5 Reasons Why Start-up Businesses Fail

If you are the consumate rep or wanabe..consider sharing this piece with a new business client. (Dr. Philip Jay)

By Melinda Emerson April 5, 2010 in Small Business Trends

This is the final blog post in a three part series on start-up success for Small Business Trends. I have talked about life planning, working from home and now the reasons why start-up businesses fail.

These are the things that can destroy your entrepreneurial dream if they go unaddressed. Do yourself a favor—spend the time to make sure you have these business elements well thought-out in your business planning before you go into business.

1) Not developing a Life Plan—People start small businesses for many reasons. They hate their job. They need extra money. They always wanted to open an art gallery or bakery. The trouble is that too many people do not take the time to really think about what they want out of life first, and then build a business around that. They also don’t think about what their life would be like as an entrepreneur. How long do you think you could physically sustain working 7 days per week? Do you like teenagers? Well, they may be the only employees that your business can afford. You need to develop a life plan because you just do not want to start a business that is NOT a good business for you.

2) No network—There’s an old saying, “Your network is your net worth.” We’ll, it’s true. Before starting a business you must spend time cultivating the market – which means developing and nurturing your professional and personal connections. If you are not good at making friends or are one of those people who never keep in touch – entrepreneurship might not be for you. Your first customers will come from your personal network. Are you known more internally or externally at your job? People do business with people they like and with people they know. Who do you know and, more importantly who knows you.

3) Lack of a niche target market—Too many small business owners sell to anyone they think has money. Take the time to develop a well-defined niche for your business. Sometimes it’s best to be known for the business you turn down. It is so much easier to develop a marketing plan when you know who you are trying to sell to. You have limited time and limited resources. Pick a niche so you can focus your efforts. After all, specialists can always charge more money.

4) Not saving enough money—In my book, Become Your Own Boss in 12 Months, I lay out three pots of money that you need to have before you start a business. Can you survive for two years without bringing in a salary? If you do not save enough money to run your household and fund the first year of operations of your business you may not be able to hang in there until the business can generate any real revenue. The third pot of money is the emergency savings account that Suze Orman has been talking about for years. 6-to-9 months of emergency savings is appropriate. Your car will breakdown, your air-conditioner will die, your kid will need braces—trust me get yourself an emergency fund.

5) Lack of personal and fiscal discipline—If you do not run your household with a budget, you are far less likely to run your business with one. You must make business decisions based on up-to-date financial information. Then, there are your business habits. Do you have set hours or a regular routine in your business? Are you focused on tasks that generate money? Do you make sales calls three times per week? Do you raid the cash register whenever you need money? Do you know how much money you are making in each sale?

If you get on top of these five things as you are planning your business you are far more likely to start a sustainable and profitable small business. If not, you could have an expensive hobby.