At the start of 2014 99.3% of UK private sector businesses were small firms, according to the FSB.
Yet around 50% of small businesses fail in the first few years, which entrepreneur Theo Paphitis called ‘a damning statistic’ in an interview with The Guardian.
There is rarely one single reason why a business fails. Research by British commercial insurer RSA last year found that barriers to growth included business rates, lack of government support, and rising energy costs, among many others.
So what are the top reasons for business failure – and how can you stop them from becoming a major hazard to your business?
1) Leadership issues
If you have poor management, it won’t take long until the weight of their bad (or miscalculated) decisions become too heavy and break your business.
The problem may simply stem from inexperience, meaning that supervising staff and making the right decisions may be more difficult. There could also be issues arising between leaders, with disagreements on how to run the company and consequently slowing down production and progress.
Good management requires many skills and if issues with leadership aren’t nipped in the bud, serious damage can be done. Therefore make sure that whoever’s in charge (and that can mean you!) is prepared to reassess their approach, and have further training/coaching if necessary. Analyse what other successful business leaders are doing and see whether you can implement the same practices into your workplace.
2) Growing too big, too fast
Of course, growth is great – after all, it’s the aspiration of all businesses. However if the rate of growth is too fast for a business to keep up with, it can spiral out of control. For instance: you introduce a product that is so popular you are inundated with demand that you’re unable to keep up with.
And conversely; if you attempt to grow your business too fast by investing in a large quantity of something, and the demand for that product turns out to be minimal…you’ll be left with a cramped stockroom and seriously out of pocket.
In order to avoid either of these scenarios, make sure that you plan your expansion carefully and strategically by researching your industry and its trends. You shouldn’t invest too heavily in products you’re not sure you can sell, but make sure that you have a back-up plan if you receive an influx of orders.
3) Not listening to customers
Your customers are your business so if you disregard their opinions, you’re also neglecting your business. This is even more crucial now that there are so many review sites on the internet, where a general consensus is more widely and easily available.
Interacting with customers online is key and when you’re given feedback from them about a product, respond and it may develop into a trusted relationship. Quick, valuable advice to any queries via social media platforms will build a good, reliable impression of your business to both current and potential customers.
4) Inability to adapt to market changes
While an initial business model may have been brilliant to begin with, it’s highly unlikely to be flawless now. Failing to monitor adjustments in the market, be they demand, supply or trends could prove fatal for your enterprise.
A business needs to evolve, and key to that is watching shifts in the industry. Management Consulting and Venture Capital expert, Peter S. Cohen, has created a six-step process to enable entrepreneurs to grow a business ‘without boundaries’:
1. Create a forward-thinking team
2. Map your start-up’s value network
3. Choose who you listen to
4. Generate a business model hypotheses
5. Get market feedback
6. Refine based on feedback
You should also take note of: technology innovations which could improve the functionality of your business; new or increasing competition; changes in government regulations; and attaining greater efficiency by re-evaluating your business plan.
5) Not optimising online marketing
While a lone Twitter account for your business may seem like a good attempt at marketing, it isn’t exactly optimal. The main draw of online marketing is that it is much cheaper than other more traditional forms of marketing like TV and print. However, you also need to work much harder at it – and it can be a very difficult thing to get right.
There are various forms and strategies of online marketing which could help increase your brand awareness. Content marketing, for example, is great as long as it’s consistent, relevant and helpful to current and potential customers, while also increasing the SEO of the business.
Besides Twitter, other social media platforms such as Facebook, Tumblr and YouTube will help you reach out to your target demographic and interact with them. Another is Google’s Pay-Per-Click, which does what it says on the tin – you pay per click you gain on your website.
Despite the popularity of social media, email marketing is not a tool to be dismissed and is a sure-fire way of making sure that your customers see what you have to offer them; posting on social media is effective, but not all of your customers may see it. Regular email campaigns will also result in a higher click-through-rate to your site.
While there are plenty of ways that your business could fail, there are many strategies you can employ to avoid them. Plan strategically, innovate and keep being the best at what you do!
Does your business need help? Speak to the experts at London Coaching Group and see what they can do for you.