6 reasons why new businesses fail—and what you can do about it

Starting a new business is never easy. Growing, scaling up and maintaining momentum can be even harder, and sometimes feel impossible.

According to research by Ormsby Street, an online service which provides data and insight for start-ups and small businesses, while 91 per cent of small businesses survive the first year, four in ten will fail within five years.

Often, that’s more down to management issues—or failing to focus on the details—than fundamental problems with the business idea. 

Ormsby Street’s managing director, Martin Campbell, tells SmallBusiness.co.uk: “There is no shame in a business failing. But small businesses can certainly improve their prospects by protecting themselves against some elements that might threaten their existence.”

The good news is that many of the mistakes made by small business owners are relatively simple to avoid, or fix. Let’s have a look at 6 common ones:

1. Lack of capital

There’s no surer way to stall a business than running out of cash. That’s more likely to happen if you’re beginning your business on a shoestring budget - but even businesses with lots of starting funds can quickly run out of steam by pouring too much money into purchases, such as transport fleets and brick-and-mortar office space.

Thankfully, today’s sharing economy means such capital investments are no longer necessary, which is good news for SMEs and start-ups that don’t have endless amounts of money. Business owners and sole traders can lease or rent pretty much anything, from desk space to computers. Think carefully before making a major purchase, and do some research into alternatives to owning. Renting or leasing not only means risking less money and spreading the costs; by moving expenses from capital (capex) to operating expenditure (opex), you’ll also be able to offset them against your tax bill.

2. Picking the wrong team

No matter how knowledgeable and enthusiastic you are about your enterprise, or how watertight your business plan, having the wrong staff or colleagues could quickly sink the whole ship. It can divert your time to fixing day-to-day problems, from bookkeeping errors to travel itineraries not being confirmed. Worse, it could lead to poor customer and client service, which could do irreparable damage to the business’ reputation.

Spend as much time as possible building your team and invest in training and development where required. Having colleagues and staff members you can truly trust means being able to delegate the everyday tasks and admin, while keeping your eye focused on the bigger picture.

3. Inability to control expenses

Even if you exercise caution when it comes to capital investments, costs can quickly spiral out of control if colleagues and staff members (and perhaps even you) are loose with your budget, from insurance to petty cash.

Create a spreadsheet or use an online accounting tool to keep track of all expenditure, including wages, marketing, stationery and often-neglected costs like credit card processing fees and interest on any debt. It can all add up, and noting everything down will help you to identify potential savings. It’s also important to make employees aware of what they can, and can’t, claim back from the company.

4. Premature scaling

It’s understandable that, riding on a wave of initial success, business owners go for bigger and bigger risks. But that can often lead to a total wipeout. Funding, recruitment, logistics and marketing can all prove tricky.

Think carefully about whether you’re ready to scale up and consider building gradually rather than making huge leaps. As with issues around insufficient capital, it may be worth looking at ways you can expand by utilising the sharing economy. Having a virtual vehicle fleet through car-sharing, for example, or renting meeting space on a flexible basis.

5. Lack of agility

Your business idea might be great, genius, even. But if you fail to adapt to changing market expectations and demands, it’s more likely to fail. Sustainability is becoming increasingly important to customers, for example, while the fluidity of marketing tools and outlets requires constant attention and flexibility.

Invest time in developing your business plan before launching, and have the confidence to rework as you go—or even rip it up and start again. Set key performance indicators that will help you to visualise your goals and track your progress. Market research, understanding your customers and how they use your product, and keeping on top of associated news are all crucial if you want to stay relevant long-term.

6. Inability to meet customer expectations

No matter how great your product, or how brilliant the idea, it really means nothing if you can’t deliver. That could be literally, if you’re supplying items directly to your customers—late or missed deliveries could mean poor reviews, and spell disaster.

Don’t neglect the details. Seemingly simple things like responding promptly to enquiries are key to making customers happy. Going further to add extra value will help you stand out. It’s also important to choose your suppliers, and any businesses you are partnering with, carefully. Spend time researching the market thoroughly, and mine other business owners for recommendations: it could make the difference between success and failure.

The simplest way to avoid these common pitfalls is to be aware of what can go wrong, staying flexible enough to see the potential roadblocks ahead—and being able to swerve them.

Norbert Toth
As our Partnership Executive, Norbert has the amazing job of hanging out with our partners and occasionally making decisions on the type of font used for our offer campaigns. Other than making important decisions at work he also likes to spend time with reading books, spotting obscure movie references and making solid excuses to skip the gym.

Date published: 29 March 2019

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