WHY HALF US BUSINESSES FAIL
By Bazal Razzaq
Chief Editor
Updated: April 6th, 2024
10 commandments all business owners must follow
50% of all us private businesses fail in the first 5 years, we are talking about the same chances you would get in a coin flip, businesses fail for a variety of reasons some personal some financial some experiential, and sometimes things are really out of the entrepreneur’s hands, just look at the recent years where millions of businesses had to close due to Covid, where was the fault from business owners in that? But still, that said there are some patterns that we can look for that become the reason for failure of a business.
Personal note: I have had many businesses since the age of 16 and most have failed, those failures have helped and for me in hindsight were the only way to get to a somewhat successful business.
Let’s see what the common mistakes business wooers make, so you can self-correct or at least see what can go wrong and avoid it.
Featured Best LLC Services
On Northwest Registered Agent’ Website
Highlight
On Business Rocket’ Website
1st Commandment: Respect Experience
Ever heard “Theory without experience is blind”? It’s the case for many new and aspiring business owners myself included, to dwell in theory and plan every single detail, thinking our present understanding of the business we want to get into is accurate enough to mirror reality. But unfortunately in fact we could not be further from the truth. There are many nuances and industry-specific knowledge that you need to acquire, as well as fundamental skills to develop: people management, decision-making, understanding your competitors, and your strategies. All of these things can only be acquired with practice, time, and repetition just like playing a competitive sport.
But of course, being open to learning and adapting is the most necessary weapon in your arsenal and we all have to start somewhere fear of uncertainty is not something that an entrepreneur will stop at. So keep moving
2nd Commandment: Cash is King
Now this is where things start to get tricky MONEY, this is how you put down the foundation for your Business. Capital is the only thing that keeps your business afloat. From the initial capital whether your own or from investors to managing cash flow and if necessary securing additional funds.
Not having enough funding in your new business and you will have serious challenges from the first unseen circumstance: a bill that was supposed to be much lower a project had to be redone. Not having enough money will hinder your growth and your operational capabilities. Beware also of overspending which will quickly drain both your growth potential and your pockets, I found that some problems can’t be resolved by throwing money at them.
So you have to learn to strike a balance where you have enough funding to run your business smoothly and can overcome the unforeseen challenges that this life will throw at you while being able to grow your business and pay for everything. And not sin all sins overspending
Personal Anecdote (on wasting money which I’m an expert in ) :
Over the years I have run many online advertisements, and in one particular case I was trying to reach buyers for my new Jewellery e-commerce, we were running ads on Facebook Instagram, and Snapchat, spending thousands while not making even enough sales to pay for the wifi. My solution was “Well we must throw some more money in and get the ad to more people so we can find the right audience” a statement that made full sense at the time.
So we did. Rising our daily ads spend from 300$ to 1500$. And that didn’t quite work, the ad did some more sales but we had the same issue, not enough sales. At this point, we were reaching a huge audience of presumably interested people.
After weeks of literally burning money, I sat down with my marketing team and we tried to find a different solution, the result: was new and more user-specific video Ads, we got 3 videos done in a week and simply replaced them on the already running ads putting the ads back on 300$ a day. Just like magic, the same audience was now buying. I could have 10x the ads budget but what was needed was a simple ad refresh.
3rd Commandment: Listen to the market Force
All of these points are important but this one is the one you would consider even at the ideal stage of your journey, alleging yourself with the market needs and demands, and staying aligned when the market moves in a different direction, which is inevitable in any businesses, so finding your audience your specific niche is imperative even in a broader business like retail or manufacturing.
You will have to find the market and the market will have to find you. Of course, many people create a new space that never existed before and can run their business like they want and it is the market that will look for them, but in my experience, this happens to people who are already at a very mature phase of expertise and understanding of their product and service.
For us mere mortals we have to align ourselves with the flow of the demand, this does not mean conforming to the masses and doing what everyone is doing, and not being unique, but only following basic rules of economics.
P.s.
For all tech startups, I know you guys are divine disruptors so more power to you! You are not human this is a guide for humans.
4th Commandment: Beware of Competition
Like anything worth pursuing, other people are trying to do the same thing or at least similar to what you are doing, whether it’s a small corner shop or a tech giant, business can be an extremely competitive arena. When you decide to enter a specific sector, choose a niche that has the competition level that you know you can face.
Sometimes competition means cooperation and helping each other, other times it means cutthroat strategies to see you burn. And the most depressive of all big companies cutting the wings of small business.
Simply put navigating the competition requires you to be strategic and find ways to differentiate yourself with a better product or a more accessible one or innovate in a way your competitors are not, doing that requires first that you understand your counterparts and their strategies.
Your competition is what will also push you to create better more optimized services or products and push you to innovate. This adds value to your business.
5th Commandment: The Price is Right?!
