self-image.
Money. Not having enough capital is what most people think is the No. 1 reason for business failure. While this may be the result, the reason runs much deeper than simply having no money left in the checkbook. Failure to figure out a profitable business model where cash in is greater than cash out is the long-term solution.
Unfortunately, you have to get through the short term, which may mean having a load of money on board to get you to break even. This is why a detailed financial plan is vital to any startup’s existence. The plan should include the details of all your costs, including the true cost of your product or service, as a percent of the sale. This information will provide you with your break-even point, your first step in long-term survival.
Ultimately, the success of any business comes down to you, the owner. Perseverance usually exceeds intelligence, while the owner’s ability to see the business from the customers’ point of view is what sets apart the winners from the losers.
Rayanna Anderson, MBA, is director of the Small Business Technology Development Center and the Management Development Institute at Missouri State University’s e-Factory. Anderson writes about issues she sees regularly in her consulting with small businesses in Springfield and the state of Missouri. Email: randerson@missouristate.edu.
This article appeared in the April 23rd, 2016 edition of the News-leader and can be accessed online here.