5 Reasons Why Start-up Businesses Fail

reasons why startups failThis is the final blog post in a three part series on start-up success for Small Business Trends. I have talked about life planning, working from home and now the reasons why start-up businesses fail.

These are the things that can destroy your entrepreneurial dream if they go unaddressed.  Do yourself a favor-spend the time to make sure you have these business elements well thought-out in your business planning before you go into business.

1)     Not developing a Life Plan-People start small businesses for many reasons. They hate their job. They need extra money. They always wanted to open an art gallery or bakery. The trouble is that too many people do not take the time to really think about what they want out of life first, and then build a business around that.  They also don’t think about what their life would be like as an entrepreneur. How long do you think you could physically sustain working 7 days per week?  Do you like teenagers? Well, they may be the only employees that your business can afford.  You need to develop a life plan because you just do not want to start a business that is NOT a good business for you.

2)     No network-There’s an old saying, “Your network is your net worth.” We’ll, it’s true. Before starting a business you must spend time cultivating the market – which means developing and nurturing your professional and personal connections. If you are not good at making friends or are one of those people who never keep in touch – entrepreneurship might not be for you. Your first customers will come from your personal network. Are you known more internally or externally at your job? People do business with people they like and with people they know. Who do you know and, more importantly who knows you.

3)     Lack of a niche target market-Too many small business owners sell to anyone they think has money. Take the time to develop a well-defined niche for your business.  Sometimes it’s best to be known for the business you turn down.  It is so much easier to develop a marketing plan when you know who you are trying to sell to. You have limited time and limited resources. Pick a niche so you can focus your efforts.  After all, specialists can always charge more money.

4)     Not saving enough money-In my book, Become Your Own Boss in 12 Months, I lay out three pots of money that you need to have before you start a business. Can you survive for two years without bringing in a salary? If you do not save enough money to run your household and fund the first year of operations of your business you may not be able to hang in there until the business can generate any real revenue. The third pot of money is the emergency savings account that Suze Orman has been talking about for years. 6-to-9 months of emergency savings is appropriate.  Your car will breakdown, your air-conditioner will die, your kid will need braces-trust me get yourself an emergency fund.

5)     Lack of personal and fiscal discipline-If you do not run your household with a budget, you are far less likely to run your business with one.  You must make business decisions based on up-to-date financial information. Then, there are your business habits.  Do you have set hours or a regular routine in your business?  Are you focused on tasks that generate money?  Do you make sales calls three times per week?  Do you raid the cash register whenever you need money?  Do you know how much money you are making in each sale?

If you get on top of these five things as you are planning your business you are far more likely to start a sustainable and profitable small business.  If not, you could have an expensive hobby.

22 Comments ▼

Melinda Emerson


Melinda Emerson Melinda Emerson, known to many as "SmallBizLady," is a Veteran Entrepreneur, Small Business Coach and Social Media Strategist who hosts #Smallbizchat for emerging entrepreneurs on Twitter. She is also the author of, Become Your Own Boss in 12 Months.

22 Reactions

  1. Melinda,

    Thank you for #4!

    When I talk to wannabe franchise owners, I tell them straight up that they can forget about making any money in the first year..and maybe longer. (Unless they get really lucky!)

    It’s reality. Transitioning from a 5 or 6 figure “job” into a business of your own in which there is no salary for a while, is a difficult one.

    Start-up business owners need to have money stashed for living expenses for the first 9-12 months, for sure.

    The Franchise King

  2. Melinda, this is a wonderful article, and very sound advice. I took two dozes (read it twice), before and after dinner. :)

    The company I co-founded (Office Divvy) has become a magnet for entrepreneurs and startups in the Palm Coast, FL landscape -where we operate, as well as beyond our immediate area. I will absolutely refer to your article, and advise folks to read it next time I’m listening to one of the startup ideas/pitches.

    Ky Ekinci
    Co-Founder
    Office Divvy ™

  3. This entire list is within your control, so get out there and do it.

  4. Brilliant article Melinda!

    If only more people who are looking at starting up a business had access to information like this. It will without a doubt decrease the number of failures that occur with small businesses.

    I think the biggest problems are lack of direction and discipline, and it is wonderful to see that you have outlined them here.