This one is another balancing exercise just like the Capital Challenges that you may incur when starting. If you have seen The Price is Right, you know that most buyers have no idea how to price things.
Whether a product or a service, the price will depend on many things like your cost of material the price your competitors set, etc. but sometimes the bigger factor is things that may even be unrelated to production/service cost, things like branding, status, and marketing. The price might be all in perception and the right audience. This you will have to learn and adapt to very quickly as the market also fluctuates its prices.
While making this important decision you have to find the perfect balance between profit and value for the consumer. Check whether the price is about value perception if the service or product you offer doesn’t hit the right spot you are either overcharging or cutting yourself from profits.
Featured Best LLC Services
On Northwest Registered Agent’ Website
Highlight
On Business Rocket’ Website
6th Commandment: The People
If your business requires hiring, the people you hire are the engine of your business. A skilled workforce can be the key to your long-term success, so find the best and value them. A non-cohesive team will be your ruin no matter how good your idea is. You have to find ways to create effective communication and a well-defined command structure that is layered with responsibility. This will promote a positive work environment and the most effective running of your day-to-day operations. Investing in your workforce Is investing in your own business.
Having the right people will save you a lot of time money and headaches. So don’t overlook this part of the process.
7th Commandment: “Be like Water, my friend”
Bruce Lee said it so it must be true… Anyways business is always moving evolving and changing with the marking and its invisible forces. Demand will change prices will change people will change so you have to move in sync with all these individually moving parts and adapt to the invisible powers. Technological change, consumer behavior. Being able to adapt means you will overcome the stubborn entrepreneur who is stuck in their ways. You will be incentivized to innovate and optimize things. This doesn’t mean you have to reinvent the wheel, even simple changes suffice sometimes.
8th Commandment: Adopt a Marketing guy
You could have the best product or service on the market but still not be able to attract enough clients to make ends meet. Here comes the magic of marketing. First having A strong Marketing plan helps a lot something that’s detailed enough for you to have a long-term strategy but malleable enough for you to be able to adapt to miscalculations and things that just won’t work.
This marketing plan should have some space for offline and online marketing channels as they will help you reach your audience and clients. Creating brand awareness, and clients.
Your plans might be wrong but they will still help you give structure I for instance have made many marketing plans most of which I never fully followed but they did help me get a direction or at least a work framework on how to get things going especially when starting and being unknown to the market.
Awareness does wonders it creates a reputation which of course you’ll have to cultivate this applies to all businesses.
9th Commandment: Read The Fine print
“The devil is in the details” This saying can’t be truer, your business must be fully informed on the rules and regulations, terms and conditions of starting and running. Being able to easily move through things like taxes, legal obligations, and sector regulations, is key for a successful business, especially if you don’t want to incur in sections, fines.
Read the fine lines not only when dealing with the government of the taxman, but also in business relationships, I have been surprised more than once by what people will try to slip in contracts.
Being attentive to these things might be boring or complicated but it’s necessary, no one can escape these bureaucracies, and attempting to will only lead to repetitional damage and heavy fines.
It’s always advisable to seek professional help in matters like this. So make sure you are covered.
10th Commandment: Greater forces at play
Some things are just out of your hands, and have nothing to do with your abilities as an entrepreneur or even your market sector, there are bigger forces that keep their hold on the market, things as political unrest, economic downfall, inflation rising, or interest rates skyrocketing. Or unexpected things like pandemics.
So one thing you can do is diversify your investments and your risks so that you can overcome these coming and going calamities.
