Why do small businesses fail?

Why do small businesses fail?

According to an Industry Canada study, "the main reason for (business) failure is inexperienced management. Managers 
of bankrupt firms do not have the experience, knowledge, or vision to run their businesses" . But I think the main reason 
why small businesses fail can be more specifically pinpointed; the main reason why small businesses fail is poor planning.

Small businesses fail because people who start small businesses don't:

1) do the market research to find out if there's any genuine market for their product and/or services.

This is one of the most common reasons why small business fail; people start businesses because they want to do a
particular thing or love a particular product. I don't know how to put this any more strongly; it's not about you, it's about 
them - your potential customers. 
(See The Two Paths to Starting a Business.) You can't have a successful business without them. That's why everyone thinking 
of starting a small business should do a business plan. A business plan is your ultimate planning tool and safeguard against 
business failure. When you work through it, you'll do the market research you need to do and find out whether or not there
is a market for your product. Need a business plan template? This business plan outline will lead you through the process.

2) bother to get the money sorted out before they start their small business.

Before starting a small business, you need to figure out how much money you need to live and how much money is needed
to run your business. You can't ignore the money and just assume that somehow enough of it will come in each month. 
Nor can you ignore your bills.

One local business person started a retail bakery on such a shoestring she was trying to sell potential customers product 
'batches' ahead of time (invest N20,000 now; get x number of loaves in the future) to keep her business going. Within six 
months she was behind on her retail rent. Within another six, her business had gone under.

If you personally don't have enough of a financial cushion to carry your fledgling business, you have to arrange enough
financing to cover all of your expenses. Work it out first. Writing the Financial Plan Section of the Business Plan provides
a list of potential operating expenses your new business will incur and a technique for figuring out your total start-up costs.

3) choose a feasible business model. How are you going to make money?

This is the part that's about you and you have to get it right or your small business is doomed. Too many people leap into
selling their product or service without even considering the answer to this basic question.

One person I know, for instance, decided to start a business selling cut flowers. She had the property and the garden for it 
already. She had even lined up distribution for her bouquets. Her business lasted three months - because she discovered
that there was just no money in it.

Getting your small business to make money and getting the money to live in the meantime are what I call The Two
Main Problems of Starting a Small Business. Follow the link to read about how to solve these two problems.

4) plan for growth or what happens if your new business is a success.

For example, Joe* and Tammy* started a bison ranch and within two years became so successful they can't keep up
with demand for bison meat. But Joe and Tammy are of retirement age and don't have the energy or desire to continue
with the business or do what needs to be done to grow it on. They've put the business up for sale.

How much better it would have been if they had planned for their success. At this point, instead of hunting for a buyer
and putting things on hold, they could have already have brought a manager into the company or a new partner who
would be interested in carrying the business on - and created a transition plan so the business would be moving forward
rather than stagnating.

5) plan an exit strategy.

So many small business people work hard creating small businesses and building them into successful enterprises. And
so many of these same people have no plan for what will happen to their successful small business when they're done 
working so hard. If you ask them, many say they'll sell their business.

But this is a hope, not an exit plan. If you want to sell a business, it has to be saleable. Many small businesses aren't 
because they're dependent on one person's talents and personality. Others might be if a person gets their business into 
selling shape. But is selling in the open market the best possible exit strategy for you? The best time to choose an exit 
strategy is when you're starting a business, not when you want to get rid of it.

The Good News About Why Small Businesses Fail

...is that business failure because of poor planning is completely avoidable. Once you know what kinds of planning 
you should do before you start your small business, it's just a matter of educating yourself and getting it done.

Planning is always harder than doing. It takes more brainwork, it takes more time, it requires delaying your personal
 gratification. But the cliché is true; businesses that fail to plan, plan to fail. Don't let it happen to you.

So you decide to startup a business. You have an idea. Let's say you want to be a carpenter. You print some brochures, 
some business cards, and take out an ad in the Yellow Pages. You pay N25,000.00 for a website and a domain name 
that tells everyone about your amazing credentials and experience. You distribute your fliers at a local grocery store. 
And then you wait. And wait. And wait...

Nothing happens. But, that's what everyone starting a business does, isn’t it? Print out some brochures, tell everyone
how great you are, and wait for the money to roll in.

Stop right there. You have just made several of the top 10 startup mistakes entrepreneurs make when starting a business.

Startup Mistake # 1: First, being a "carpenter" is too general. There are a million carpenters in the world, but the only 
successful ones have something to concentrate on. Wood carving, house renovation, specialized pieces. Like the old 
saying goes, "Jack of all trades, master of none."

Startup Mistake # 2: If you fail to plan, you plan to fail. An idea is not a business plan, or a marketing plan, or 
even just a goal. It is simply an idea. Although the planning process may seem long and tedious now, it will benefit 
you more than you could imagine in the future. For example, when you are seeking funding, when you are joining 
an association of professionals, when your goals change, when your business changes, or if you take on a partner 
or investor. Your plan should guide you, but not constrain you. If something in your plan doesn't fit just right, 
change it. Your business plan will never have a final draft.

