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Your Challenge

Challenges Facing Small Business Owners

Henry Ford

“Failure is simply the opportunity to begin again, this time more intelligently… A business absolutely devoted to
service will have only one worry about profits. They will be embarrassingly large,”
Founder Ford Motor Company

Like many others, you are dreaming about, or have started your own small business. Did you know that USA Today reported that 20% of new businesses fails within their first year of operation? Half of all businesses fail within 5 years and only one-third survive longer than 10 years. Sadly, some business owners do not realize that their businesses are failing until it is too late. Business failure is almost always attributable to the entrepreneur that started the business.

Therefore, as entrepreneur you need to be aware of challenges you are facing; why your small business can fail; and know when to get help to prevent failure.

Why Do Small Businesses Fail?

  • Startup Mistakes that Entrepreneurs Should Avoid
    • Nolan Bushnell

      “The true entrepreneur is a doer, not a dreamer.” Electrical Engineer and Businessman

      1. Starting for the Wrong Reason

      You should never start a business because it is your hobby, just to make money; to be independent, you have a great idea; or do want a boss. Entrepreneurial excitement will dwindle and enthusiasm is not enough to succeed. Without being obsessed; destined; having an opportunity; a better solution; the right team; being experienced and/or accomplished at something in demand; you will fail.

      2. Choosing the Wrong Business Partners

      Having partners with unrealistic expectations; entitlement attitude; not team players; not the right skillset; etc. lead to endless conflict and your business will be hurt or destroyed.

      3. Lack of Knowledge/Skills

      Lack the acumen to manage a small business successfully within the industry you’re entering. The skillset to do a specific job or provide a service is not enough, you will fail.

      4. Entrepreneurial Burnout

      Being a perfectionist; trying to do everything yourself; coping all the stress involved in running a small business; will result in you working long hours, added pressure and eventually fatigue. You will lose focus, get forgetful, be disorganized and make rash decisions and mistakes that will be detrimental to your business.

      5. Entrepreneurial Arrogance

      Being stubborn, self-righteous, paranoid, indignant or not needing advice or help form anyone will lead you on a path of delusion and business failure.

  • Business Failure due to Questionable Business Viability
    • Ray Kroc

      “If you’re not a risk taker, you should get the hell out of business.” Founder of McDonald’s

      1. Unprofitable Business Model

      If there is insufficient demand for your specific product or service; at the price you have set for a specific target market; you are destined to fail. You need to test your idea with a business plan and if the math is not working you need to re-engineer your business model.

      2. Staying Current

      You may so busy “Working in your business and not in it” that you do not notice that your business environment has changed or that you in a declining market. You need a business that can run without you actively involved in daily operations. That requires structure procedures and controls. If you do not make time for creative thinking, recognizing new opportunities, planning for adapting to change, you might be another failure statistic.

      3. Lack of Innovation

      If your small company fails to create an innovative culture your management team and employees will fall into a stagnant work culture and resist change.

      4. No Differentiation

      Having just a great product/service is not enough for success. You need a unique value proposition (why a consumer should buy your product or use your service) that sets you apart from the competition. You need differentiation to build your brand.

      5. Poor Choice of Location

      Especially, if your business relies on foot traffic a bad location could be damaging to your business. If you have "bricks and mortar" store it must be convenient for your customers.

  • Business Failure due to Lack of Strategic & Critical Thinking
    • Jerry Coleman

      “A business starts with an idea; its success begins with a plan!” Director, Small Business Center Cape Fear Community College

      1. Lack of Direction and Planning

      Your best business ideas will fail if you do not have a roadmap to success (click here). Without a solid business plan, you will fail to properly evaluate your business concept and develop sound financial, marketing, management and operating strategies.

      2. Growing to Quickly

      If your small business is not growing at steady pace; you not dealing properly with your growing pains; and you are borrowing too much money could cause business failure. Do not confuse success with the ability of your business to grow fast.

      3. Overexpansion

      It is not wise to expanding your small business into too many verticals before optimizing your existing market share. If you do not carefully review the profitability of the new market, as well as the capital, manpower, facility and system needs for new expansion, it could easily lead to bankruptcy.

      4. Lack of Exit Planning

      You need an exit strategy that is aligned with your long-term personal goals right from the start. Otherwise you might find yourself in the position where you have been working hard your whole life and have nothing to show, sell or pass on to your family.

      5. Lack of a Succession Planning

      If you have not identified people to replace key positions in your small business in advance, your small business will be unprepared if key staff depart unexpectedly, retire or die. This could also lead to power struggles, replacement with incompetent family members, nepotism, etc. Not having insurance to buy out (pay family of a partner) a ”keyman” in case of death could be a mistake.

  • Business Failure due to Organizational Dysfunction and Incompetent Management
    • Dwight D. Eisenhower

      “Motivation is the art of getting people to do what you want them to do because they want to do it.” 34th U.S. President

      1. Leadership failure

      Businesses fail because of poor leadership and the inability of leaders to learn from previous mistakes. It might be that you as an entrepreneur is oblivious to your mistakes, but the result is the same - failure. It is imperative that leaders/management make the right decisions most of the time.

      2. Poor or Dysfunctional Management

      Lack of management skills result in confusion, conflict, low morale and eventually reduced productivity and profitability. Adding fighting partners and discontent relatives in the mix and your business is in a mess.