https://www.usatoday.com/story/money/business/2019/04/04/unemployment-benefits-applications-us-fall-49-year-low/3363805002/
https://www.cnbc.com/2018/06/05/there-are-more-jobs-than-people-out-of-work.html
https://www.forbes.com/sites/joshbersin/2018/07/03/the-ugly-side-to-todays-low-unemployment-rate/#2b648d903e99
https://www.inc.com/craig-bloem/starting-a-business-is-risky-heres-how-to-determine-if-that-risk-outweighs-reward.html
https://www.forbes.com/sites/forbesfinancecouncil/2018/10/25/what-percentage-of-small-businesses-fail-and-how-can-you-avoid-being-one-of-them/#759dcd643b5f
https://www.forbes.com/sites/quora/2018/12/18/how-important-is-customer-service-to-success-in-business/#b09d78e19c00
https://www.forbes.com/sites/quora/2019/01/17/this-is-the-real-reason-why-so-many-startups-fail/#1a20248aad69
https://www.forbes.com/sites/modeledbehavior/2017/01/29/no-most-restaurants-dont-fail-in-the-first-year/#105a1f9e4fcc
https://www.cnbc.com/2018/10/16/top-10-industries-that-are-hiring-thriving-and-making-money.html
https://www.apnews.com/4c463558fb70464591b823ff5add3be7
https://www.cnbc.com/2019/04/26/us-cities-where-business-is-booming-and-salaries-are-rising.html
https://www.sba.gov/sites/default/files/advocacy/2018-Small-Business-Profiles-ND.pdf
https://www.sba.gov/sites/default/files/advocacy/2018-Small-Business-Profiles-RI.pdf
https://www.sba.gov/sites/default/files/advocacy/2018-Small-Business-Profiles-GA.pdf
https://www.entrepreneur.com/article/305688
https://www.inc.com/leigh-buchanan/why-local-regulations-are-increasing.html
https://www.pnj.com/story/news/2018/10/15/hurricane-michael-damage-may-too-much-some-small-businesses/1654018002/
http://worldpopulationreview.com/states/florida-population/
https://www.marketwatch.com/story/us-job-openings-jump-to-record-71-million-2018-10-16
https://www.theguardian.com/business/2019/feb/01/us-jobs-report-news-latest-record-breaking-month-100th-in-a-row
https://www.usatoday.com/story/money/2019/01/02/fastest-growing-industries-2018-jobs-high-demand/38809451/
https://www.cnbc.com/2018/08/23/trump-says-the-coal-industry-is-back-the-data-say-otherwise.html
https://www.forbes.com/sites/energyinnovation/2019/04/22/renewable-energy-job-boom-creating-economic-opportunity-as-coal-industry-slumps/#56b22ce93665
https://www.usnews.com/news/best-states/rankings/economy/employment
https://www.usnews.com/news/best-states/west-virginia/articles/2018-12-20/west-virginia-population-drops-for-6th-straight-year
https://www.cbsnews.com/news/west-virginia-poverty-gets-worse-under-trump-economy-not-better/
https://www.businessinsider.com/oil-north-dakota-towns-2018-6#north-dakotas-unemployment-rate-also-fell-to-as-low-as-26-the-best-rate-in-the-nation-9
https://www.npr.org/2018/11/23/669198912/after-struggles-north-dakota-grows-into-its-ongoing-oil-boom
https://nulab.com/learn/strategy-and-planning/americas-growing-and-shrinking-businesses-examining-the-life-expectancy-of-businesses-in-the-u-s/
Number of private sector establishments by direction of employment change by establishment age, as a percent of total establishments:
https://www.bls.gov/bdm/us_age_naics_00_table4.txt
Survival of private sector establishments by opening year:
https://www.bls.gov/bdm/us_age_naics_00_table7.txt
A cool guide to the best U.S. states to start a small business in
byu/LuckyLaceyKS incoolguides
Still Here?
So if you still want to be a business owner and have not been deterred by these commandments. Well, congrats you might just have what it takes.
If you want to open your Company and like me are a bit lazy or don’t want to get into complicated procedures here are some suggestions from our partners that can help you Incorporate your business.
Good Luck
There are many things to take into account but at least you should put yourself in the best possible position with your incorporation so find a state that gives you the best according to your need, things change a lot from one state to the other
If you enjoyed this article you might enjoy the next one on Which are the best and worst states to incorporate your business.
Featured Best LLC Services
On Northwest Registered Agent’ Website
Highlight
On Business Rocket’ Website
- Head to Head: sole proprietorship vs llc – Which Business Structure is Right for You?
- How much does it cost to start an LLC?
- Brick and mortar vs. Virtually Perfect: Choosing between a Home Business Address and a Virtual Business Address
- The Ultimate Checklist: Top Mistakes to Avoid When Creating An LLC
- What Is A Foreign LLC?
- The Power of Partnership: Unleashing The Potential of A Multi Member LLC
- How to set up an LLC as a Non-US resident
- How to change your LLC name in 2023?
- Can An LLC Be A Nonprofit?
- Can An LLC Own Another LLC?
- Unlocking The Benefits: A Guide To Use Virtual Address For LLC
- Mastering the Art of Maintenance: Things To Do After Setting Up An LLC
- Exploring the Basics: What is a Single Member LLC?
- C Corp vs LLC – Which Business Structure is Right for You?
- Which is the best state to form an LLC in?
- Unlocking the Benefits of an LLC (Limited Liability Company)
- A Guide to Business License: Everything you need to know
- Operating Agreement 101: A Key To A Successful LLC
- One LLC, Multiple Streams of Income: can you have multiple businesses under one LLC?
- Articles of Organization Made Easy: Everything You Need to Know
- What Is A LLC Annual Report: A Comprehensive Guide for Business Owners
- Exploring Eligibility: Who Can Be LLC Members?
- What Is A Domestic Limited Liability Company?
- What is An EIN, and Do You Need One?
- What Is a Registered Agent, and Why Does Your Business Need One?
- What is a Series LLC?
- How to start a business with no money in 6 steps
- Member Managed vs Manager Managed LLC – Which Structure Fits Your Business?