Did you know that ONLY HALF of new businesses survive for the first five years and only ONE-THIRD of new businesses are able to survive for 10 years. The inverse is compelling as we can conclude that if only 50% of new businesses survive for the first five years, then the other 50% fail in the first five years. We can also conclude that about 65% of new businesses don’t make it to the ten-year mark.

FORBES postulates that of every 10 businesses, eight fail within the first 18 months! This is true. If you are starting a business or your venture is less than a year old, then you may be interested in these 7 reasons why Businesses Fail and avoid joining the 80% who FAIL.

1 Bad Business Model.

Operating without a Business Plan is a primary cause of business failure, and pursuing a business for which there is no proven revenue stream. The business idea may be good but failure may come in the implementation of the idea if there are no strategic guidelines in place.

How to Build a Good Business Model: “THOSE WHO FAIL TO PLAN, PLAN FOR THEIR COMPETITION!” Research and review the way other businesses in the industry operate. Get a complete Business Plan that includes financial forecasting based on predictable revenue, strategic marketing, and challenge management solutions to overcome potential obstacles and competitor activities. Create a milestone chart with specific tasks and objectives assigned along the timeline so you can measure success, solve problems as they occur, and stay on track. Your Business Plan should have a detailed Action Plan with measurable parameters for success evaluation. A sound business model that incorporates best practices can help your business avoid failure. Otherwise you will be making your competition look better than they really are.

2 Management Failure.



If you have poor management skills, you lack experience making management decisions, supervising a staff, and reluctant to take charge and resolve the issues. Then your business is guaranteed to fail from the start.

How to Avoid Leadership Failure: “ IF THE HEAD IS ROTTEN, THE FISH IS BAD!” There’s nothing wrong with copying from those who got it right. Learn, study, find a mentor, enroll in training, conduct personal research and you will avoid this kind of failure. Remember that uneasy lies the head that wears the crown. You need to always have a good head on your shoulders at all times when running your business.

3 Lacking Individuality and Value.

You may have a great product or service for which there is strong demand, but your business is still failing. It may be that your approach is mediocre or you lack a strong value proposition

How to Avoid Value Proposition Failure: “DARE TO BE DIFFERENT!” Develop a customized approach or service package that no one else in your industry is using. Do something totally different, no matter how small. This is how you build a brand!



4 Customers’ needs are alien to you.

You have to stay in touch with your customers and understand what they need and the feedback they offer. Your customers may like your product or service but, perhaps they would love it if you changed this feature or altered that procedure. What are they telling you? Have you been listening? Or is the market declining? Are they even still interested in what you’re selling? These are all important questions to ask and answer. Maybe you’re offering a product or service that is fallen well below trend.

How to Avoid alienating Customers’ needs: “A CUSTOMER WHO NEVER COMPLAINS IS SOON CORNERED BY THE COMPETITION.” If the customer never complains, you are either doing an exceptional job satisfying him/her you are doing an exceptional job marketing for the competition. A successful business keeps its eye on the trending values and interests of its existing and potential customers. Be ready to change features that are not popular. Accept complaints as gifts.



5 Poor Financial Management.



A good management must know to the last dime where money comes from an where it goes. You must also plan for contingencies in the event of a financial crisis. This is usually captured in your Business Plan Sometimes people start businesses with a dream of making money but don’t have the skill or interest to manage cash flow, taxes, expenses, and other financial issues. Poor accounting practice puts a business on a path straight to failure.

How to Avoid Financial Mismanagement: “A FICKLE FINANCIAL FORMULA FINALLY FINDS FISCAL FAILURE.” Let your Business Plan guide you. Use professional business accounting software to keep records of all financial transactions, including every expenditure and all revenues received, and use this information to generate profit and loss statements. This is valuable information that you need to run your business, know where you stand at all times, and keep it operating in the black. If you lack skill in financial management, consider hiring a tax advisor and professional bookkeeper or certified public account to help manage your financial affairs.

6 Over-expansion.



Some businesses actually start off great. Great management, experienced and committed staff, great products/services but it ends up growing faster than its shoes. Every now and then a business start-up grows much faster than it can keep up with. You open a website with a trending product and suddenly you are inundated with orders you are not able to fill. Or perhaps the opposite is true. You are so convinced that your product is going to take the world by storm that you invest heavily and order way too much inventory and now you can’t move it. These are both additional paths to business failure.

How to Avoid Growth and Expansion Problems. “EXPANSION BEFORE ESTABLISHING EARNINGS EQUALS ECONOMIC EXHAUSTION” Business growth and expansion take as much careful and strategic planning as managing day-to-day operations. Even well-established and successful commercial franchises such as fast-food restaurants and convenience stores conduct careful research and planning before opening a new location. They measure local and regional demographics and spending trends, future development plans for the area, and other pertinent issues before they move forward. You must do the same for your business to avoid failure.

Get a Feasibility study/Business Plan for the expansion before actually expanding. Make sure the initial business is stable before expanding to an additional location. Don’t order inventory you’re not sure you can sell but have a plan already in place to fill orders quickly should the demand present itself. The key to successful growth and expansion—and avoiding business failure—is strategic planning.



7 No Passion, No Promotion

You are in a business or field you do not have passion for. You are not a social person, yet you want to run an entertainment company, you have bad taste buds but you want to run a restaurant! You do not have patience for whining , noisy kids but you want to start a day-care?? You should invest primarily in a business you have passion for , provide a service or product that you would enjoy doing even if it’s for FREE! When you have passion for the job, promotion is usually the reward. And promotion in business means profit!



How to Avoid this problem. “PASSION PRODUCES PROMOTION.”It is advisable you start a business you have passion for, to provide a service you love to give, and make a product you really like to make. Of course, the profitability of this passion of yours must be established first and this can be done with a good business plan and/or feasibility study.


About the Author: JEM Capital Consults is a management consultancy firm Located in Jos, Plateau State.Read more articles on Business Planning and Feasibility Studies at www.jemcapitalplus.com/index.php/plan

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