The failure rate of start-ups is exceptionally high – why do these businesses fail?
It is a known fact that the main reason for business failures is management related. It is often intelligent, honest, hard working people that fail. They either do not have the typical entrepreneurial traits required to make a success, or they lack the relevant experience.
I believe that inadequate exposure to that particular business offers the explanation. A successful professional that has been exposed to a corporate environment may find it difficult to understand the typical “tricks of the trade”. The HOW of the business. Without the exposure it can be unfair on the entrepreneur to make a success. After all you need time to learn.
What in your opinion are the dangers in running a business?
There are many dangers that one can list, but I want to address five most prominent:
- The first danger is the entrepreneur themselves. Because they have been successful, they start relaxing and complacency replaces that initial enthusiasm, self-drive and sharpness. They do not focus on the important issues as they did years ago and they accept many things as a given, rather than investigating first.
- The entrepreneur spends less and less time at the business and allows others to run the business. Can anyone else be as passionate about the business and the success of the business as the entrepreneur? They may prefer to while away time elsewhere, whether it is overseas visits, excessive hours on the golf course and spend business time on, albeit well deserved, community projects.
- Poor cash flow management. Many profitable businesses fail because of a lack of sufficient cash flow. It is a vicious circle. As soon as the business is cash strapped, the focus of the entrepreneur changes. Instead of spending time making money, they spend time collecting debts, making arrangements with the creditors and negotiating extended facilities. It becomes survival mode which is not good for business success.
- Marketing. The market and behaviour patterns change continuously. It is for the entrepreneur to stay in touch with the latest trends and tendencies. What worked some time ago does not necessarily apply today. Marketing techniques are also dynamic and not to market is to die a slow death. Marketing obviously involves much more than just advertising.
- Costing. This applies in particular to manufacturing concerns. The entrepreneur (or someone else) will perform a costing exercise and use these values for a long period of time. If it is not reviewed and re-evaluated as and when the price of material or labour changes, then costing becomes ineffective and irrelevant, and makes the setting of selling prices an impossible task.