Starting a business from scratch is challenging, so challenging in fact that majority of them fail or crash within the first 3 years. There are hundreds of different factors that need careful consideration when running a small business from something small like the tone of which you talk to customers all the way to the actual business structure incorporated. It is up to owners and managers to know where to improve particular areas and also to recognise threats that my take down the company over time.
MONEY, it is one of the first things that people think about after the words “business”. It is important, you already know this, “You need to spend money to make money” is one of the lines that big investors and managers will quote. It can be very true in most cases that in order to rent that storefront or bulk buy some stock you have to have the cash. But also in other cases it has been seen where companies grew with the dust in the founders pockets alone. Time and time again though small businesses run into brick walls where they need to buy stock or software in order to sell to breakeven or profit.
What is your industry? If your business model is built around a simple website with content as the product run from your bedroom, then your expenses are low and money is less and less an issue. However brick and mortar companies face costs for example, building rent, stock, electricity, water, shipping to name a few. Bank overdrafts typically to float business revenue streams also being a hurdle for such companies to overcome. If any case, do the math before opening your doors.
MANAGEMENT, we all may think that we could be the best bosses ever, but in reality many fail at the task because it is harder than you might understand. The idea of management is a whole other topic on its own with regards to staff needs, finances, marketing, decision making, and company environment. But for the sake of simplicity, how hard could it be to tell some people what to do and buy some things?
Management is no simple task; some people quake at simply the thought of all the responsibility; when considered it is more than expected. To list some of the responsibility of managers especially small business managers who undertake typically more roles than that of bigger businesses: Hire, train, evaluate, maintain, market, sell, purchase, grow, plan, lead, and motivate all the resources within the company.
GROWTH, too many cooks make the broth spoil. Simply put, a lot of a good thing can be negative if not controlled and maintained optimally. If everybody is throwing their money at you, are you going to catch it all? Not likely. Steady and controllable growth that is easily forecastable is a company’s dream. Owners and managers should attempt to know how much demand there is and also if they can supply it at all.
Imagine you have a website that hosts small arcade game, it can comfortably host around 600 people at a time and money is being made through advertising so generally more people = more money. But, if the game went viral and millions of people now are going to your website, it will crash which equals = 0 money. This example is equally applicable for an actual store. Too many people = no stock or staff to maintain, simple.
MOTIVE, Why start a new business? Money is not the answer. It may be one of the side benefits but it shouldn’t become the organisational focus. It can sound corny to say “we do the job because we love it” but anyone that does a job purely for money either doesn’t do it for long or hates waking up to go everyday anyway. If you have started a business because you saw an opportunity or niche in the market, for example, ballpoint pen refilling. But, you find ballpoint pens dull and boring; keep looking.
From a consumer point of view, who would you rather purchase an art piece from in this scenario: Someone who is boring and simply shows the painting to you or someone who describes the artist and the depth of meaning and colours involved with passion and conviction in their voice? Simple.
All these examples are great but it comes down to the individual. You. If you like trading or crafting or design then that’s your motive. On a side note; It is also good to clarify ideas in the mission and vision statements so that they are carried through to all company operations as it grows.
These are just a few of the key reasons why small businesses fail. It is a big world out there with millions of variables. Understand where your company fits in and what you can do better constantly. There is no end point; it is forever ongoing and constantly changing.