How to overcome business failure
It is very important to identify and analyze why certain businesses
fail, so that entrepreneurs can learn from their mistakes and be guided
by the successful ones.
Many businesses fail because of some common causes which many
entrepreneurs ignore at the onset of the business. These causes should
be studied in depth because no university course gives you enough matter
to study, on topics such as these. The most common causes of business
failure are:
1. Laying more emphasis on product, rather than market and marketing
The requirement to identify a market for your idea or product is more
important than the product itself.
You may have a great idea or a product, but if there are no buyers
for the same then it cannot be a success. Smart businesses first
identify the market requirement and then develop products accordingly.
Tip: For your business idea to succeed you need to first find if
there is a market for your idea by conducting a market test run. Find
out if people actually want your product, and how much are they ready to
pay for it.
2. Laying more emphasis on company image
To project a high profile image for the company by hiring expensive
office space and a fancy logo and website will not do much to facilitate
the success of your business.
In fact high overheads, because of expensive space and website
maintenance costs, can drive you out of business very fast, because the
golden rule for the success of any business is to keep overheads low
especially at the start up time.
Tip: At the start up time, keep the overheads low by reducing
expenses. Operate from modest office space. Prospects cannot see where
you are operating from and they do not care, anyway.
Try to invest more on your marketing activities, which are likely to
increase your revenue and chances of success.
3. Getting into undesirable or bad business partnerships
You should get into business partnership only if you find that your
ideas match the probable partners, because business partnerships are
even more difficult to maintain than marriages.
Many partnerships fail because of lack of communication, proper
documentation and deeds. A failed partnership can lead to bankruptcy and
soured relations with the business partner.
Tip: Avoid partnerships completely, if you possibly can. But if you
must get into a business partnership, make sure the duties and
responsibilities of the partners are detailed right from the start, and
the partnership deed along with commercial terms is clearly defined.
4. Attempting to have a very complex business model
Simpler the business model, better it is. In a simple and
uncomplicated business model everybody, including your vendors,
suppliers, employees, and customers are well aware of their
responsibilities and goals. In a complex model they have to adapt
themselves to new roles that they may not be comfortable with.
Tip: While devising the business model, follow the rule of "keep it
simple". As the business grows and gets established, you can shift to a
more radical or complicated business model, if required.
5. Attempting to pioneer a new product or industry
Many businesses get into the vicious cycle of trying to pioneer a new
product or industry - many a time the whole exercise can drain you and
your business completely, without much success. Very few and a limited
number of entrepreneurs succeed in radically new businesses.
Even customers at times are scared off because of a totally new
concept or product, hence chances of success are not assured, despite
all the efforts that you may apply.
Tip: Try to achieve extraordinary business success by simply
improving business practices of the existing business, rather than
trying your hand at pioneering a new product. Once the business is
established, you can try to get into the 'pioneering new product' cycle.
6. Getting involved in business lawsuits and bankruptcy
Business lawsuits that are not in your favour can take away all your
assets, including your personal assets like home, property, savings etc
and make you and your business bankrupt.
Tip: Always operate a business under the protection of a corporation,
courtesy which you get a corporate shield.
In this way personal liability to the business is limited to whatever
you choose to put in your business. In the event of a law suit, just
fold the existing corporation and try to start a new one.
It is always advisable to hire the services of a lawyer and an
accountant to discuss your personal involvement in the business, with
respect to assets and even the taxation.
If carefully planned, you can eliminate almost 100 percent of all
potential legal threats which could go against your personal assets.
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