Startup Mistake # 3: Brochures and business cards are garbage to startup businesses! You will spend far more 
producing them than they will produce for you. Ignoring the high cost of printing these materials, and the costs 
associated in designing them if you aren't proficient yourself, most startup businesses change too quickly for
these materials to be effective for more than a short period, sometimes as little as days. If it costs N10000 to
print these the first time, and N10000 to design them the first time, imagine how much you will pay if your 
brochures beat statistics and last two months. If alterations to design cost N5000, it costs N15000 every time 
your business changes. If your business changes every two months, you can expect to spend at least N90000
that year on brochures and business cards. Yes, that is ninety thousand naira in lost revenue, over something
that is less effective than graffiti. Don't waste your time, or your money, on brochures and business cards until
you can keep your typical sales presentation the same for at least six months. Otherwise, for business startups, 
these things aren't worth the trouble.

Startup Mistake # 4: Okay, the Yellow Pages. Let's take a look in the Yellow Pages and see how many other trillions 
of carpenters there are. Which ones stand out? Definitely not the tiny ad in the corner. Probably not the one-liner. And
as a business startup, that is all you would be able to afford. For the one or two clients per year this would bring you, 
it is better to wait until your marketing budget can afford to buy large, extravagant and eye-catching ads.

Startup Mistake # 5: Twenty five thousand naira for a website and domain name? A website and domain name before
a marketing plan? This scenario is already causing headaches for those of you "in the know". Best idea for a business
startup, design your own website for free if you can. Second best idea for a business startup, get a friend or relative to 
design it for free. Third best, pay a minimal fee for the complicated stuff and the rest can be done by yourself and a relative. 
Only if no one in the world can help you, do you want to hire a professional to do the whole thing for you. And when 
you do, try and get it on 30 or 60 days post. That way, the new website will be generating money for you before you pay. 
If you do pay upfront, and can't get around it, ask if they do free updates. You are guaranteed to change a thing or two, 
probably at least once a week as you test out your new site. If you pay N25,000, it had better be a good website – because 
your entire marketing budget just paid for it.

Startup Mistake # 6: Wow! A carpenter who went to John B. Doe Carpentry Academy! Is that what your 
customers say? Most likely, they won't even think that. Most customers think, "Wow! Look at his work. It is just 
what I need." And that is what you want your customers to think. Don't promote yourself; promote your solutions.
Everyone who comes to your website has a problem they need solved. If you figure out that problem, and can tell 
them how to solve it using your website, you have just hit a marketing gold-mine.

Startup Mistake # 7: What is a carpenter doing at a grocery store? And why is he handing out fliers anyway? If you 
do hand out fliers, do it where it counts. A carpenter should hand out fliers at a lumber yard or furniture store. Even a 
department store that sells nails would be a better location for a carpenter when handing out fliers. Think about it.

Startup Mistake # 8: You stopped marketing. This is probably the biggest mistake for a business startup. Even if you 
do exactly the opposite of everything you have read so far, if you keep doing it you are bound to get at least minimal 
results. If you stop when you run out of new ideas, you probably won't get much. The key to marketing is repetition. 
Make sure people think of your name when they have a problem. If they have only seen your name once, but your
competitor just sent them a third flier, your competitor will get their business. We've all heard that it takes more than 
once for a customer to buy, and it has never been more true. With the information available to your customers today, 
you want your name to be in front of them as much as possible.

Startup Mistake # 9: When nothing happened, you didn't try again. Nothing says failure like someone who quits. 
Motivate yourself! Get up in the morning and say "I'm going to get hits to my website." Or "I’m going to get a client
this week!" If you build it, but nobody knows its there, nobody is going to come. When you’re starting a business, 
you have to try, make mistakes, learn, and try again. If you try, make a mistake, and give up, you will never be the
success you know you can be.

Startup Mistake # 10: You assumed that what everyone else does will work for you.Wrong! What everyone else 
does took them a long time to figure out, and they have been tweaking it all that time to make it work right for them.
If you copy part, but not all, of what they do, you will never get the same results. People strive for individuality, 
and businesses should too. If you copy your competitor in every aspect, your prospects might as well flip a coin.
Do you want 50 percent of the business you could be getting? No, you want it all!

The bottom line with a business start up is to stay motivated. Starting a business is one of the hardest things anyone
can ever do because of the uncertainty, the lack of a support structure, the complete and total disregard of your 
typical safety zone. It is all part of starting a business. But the rewards are far greater than the sacrifices. And in
the end, when you are financially secure, and independent from the corporate world, it will be more gratifying than 
you could have ever dreamed.

Cherilyn R. Lester is an entrepreneur in her own right, and the proprietor of Novus 
Life & Career Coaching. Novus specializes in coaching entrepreneurs, helping them 
to grow their business without everything else taking a back seat in the process.

Note: This article has been edited to suit the Nigerian Context.