As a business consultant every time a small business fails I get dismayed. The owners of a new business have often staked their entire capital on a new venture and they stand to lose a lot more than if a big company fails in their new venture. Before you start a new business familiarize yourself with the top 10 reasons why many new businesses fail, according to what our research department has compiled.

1. The manager is incompetent

Most small businesses fail because the owner does not have the knowledge to run a business properly. It is advisable to do a basic business course before starting a new venture.

2. Finances are not in place

Many people start out in business without any idea of how much money is really required. If you do not know how to write a business plan get your accountant to help you. In any new start-up cash flow is king and without proper funding even the best idea will fail.

3. The Owner gives up too quickly

Any new business will be lucky to break even in their first year. Many people new to business often assume that they are going to make a fortune within 12 months. In reality less than 80% of new start-ups make a profit in their first year.

4. Advertising

There is zero point in doing a single leaflet drop to all your potential customers. There is no point in doing a single advertisement in your local newspaper. Advertising is all about repetition. Many of your potential customers will not buy your products until they have seen your marketing material at least half a dozen times.

5. Branding

Every single piece of your company has to scream out your brand including your brochures, websites, delivery vans and the uniforms that you and your staff wear.

6. Ability to close the sale

This is really an art form in itself. Some people are naturally good closers but others have to learn by reading and studying the art of closing a sell. The more you practice the better you will become.

7. Location

Location is very important to the chances of your businesses survival. Often you will have to pay more for a decent location but it can make the difference between just getting by and turning a decent profit.

8. Ability to get along with other people

We all know that we have to treat our customers with respect but what about our suppliers. If you do not pay your suppliers on time they will start quoting you higher prices. If you are rude to them they might stop doing business with you altogether.

9. Lady Luck

Some people are really unlucky; there is no getting away from this. Just hope and pray that Lady Luck smiles at you, especially in the first year.

10. Demand and USPs

Small businesses often overestimate the demand and usually have no unique selling proposition built in to their products. If people only ever need to buy one of your widgets and you make millions, chances are that you are heading for a point of no return.

Can you add any other tips that will help a new business owner?

I’d like to add, “stuck in planning”  can’t start selling because there is always more research to do.  Also, working “In” the business rather than “On”  the business.

@roryramsden Yes a marketing plan is very important, when having a consultation we include a marketing plan, what we were originally discussing is the business portion!’

The Marketing Consultation and the Business Consultations are two different services we offer but we always integrate both into a Initial Consultation!

@dongrandy  Exactly, kind of a form of analysis paralysis!

@Rick Mosca @Don Grandy @Heidi Thompson OK Rick… then I can only add that your #5 Branding would really fall under the heading of corporate identity. Branding is much deeper and more embedded in people’s croc brain.

A yellow badge with a prancing horse on a red car hood evokes a long racing pedigree and an association with rich and famous people moving in the most sophisticated social circles. When people buy a Ferrari they are not really buying a car. They’re buying all the unspoken messages that set off a dopamine rush in all who see it. This is what allows Ferrari to sell their products at top dollar despite the fact that the cognoscenti know they can be unreliable.

Ferrari’s success is in their marketing strategy which positions them to take advantage of their core strengths. Their USP, their CI and their advertising are dedicated to supporting this.

So for me your list of 10 is really 8.

No business plan will stand up without a marketing strategy

I found some other things to be aware of:

1. Be sure you get your name, slogan and logo worked out as soon as possible so you can check to see if others have it and the internet for Facebook, Twitter, domain names, etc. This is crucial today more than ever to differentiate yourself as well as SEO.
   
2. Before deciding to move forward with a biz plan, I would make sure your partners or team is a good cohesion with responsibilities laid out in a written agreement. For instance, you might be doing a joint venture with an outside VC or a partner that is the main capital investor. Be sure a Partnership Agreement is made that covers everyone’s fiduciary responsibilities along with who brings what to the table initially. It could put an initial valuation to the company before it starts, especially when you have patents or IP rights (if you are the one with the IP, then be sure you get protected BEFORE signing anything). Just going through this phase will protect everyone, set the tone and expectations for everyone, and allow provisions for more partners and VC’s down the road.
3. During the biz plan, focus on the SWOT Analysis and give it the needed time it deserves. This way you will have a good idea about your competition and your point differentiation. Are you going to be truly unique, offer an alternative to your nearest completion or be the cheaper solution? Sometimes it is all about time of entry into the market and SWOT could help you see that. You are forced to answer the question, why would they buy from us rather than our competition?
   
4. Be sure you create all of the necessary contracts (Work for Hire, Employee Contracts, NDA’s NCA’s, etc) as you do business with others or it will open you up to lawsuits or IP rights going to others which they will share in your profits which again you would have to fight in court.
5. Don forget a customer service plan and customers in general. Maybe some initial focus groups are needed to assist in your development process to iron out some kinks. Initial feedback on your product(s) is something (after you protect yourself first) you should consider, especially when dealing with technology.
6. Analyze your logistics or have someone on the team that specializes in this or hire someone. This will break your company the fastest. Your supply chain is crucial to a happy customer and where you will bleed most of your profits.
7. Constantly innovate and put some profits into R&D as soon as you can in order to keep pushing the envelop. If that means hiring for better innovation, then look into it. Google and Apple have learned this lesson already, so learn from them.
8. Brand Management will become important early one, so plan on having that managed from the start as mentioned in #5.
9. Re-evaluate every quarter on all major points of the business not just the profit/loss ratios.
10. Stay on top of communication across all departments. Poor communication and lack luster motivation or negativity/arguments early on will kill a start-up every time. Iron things out immediately and keep an open communication at all times with a respect for everyone’s responsibilities. Treat everyone with professionalism and respect and your start-up will have a better chance of making it through those first couple of years to profitability.
    

@douglasmillington I completely agree with that Douglas! An honest biz plan should have estimates and with Angel funding, VC or an SBA loan, should get you through the first 6 months to a year.

@rlmosca

Great topic and list Rick!!!

My add one more idea – Many people start businesses who are not business owners and they are not ready to be either. They are technicians. Simply stated, they my own the company on paper, but the company really owns them. They work for their own company, it doesn’t work for them.

In order for that to happen, they need all the recommendations above and a lot of hard work. It takes time. @charlottewood is right, because it takes time and patience, they quit early.

In the end, many basically own a company so they can have a job instead of owning the company and doing what is necessary to grow it, administrate it, and oversee it.

They never learned how to get out of technician mode and into ownership mode. Great book that goes into this is The Emyth. The E means Entrepreneurial. All small business owners should find a successful business owner and ask them for mentoring, and even consider hiring a business coach.

We did that a few years ago. We didn’t know what we didn’t know. It was the best thing we ever did!

I suppose the one thing that I could still contribute to this thread is this; Probably lack of tenacity. For a hard walking, pencil pushing, hustling street sketch artist the hardest thing is surviving. If you can keep your cool while drawing skwaling little kids you can probably make it. Seriously all the great suggestions and advice here are helping me to turn a one-time hustle into a business-paradigm. Thanks guys.

@davidwalizer Yes. planning an exit strategy could be a subject for another thread in itself. For example, my associate in NYC advices companies on IPO’s, so a tech firm should be thinking about an exit strategy during the biz plan since VC’s will be valuating the company with IPO and exit strategies in mind. You also want to think of possible licensing deals and how you would personally want to exit the company.