    I am looking forward to your series of posts!

  5. Hi Melinda,

    I totally agree to the third one: lack of a niche can lead to disastrous results. If not conducted properly and, even more, if not studied carefully, the niche chosen may be of disadvantage to any start-up business.

    If the case, people should strictly define their niche before studying it and study it before deciding upon one or another. That way, they’d be adept.

    Lloyd

  6. Great article Melinda!

    This should be required reading for all new entrepreneurs…

    It really makes one step back and think about the path ahead… I wish I would have come across something like this back when I started out… :)

    Thanks for posting it!

    Colin

  7. Good article on the five reasons startups fail. The life planning part is probably the most important.

    Thanks

  8. Good information. hope you can give more information about business fail

  9. Melinda, I believe that before setting up a business, an entrepreneur should also complete a Business Plan. The different sections of a Business Plan force entrepreneurs to consider who their competitors are, who their target market is, how they will market their services, and what their finances will look like for years 1, 3, and 5.

    Many explain that the reason they haven’t prepared a Business Plan is that they are not seeking a business loan or venture capital, but I’m a firm believer of the saying “failure to plan is planning to fail.”

  10. Wonderful article!!

    This point is really important:
    “many people do not take the time to really think about what they want out of life first, and then build a business around that.”.

    Entrepreneurship really starts like that and ties into knowing oneself – strengths and weaknesses – and into the willingness to work hard to ‘tailor’ life around one’s natural strengths, talents & passions. When that happens life becomes congruent with one’s inner self and goes beyond money, lifestyle and sometimes imagination :)

    Related, startups and entrepreneurs looking for funding may also want to join http://www.adwebix.com – an online hub connecting entrepreneurs with investors and a resource dedicated to sustainable innovation.

    It’s free and easy to use.

    Members are Entrepreneurs, Angel Investors, Professionals, Startups, Companies looking to grow their business, Service Providers and Supporters.

    Members can create profiles, post funding request ads, search for early stage investment deals, get more exposure, contact other members and more.

    Best regards,
    Alex.
    Founder
    http://www.adwebix.com

  11. One of the problems with starting up a business is that it’s extremely difficult to predict all the expenses that will occur. It often seems like things just come up one after another. I’d be hard pressed to find anyone that started a business that ended up paying less money than they had estimated.

    That’s one of the advantages to going out and buying a mature profitable small to midsize business. You will know exactly what you’re getting into. No surprises make for a very easy transitional takeover.

    Starting a business in this economy is not the way to go. There are plenty of profitable winner businesses out there selling as we speak for far less then their really worth. Now is the time for people who want the most out of life to grasp on and take the plunge.

    I think a key idea to remember when buying a business is to try and buy a winner. I know its tempting to buy a loser business and turn it around, but I don’t think it’s the financially sound way to operate. Purchase a mature profitable small business and you’ll have cash flow right from day one.

    I’d also recommend not straying out of your field of expertise. A person that has been an executive of a produce company for 15 years has no business buying a water park. Stick to what you know.

    Anyone interested in the buying of a business should check out The Business Buyer Advocate blog at http://www.businessbuyeradvocate.com/. It is a great blog full of must have knowledge for anyone thinking about taking the plunge. It’s frequented by quite a few experts in various aspects of the field that can help you with any questions you might have or perspective you might need.

    Buying a business very well could be the most important decision you ever make in your life. You have to make sure you buy the right business the right way.

    If you are on the other side of the fence and looking to sell a business or just want to get the other perspective check out their sister blog The Business Seller Advocate

  12. Interesting article, thanks. For more lessons learned by successful entrepreneurs sign up for the free newsletter at http://www.ragstowreckages.com and get a free 7-point plan to what successful entrepreneurs are doing in 2010

  13. You article was very informaive and well written. I especially like the diiscussion on not developing a life plan. That’s very important. I also believe that anyone starting a business today needs multiple sources of income. It may be quite awhile before the money comes in. They also need to determine what their expertise is and to develop some of the natural talents that they have. Of course, reading up on the industry is essential.

  14. Excellent article! So many start ups fail for lack of planning and discipline.

    Looking forward to more article posts.

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