Recent studies show about one-fifth of startups fail first, and almost half die within five years—the survival rate for ten years or more is only one-third. Entrepreneurship comes with many risks, and one is never sure whether the business will survive the rough storms of the competition or not. Therefore, people uncomfortable with the uncertain nature of businesses prefer working as employees all their lives. But why is entrepreneurship risky for small businesses?
This article discusses some primary reasons for business failures to help readers better manage their business ventures.
Inadequate Management of Resources
Often, small businesses overspend their resources in the first few years because they want to give the venture all they can to make it successful. However, successful companies do not require an abundance of resources but better management of resources. Spending a lot of money in the first year means that the business is left with little or no money in the future. Also, small businesses are unable to manage their human resource effectively.
The success of a business depends on the strengths of its team. Small businesses and entrepreneurs avoid hiring the required professionals. They try to allocate several tasks to one person who causes trouble for the company. Employees wish to work for multinational organizations, and finding a skilled workforce becomes challenging for businesses. The company’s lack of resource management leads to the failure of the business.
Lack of Marketing Efforts
Marketing and advertising are essential for all businesses. Choosing the proper marketing, sales, and advertising channels is critical to the company’s success. Entrepreneurs and small businesses invest little effort in marketing their business, which fails to attract the target audience; therefore, the business fails. Recent studies on business failure show that small businesses avoid vigorous marketing because they cannot compete with market giants anyway.
However, they fail to understand that marketing does not mean making sales more than the competitors. Marketing is knowing the target market, analyzing their needs, developing efficient products for the target market, making potential customers aware of the product, and making sales. The business will likely fail if any step in the process is not performed correctly.
Over-Expanding the Business
A few sales at the start of the business do not indicate expansion. Not at all! Over-expansion occurs in two ways. Firstly, when companies receive a few orders and make sales during the first few weeks, they start taking more orders that they cannot fulfill due to their limited resources and experience. This affects the quality of products and services provided to the customers and decreases the chances of repurchases by the customers served in these chaotic periods.
Customers are always looking for personalized experiences with the company, which is impossible if they are trying to attract more customers than it can manage. Secondly, the companies start investing in the business, based on the few sales made. More inventory is added, new machines and equipment are purchased, more staff is hired, and a vigorous expansion is witnessed.
On the contrary, sustainable businesses demand calculated expenditures. Also, a few sales do not determine the demand and potential of the company. Small businesses must be reluctant to undergo major expansions until the industry successfully implements its initial business plans.
Unlike multinational organizations with abundant resources and can take risks, small businesses cannot endure high stakes. In case of failure, the stakeholders will face huge losses. Entrepreneurs need to understand that running a successful business demands maturity, patience, and the ability to make efficient, intelligent, and calculated decisions.
It requires control over the impulsive attitude of young and inexperienced entrepreneurs. However, balancing avoiding risks to avoid undue expenses and taking risks to enhance profitability is the key to a successful business.
Conclusion
In conclusion, entrepreneurship is inherently risky, with a significant number of startups failing within the first few years. Poor resource management, insufficient marketing efforts, and over-expansion are common pitfalls. Small businesses must navigate these challenges with careful planning and strategic decision-making to increase their chances of success.
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