Why New Businesses Fail Quickly and How to Prevent It

New businesses are created everyday. All it takes is a great idea, money, and a good business plan. Of course, there are other technical factors, like licensing, but as long as the business seems like it should be profitable, then it there shouldn’t be any big problems there. So why is it that so many new businesses fail within the first five years?

It’s because they are missing one (or more) of the three parts mentioned above; a great idea, money, and/or a good business plan.

A great idea is essential, even if the idea is already out there, it is the owner’s responsibility to make it great. By great, I mean that your business needs to have a point of difference compared to competitors. Many start-up businesses lack this or do not emphasize it enough. People need to be aware of what differentiates you because if they are unaware, they will spend their money elsewhere.

Money is an essential part in nearly every aspect of our lives, and like the saying goes, “you need to spend money to make money.” Although there are numerous ways to cut spending, money is still needed. With money, comes budgeting, and the number one killer of new businesses is poor budgeting decisions. Plan out how long it will take to turn a profit, and be honest. The worst thing you can do is underestimate how much time it will take before turning a profit.

A good business plan, here is where some serious thinking is needed about the industry and the different markets which will give you insight on the competition and how difficult it will be to enter the market. Operations management also plays a big role in the business plan. When going over this aspect, you will find out how long each step of building your product or providing your service will take. Divisions will be assigned tasks based on logistics, making for a clear and upfront system. Although the business plan should be formally written out, it should still be visible in the workings of the company years down the road. A poor business plan comes from poor research. Businesses do not spend nearly enough time researching and preparing before jumping in and taking a risk. Slow down, analyze all of the factors, and think logistically about how your business can successfully enter the market.

Starting a business is a lot like being given a slice of cake and being told to remake it without the instructions. It all depends on timing, which ingredients, and how much of each ingredient. However, when you are able to look up different recipes and go from there, it becomes easier. It just takes research and planning, and you are able to make the same cake!


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