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5 Reasons Why Startups Fail
According to the United States Small Business Administration, around two-thirds of small businesses fail within 10 years of their inception. The reasonsfor so many small businesses closing their doors are myriad and can range fromvoluntary closure (i.e. the business owners’ no longer wanted to keep theiroperation going) to bankruptcy. Couple this sobering statistic with the recenteconomic downturn and this can seem like one of the worst times in history tostart a business. However, that couldn’t be farther from the truth.The average interest rate on a small business loan is at one of its lowest levelssince the SBA came into existence in 1986. The real estate market bottomingout means that commercial real estate no longer comes at a premium. Theremay never be a better time to snag a storefront, and the misfortune that befellother business owners translates as cheap prices on initial materials tosomeone looking to start their own company.Regardless of advantageous timing, there is still that harrowing statistic. Newbusinesses fail more often than not. So, if you are starting a business, then youmust learn from the mistakes of those who came before you. To get youstarted, I’ve compiled the top 5 reasons that most small businesses fail below.
Your Product Is Trying To Create a Need Rather Than Satisfying One You’ve no doubt seen TV infomercials for a product likethis: A commercial for a completely unnecessary (andoften overpriced, more on that later) product that leavesyou saying “Who actually wants this stuff?”Just because a product is cool, new, orinteresting, doesn’t mean anyone actually wants it. Youshould ask yourself why someone would want to use yourproduct before you invest time and money into startingup.
Your Catering to a Niche that is Too SmallOkay, so you’ve formulated aproduct that someone has aneed for. Now, how big isyour market? Is it largeenough to sustain yourcompany? If the answer is no,you may want to reconsideryour idea. Catering to anaudience of one is a surefireway to fail.
Your Pricing Point is Hideously Out of WhackYou have a real product with a substantial audience. But how much arethey willing to shell out for it? Deciding how much you should chargefor your product is a notoriously finicky process. Charge to little andyou’re leaving money on the table that may hurt you down the road.Charge too much and customers will balk.The solution to this is to never be afraid to mess with your pricing. Trynumerous pricing levels and ask for feedback to find your sweet spot.Keep in mind that no one is ever going to complain that your price is toolow (except your employees or investors). If a price seems too high, trythrowing in trinkets and freebies to sweeten the deal before you slashprices. It may take a lot of time and effort to find your price range buthaving your business operate at full steam while you work everythingout will be worth it.
Your Marketing is Ineffective or NonexistentTo put it simply, it’s impossible for a customer towant/buy your product, if they don’t know it exists. Manysmall businesses try to operate with a Field of Dreamsmentality (“If you build it, they will come”).Unfortunately, for most businesses this simply isn’t true.Getting your product in front of potential customers is,arguably, the most important thing a small businessowner can do. If you fail to reach your audience, you willnot succeed.Of course, all of these problems usually stem from…
Not Having a Business ModelBefore you receive any investments, spend anymoney, or create any products, you need tohave a plan to take in more money than you arespending. If you don’t plan to have more in therevenue column than the expense one, chancesare you won’t. Unless you have a fondness forred ink, a business model (that includes harddata such as prices, marketing and overheadexpenditures, and projected units sold) isabsolutely essential.