Business Failures Are Common: Learn From Others Mistakes
NEWS– When the startup Gigaom folded in March 2015, the company’s announcement included the following sentence: “Business, much like life, is not a movie and not everyone gets to have a story book ending.” This is important to remember since, according to the Small Business Administration’s (SBA) Office of Advocacy, the survival rate for new businesses is dismal. Only one-third of all businesses last 10 years or more while half of all businesses fail within five years of opening. These rates haven’t changed over time. The odds, it seems, are stacked against business owners. However, you can (and should) learn from mistakes made by other businesses to give yourself a better shot of going the distance.
Bradley University’s Illinois Small Business Development Center found that incompetence was the leading cause of small business failure — according to their research, 46 percent of businesses fail because of this. The study cites the following issues of incompetence: owners living beyond their means, irrational or uneducated pricing strategies, poor planning, no record-keeping experience and nonpayment of taxes. In other words, your business will fail if you aren’t ready to be a business owner. Examples of incompetent business owners ruining their business are not hard to find. Just don’t confuse crooked owners with incompetence. There is a marked difference.
If you are unsure about certain topics, surround yourself with people who are knowledgeable to avoid this pitfall.
Overspending and not Enough Capital
QBotix, a startup that attempted to bring a robotic solar tracking to the market ran out of time and money to finish the job, even though the company managed to raise tens of millions of dollars. Because of this, it ceased operations in August 2015. Small businesses will find themselves in the same boat as QBotix if they fail to budget and raise enough money — two important things that can be easily lost in the excitement that comes with opening and running a new business.
The Wall Street Journal has a startup calculator that may put a few things into perspective. Also, companies like Moody’s Analytics offer courses that can be helpful for new business owners.
Overreaching Product Line
While a scourge of scatter-brained small businesses are attempting to be everything to everyone, this can and has been a major pitfall for established brands as well. For example, look at what happened when Hillshire Farm, a brand that has been in existence since 1934, over diversified its product line. Not only were there too many products, many of which found little interest with customers, the company had to keep prices high to maintain a catalog of 2,500 items. Once Hillshire Farm slashed the items it sold to 300, it was able to lower prices and put more focus on the core items that made it popular in the first place. The moral of the story: Stay focused and keep with what you do well.