      3. Lack in Employee Motivation

      If your employees do not know what to do (no job descriptions), not treated with respect, not being communicated to clearly and have no incentives they will not be neither happy or productive and will leave.

      4. Not Managing Information

      Information keeps on changing and new data keeps emerging creating an information overload. It could be challenging for you to sort through this data and make good decisions. However, un-informed decisions can have serious business implications.

      5. Not Managing Time

      ‘Time is money’ and you need to manage your time wisely. This requires planning everything in advance and ensuring that it is done on time. Putting off tasks that you don’t enjoy or getting so involved in the daily running of the business that you have no time for daily analysis, reflection and planning can cause your small business to fail.

  • Business Failure due to Poor Financial Management and Control
    • Benjamin Franklin

      “Beware of little expenses: a small leak can sink a great ship.” Founding Father of the United States

      1. Insufficient Start-up Capital

      If there is insufficient demand for your specific product or service; at the price you have set for a specific target market; you are destined to fail. You need to test your idea with a business plan and if the math is not working you need to re-engineer your business model.

      2. No Financial Planning

      Without financial planning or budgeting (operating and capital budget) you have no guide for day-to-day or long-term financial decision making. Compiling a budget helps you better understand your bottom line and enables you to measure and access the overall financial health of your small business.

      3. Poor Record Keeping and Financial Controls

      Not properly keeping track of your financials at all times is flying your business blind. If you cannot compare actuals against balanced forecast numbers (budget) you will not know the efficiency of your small business and be able to make sound business decisions.

      4. Cash Flow Problems

      Do not underestimate the perils of riding the cash flow roller coaster. Cash flow and profit is not the same thing and you need a positive cash flow to not survive bankruptcy. You must maintain a cash cushion and be able to cover the bills at all times. Your to understand that your business is not your personal bank account.

      5. Not Staying Profitable

      Always focus on staying profitable and do not let chasing sales, revenue or customers cloud your judgement. Lacking profit could put you out of business even with record sales.

  • Business Failure Due to Poor Marketing Management
    • Peter Drucker

      “The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself.” American-Austrian Educator

      1. No Marketing Plan

      You need to have a clear idea of your product/service, target market, market trends and competition to develop an affordable pricing strategy. If you do not develop an adequate budget for sales effort, advertising and promotion your company is likely to go out of business.

      2. Unable to Find and Retain Profitable Clients

      You need to know what is the make-up of an ideal client and how to get them. Putting all your eggs in one basket is not a good idea even if the client pays well and on time. If you do not diversify your client base you will not grow and be dependent on and defenseless against the bullying of your client(s).

      3. Underestimating the Competition

      You need to earn the loyalty of your customers it does not just happen. If you do not stay ahead of your competition and take good care of your customers, your competition will.

      4. No Website or Social Media Presence

      If you do not have a professionally designed, responsive and user-friendly website where potential customers can easily your business are likely to fail. A social media presence creates brand awareness, build relationships and drive new sales. Furthermore, having a website and social media presence it one of the most affordable ways to market your business.

      5. Ineffective Sales Techniques

      If you do not understand the basics of selling and how to close deals you need to get someone that does, or get training. You must be able to listen; know your unique selling points; clearly communicate; and know how to lead the potential customer down the sales path.

  • Business Failure Due to Deficient Operational Practices
    • Charles Kettering

      “If you always done it that way, it is probably wrong.” American inventor

      1. Operational Mediocrity

      Nothing will sink your business so rapidly as poor execution and staff incompetence. If you do not believe in excellence and settle for mediocrity in customer service and/or quality, then starting a small business might not be right for you.

      2. Operational inefficiencies

      As a small business owner you must be able to identify and track inefficiencies in processes and problems in utilization of resources. It is essential that all major processes are properly streamlined/documented and operating practices/procedures are in place. If you do not manage your “key performance indices” your business could be in a downward spiral without you being aware of it.

      3. Balancing Quality and Growth

      You must find the balance between delivering inferior quality and an obsession with quality at all cost. During growth, make sure you are not sacrificing the quality of your product or service just for the sake of growth.

      4. Premature scaling

      If you prematurely spend money beyond what is essential to grow your business such as leasing additional space, hiring, costly marketing, etc. you will destroy your small business.

      5. Unwillingness to Delegate

      Founder dependence creeps in when you are unable to let go of certain decisions and tasks as your business grows. You may feel you can do a better job in serving your customers. This strategy is not sustainable in the long run and will result in stress and your business will suffer.

  • Business Failure Due to Dissatisfied Customers
    • Bill Gates

      “Your most unhappy customers are your greatest source of learning” Co-founder of Microsoft

      1. Ignoring Customer Needs

      If you lose touch with your customers your business will fail. Always pay attention to what you customers “really” want and make sure you exceed their expectations.

      2. Poor Customer Service

      Saying your customer is #1 is not enough, you need to act that way and provide excellent service. You need to realize that the same customers that keeps you in business can just as easily put you out of business.

      3. Having Unhappy Customers

      It will take you many years to build a reputation for your small business and just a couple of minutes to ruin it. With a bad reputation, you will not only lose existing customers but also potential customers, employees/prospects, profits and partnering opportunities.

Inspirational Quotes for Entrepreneurs/Small Business Owners

If you want to be successful, learn from those that was/are successful! Take note of these valuable tips for Entrepreneurs and Small Business Owners.

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