Reasons Why Startup Businesses Fail

It is a well known fact that most start-up businesses fail within one or two years of start-up. Some entrepreneurs enter into business not because they are genuine entrepreneurs; they go into business just for the money they can make. They lack the spirit of entrepreneurship and innovation. Many entrepreneurs today are untrained in management and they use autocratic management and other harmful principles to destroy their business.

Some major reasons why start-ups fail are poor management style, unfavorable government policies, poor infrastructure, scarce resource, lack of start-up capital, poor customer relation, poor patronage and so many other self-created problems.

Here are five major reasons why start up business fails within one or two years, and some within months of incorporation.

Lack of knowledge of the business – Most people go into business without having good knowledge of the business. A person who wants to be an entrepreneur should conduct a feasibility study to analyze if the business is worth going into or not. The feasibility study will help in understanding the variables and mechanism of the proposed business, the profitability and performance of the business in the future; you will need to know if the proposed product will be acceptable in the market and who your target customers will be.

Poor Management – Of course, when you have poor knowledge of the business, the management of the business will also be poor. Many business failures is due to poor management because the new business lacks relevant business and management skills and expertise in areas such as finance, selling, production, hiring and managing employees. New business owners have to know and understand what they don’t do well and seek help from experts; otherwise, the business will surely crash. A good and successful manager should be able to create work climate that encourages productivity, he/she should be good at strategic thinking and should be able to make vision a reality and create new possibilities for the future.

Lack of finances/ poor planning – Another common reason why start-up fails is not having sufficient operating funds for the business. New business owners underestimate how much money will be needed to run a business until it becomes mature and fully acceptable in the market. New business owners should not only estimate the cost of starting a business, but they should include the cost of staying in the business. It is very important  for business owners to know and understand that many business take a year or two to get going, this means that you need enough funds to cover all costs and expenses until sales can eventually pay for these costs. Aside from lack of finance, improper planning is a fundamental reason to why start-ups fail. Business plan should be based on current and accurate information.

Location – Location matters a lot to the success of your business. A good business location will enable the business to survive while a bad location will bring disaster to the business, even if it has the best managing techniques. So if you are setting up a business, the business should be located where your customers are, it should be traffic free, and also consider the location of competitors.

Over-expansion – Many entrepreneurs mistake and confuse success with how fast they can expand their businesses. Once they have established a solid customer base and a good cash flow, they start thinking of expansion. Let your success help you set the right measures and step. Some of the things that can make you expand your business are inability to fill customer needs in a timely basis and employees having difficulty keeping up with production demands. But before you think of expansion, you should carefully review, research and analyze, and identify what and who you need to add in order for your business to grow. Then with the right systems and people in place, you can focus on the growth of your business.

BY: Mercy Kukah