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Why small Business's fail? |
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The Department of Economic Development (Dubai) cautions against basic errors in small business practices that can set a business up to fail and advises on how to troubleshoot with timely planning.
Small businesses expand, some of them succeed, others fail at an early stage and certainly, failure rates outnumber success. The Small Business Administration (SBA) reports that 50% of businesses fail in their first year and 95% in the first five years. There are two broad areas that cause businesses to fail. Firstly, lack of internal company organization and secondly external forces such as economic, political, legislative, social, and technological and changes in competition. |
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- Planning is at the heart of ensuring that the business has a strong starting base and can mitigate against any opportunities that may be missed in the future. Many small businesses are managed by one person, who may be the owner and manager. S/He may believe that capital is sufficient to make the business go and soon after launch into promoting his/her product in the market, which can be premature. Research and an informed approach are better than improvising, as competition and consumer awareness has never been stronger. There is a strong argument against the unbridled enthusiasm of an unschooled entrepreneur, yet this zeal and managerial awareness can be bolstered through training courses in business planning, organisation, financial control and management.
- Insufficient knowledge and lack of a market study in which the business will operate are guaranteed to cause failure. It is foolhardy to assume that if an enterprise has succeeded in a specific region, that this success will replicate somewhere else. Markets are sensitive arenas with changes being orchestrated at a galloping pace especially with technological changes altering consumer attitudes and supply chain operations. Research will identify growth sectors and demand for investment into projects that fill a need in the market and set focus on the target audience.
- Marketing is a science and an art and must be a necessary component within any businesses strategy. Marketing strategy must directly address and identify market needs and desires through robust research. There needs to be recognition of the need to promote one’s business when it becomes necessary and is justified against costs to be borne. Oftentimes there is confusion in the minds of business owners regarding the type of marketing techniques to employ at any particular phase of this business. Product packaging is an important part of marketing a product, in fact a very visual way to capture the eye of the shopper. In this case, owners can be informed by consumer research, how best to develop the look and feel and usability of the packaging; consumer feedback can sometimes offer very compelling suggestions towards product development as well. Planning and timely implementation of product distribution is all important as is the measurement of product quantities. Nowadays marketing has become a big competitive weapon, even over price. Experienced marketing specialists can project a business and product in the best light through single or multiple advertising channels through newspapers, magazines and television) and through sales promotions via gifts, contests, consumer discounts and loyalty programmes..
- A main contributor to a business failing can be due to choice of an inappropriate location. Ask any property agent and they will point you to a fundamental tenet – Location, Location and Location again. DED has noticed that small businesses benefit greatly in the long-term by relying more on turnover of products and not wholly on the profit margin. This brings into question consumer reach and footfall. Accessibility to products through marketing and being able to make quick price and quality comparisons and sourcing products and services, requires that the project’s location must be in an area where similar projects or complementary services are located, to draw the consumer
- Lack of precise consumer choice and lifestyle information can also lead to business downfall. These details can be difficult to get and may be neglected. It is advisable to base one’s business operations on a consumer demographic survey rather than based on intuition or a guessing game, as it is in most cases. Lack of information can lead to misinformed and misguided decision making on the owner’s part that can cause an early death to any business at its fledgling stage.
- Many owners make a grave mistake in not hiring experienced staff to conduct managerial jobs, overlooking the fact that their own time may be diverted and distracted into several layers of their business operations. Conditions to success are becoming harder without being hampered by the inability of staff to interpret and deliver a smooth running of day to day activities. Owners and managers need to surround themselves with a focused and capable team however small, to safe-guard and make the best use of their capital.
- Becoming complacent about the state of one’s business can topple the entire house of cards. A business owner cannot rest on his/her laurels and assume that the business will stay successful. A lack of concerted tracking of the market may lead to non-creativity and therefore stagnation. Before you know it, a new competitor can show up and offer better services and prices, consequently the satisfied and unaware owner will fail and end up out-paced in the market.
- Tight and meticulous financial tracking of the business will ensure stronger growth prospects and longevity in the market. Watch out for periods when the business may need an injection of cash and needing greater liquidity can cause an owner to borrow over and above what is affordable and returnable to the bank. A business does not wish to run into the dangers associated with bad debt.
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