10 Common mistakes that lead to business failure

Everyone searching on google how to succeed in my business, tips for success in business, etc. But nobody tries to search why or what the reason for your business failure? Now I talk about it and find some statistics for your business failure, please don’t miss a single line to leave before the article.

Statistics say that 8 out of 10 companies fail before 3 years of life. For this reason, we consider it essential to learn to interpret the signals that the company itself sends us. And along with such an interpretation, it is key to learn to manage adaptation to the market, to the needs of customers, as well as to take into account the reasons why the rate of business failure is so high.

If we attend to these aspects, we will avoid falling into the common mistakes that lead entrepreneurs and businessmen to failure. That is, we will avoid the mistakes that others have already made. Although they say that nobody learns from someone else’s head! Which is not a law, right?

Anyway, in this article we want to focus on the 10 mistakes considered the most common, to avoid or overcome them.

Beware, failure is part of success!

But before commenting on the most frequent mistakes, it is essential to make it clear that failure is taken as part of the success process. In such “powerful” places in the creation of companies, such as Silicon Valley, failure is assumed naturally.

No one is stigmatized for a business that closes because there is no way to achieve success without making mistakes. In addition, some entrepreneurs have not been successful at first. But after insisting and improving their value proposition, they become innovators.

Why does business failure occur?

We are going to list the 10 reasons considered the most frequent that can lead us to failure. The order does not simply that some are more important than others, so they all deserve equal attention.

1. Not knowing anything about management

business management

You likely know that many companies are created for the wrong reason and without clarity about the challenge involved. For example, an electrician who works for a construction company decides to undertake. In other words, they no longer want to answer to anyone and think they could do better working with their micro-business.

This is excellent! So far everything is fine. But this person may not be clear on an important point. Although you have the skills to do a good job as an electrical specialist, you lack the skills to run a successful business.

For example, you do not know how to get clients, you do not know legal rules that you must comply with when signing a service contract. You also don’t want to deal with buying supplies, et cetera.

What usually happens in these cases? Over time your enthusiasm will diminish. The complications of managing the microenterprise will eventually make you close and return to work for the same or another employer.

In this sense, if we create a company for the “right reasons”, knowing how demanding its management is, we will have a better chance of success. For example, having found the product or service that a sector or market niche is demanding. Furthermore, the business project motivates us to overcome all the obstacles that will arise, inexorably.

2. Little or no profitable business model

A key point that we must consider is that even when we have a business idea that we are very excited about, it is necessary to know if it is a good idea. In this sense, it is important to have a clear business model and, if possible, to have done in-depth market research.

On the other hand, validating the business idea is an essential step. Well, although our intuition may indicate that it will be successful, the company can fail in a short time.

It is good that you ask yourself questions based on the Canvas model, which will make it easier for you to put the fundamental elements of the business model on a canvas.

3. Not having enough money to operate

not enough money

Creating a company without enough money will lead us, in many cases, to failure. Although, although there are various sources of financing for new ideas, the other point is cash flow. Many entrepreneurs and managers fail in their new businesses because they underestimate the dangers of cash flow.

Depending on the type of business, the sales model can be a headache. For this reason, we need to know, for example, how long it may take our clients to pay us their invoices if it is necessary to give credit. Well, a long time can lead us to take on expensive loans just to survive.

If possible, let’s properly calculate the amount of money that we will need to start the business. And think about the following 3 aspects:

The initial investment that the business requires. You will have to include expenses for opening the premises, purchase of merchandise, furniture, bonds, licenses and procedures, costs of setting up the company, etc.

The main current expenses that the company will demand. For example, rents, payment of salaries, services, insurance, etc.

And depending on the case, you must bear in mind the interest generated by the financing obtained.

4. Lack of leadership and management skills

Without a doubt, having the management and leadership skills constitutes a fundamental pillar for the success of any entrepreneur or manager.

An entrepreneur who does not have the minimum competencies in this regard can be a generator of confusion and conflict in the team and affect the morale of the collaborators. This will necessarily lead to a reduction in productivity.

5. Not knowing how to delegate ..

An entrepreneur who does not know how to delegate, becomes his enemy, in terms of the success of the company. Do you know cases in which the owner of the company tries to take care of everything?

One of the “evils” of many entrepreneurs is to believe that no one will do things better than him. Sometimes they do not accept that others may have different ways of doing things just as well or even better.

The common thing is that this attitude leads us to extreme fatigue, with which comes disappointment. In particular, if things don’t go the way we expected after a long effort.

6. Uncontrolled growth (part of business failure)

Uncontrolled growth

More than one company has died success! Do not you believe it? Well yes, it is possible. And it is not something uncommon, but it is usually more frequent than we imagine.

This usually happens, mainly, when the results are much better than expected. Which leads the businessman to bet on expansion, but without control. That is, you expand the company and, inadvertently, expand the chaos in the organization.

The organization is by nature a chaotic system, in that it has a set of forces and counter forces at play.

In this regard, we have just published an article that will be very useful to know the basics of chaos in the company and what you can do to control it. This is important before executing an expansion plan (Do you perceive a chaotic state in your company? Take it easy!).

7. Poorly focused advertising

You are likely to know of companies that fail because they are not advertised. That is because they underestimate the importance of well-targeted advertising.

In part, this error is the consequence of a type of “fixed” mentality that maintains that good products sell themselves. Well, although this applied in previous decades, now it is not.

Key question: if nobody knows you, how will they come to you? Without a doubt, strategies must be applied to reach clients and potential clients …

8. Poor planning

Poor planning
10 common mistakes that lead to business failure

Continuing with the common mistakes, among the main ones that lead to business failure, we have a lack of planning. That is, lack of planning appears as one of the common causes why companies fail in their early years.

Sometimes entrepreneurs are focused on fulfilling their dreams, but they forget the importance of making plans and following through on them. And an important point is to share them with the team, reaching agreements on them. With this, he achieves, among other things, the commitment ..

Some important elements to take into account have to do with the analysis of the competition, income and expense forecasts, budget, and marketing strategy, among others.

9. Lack of differentiation is part of business failure

If you have developed a good business model, then you should know that the value proposition contains your differentiation from the competition.

In this sense, if you have not developed it, in the value proposition you must describe the qualities, characteristics, products, or services that differentiate your business from competitors and that represent added value for the target audience.

In this regard, one of the problems we find is that few companies have a value proposition or do not know how to show it to the customer. The error can be marked by haste and lack of planning.

10. Underestimating the competition

Underestimating the competition

It is common for the entrepreneur, due to his emotion and “certainty” that his business project is unique, to tend to underestimate the competition.

And if you have a strong business model, sufficient funds to get started, and the management skills necessary to be successful, the danger of underestimating your competition is greater.

Therefore, to increase the probability of success and avoid business failure, a good practice is to conduct market analysis with an emphasis on competition. Also, you need to assess your strengths and weaknesses and learn from them; and implement improvements to gain a competitive advantage.

Conclusions

Experience tells us that the most successful companies face the greatest difficulties and failures. The business learning process is intrinsic to any activity in any sector. In particular, when entrepreneurs are going through their first business experience.

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