Wealth With Purpose

Why most businesses fail and how to prevent joining them

The statistics show that many businesses fail in the first few years. Whilst business failure is common, you don’t have to be one of them. Below I will identify the common causes of failure and strategies to reduce these risks. Starting a business involves risk. Society advances because people take risks. Don’t be put off by the risk of failure, instead put into place the common sense practices to minimise the risk of failure.

Why do so many businesses fail?

Cash Flow Management – Cash flow is simply managing the money coming into your business versus the money going out. For a business to succeed you need more money coming in (revenue) than going out (expenses). When businesses are in the start up phase usually the expenses are greater than revenue and this can last for years!

Insufficient Capital – You can have a great idea, but insufficient capital to bring it to fruition or as in most cases, not enough money in reserve to survive whilst the business gets established.

Debt – The Bible warns that debt may lead to slavery. Many businesses fail because they borrow money in anticipation that the business will take off. Rarely do most businesses simply take off. Most businesses take years of hard work. Avoid debt – avoid headaches.

Started for Wrong Reasons – don’t like your job? You’re not the only one, but running a business is not like having a job. You should start a business if you feel God is really calling you to do that.

Don’t know their customers deeply – building a business and getting new customers requires you to have a deep insight into the demographics of your customers, their needs, wants, hopes and dreams.

Lack of Planning / Focus – Proper planning before you start is essential. The goal is to plan each element of the business, from marketing to finances. It is also important to identify the critical success factors so that you can be relentlessly focused on what we make it work.

Excess perfectionism – The classic entrepreneur mistake is to keep delaying your product or service launch until it is just right. There is only one problem – it never will be! Product & Service development is an ongoing process.

Overexpansion – Another classic mistake, is the business starts and does reasonably well, so the owner gets increasingly ambitious, expanding faster and faster only to find that a slight downturn in the economy knocks the business over. Growth is good, but it needs to be measured.

Lack of Differentiation & no Value Proposition – what makes you different from your competitors? Don’t know – then neither will your customers. Whilst two services or products may well be very similar, your marketing needs to be unique. The value proposition is your promise to your customers on what you will deliver.

Dangers of Success – throughout time, the same story repeats. A businessperson does well and then pride comes in and not long after that the fall. It would be great advice to remember this passage:

You may say to yourself, “My power and the strength of my hands have produced this wealth for me.” But remember the Lord your God, for it is he who gives you the ability to produce wealth, and so confirms his covenant, which he swore to your ancestors, as it is today.
Deuteronomy 8:17-18

Many of these could be summarised with the words “poor stewardship”. Not every business will succeed. But as Christians we are called to be wise stewards of all that we have been entrusted. To be a successful entrepreneur requires being 100% dependent on God.

Prevention is better than cure

Starting a business ALWAYS takes longer than the entrepreneur expects. If you think it will take a year to get off the ground, guess what? It will probably take 2 or 3 years. Entrepreneurship can be fun and rewarding but it is also challenging and hard work.

Below are some of my preventative measures to help ensure your success:

Cash Reserves – Build up a big cash reserve before starting. How long could you survive without an income? An alternative is to start the business part-time and keep a source of income

Market Research – know your potential customers? Your competitors? The Industry? Proper market research will help you to determine whether or not you have a viable business.

Client Acquisition Strategy – how are you going to get customers? This is probably your No.1 question. Many people start businesses thinking the customers will just come? If only it were that easy. When I had my financial planning business I met up with other planners in the industry. A number of them fell by the wayside, not because they weren’t competent planners but because they didn’t have a dedicated plan to get customers.

Create a written Client Acquisition Strategy focused solely on how you are going to get customers.

Focus – Get one good (not perfect) product going as soon as possible. A great tool is the 90-day plan. This narrows your work down into an achievable plan that is to be executed over the next 90 days, beyond that most people can’t remain focused or organized.

Don’t borrow money – You feel you’ve got a great idea, but you don’t have the money so you think ‘if I could just borrow the money’. Sounds tempting, but debt would be one of the top reasons businesses fail. People lose homes and cars because they borrow money to start a business. The bank loses nothing, and you lose everything. Consider alternatives such as private equity, revenue sharing and other arrangements, just avoid borrowing.

Don’t overcommit – These days you generally don’t need an office when you start. With all the modern technology, virtual offices and voice answering services you can usually create a presence without the need for entering into any leases.

Have a compelling Value Proposition – do the basics well. One of the basics is to come up with a compelling value proposition. This is your promise. What is the unique promise you are making to your customers about your product or service? Relentlessly promote this proposition in all your communication.

Enjoyed this article? For more like it, sign up to receive our newsletter.

  • This field is for validation purposes and should be left unchanged.

Leave a Reply

Your email address will not be published. Required fields are marked *