Business Articles and Posts

Why Do Businesses Fail

Identifying the issues.

80% of businesses will fail in their first year, which is a staggering number when you think about it. So why is the failure rate so high? There are five main reasons why businesses go under:

Lack of market or lack of customer communication

Strange as it sounds, if you’re trying to sell something to someone, you must make sure they actually want it first. It is vital to do market research in the area you are thinking of heading into first to make sure there is enough of an untapped client or customer base to make the initial setup costs viable. There’s no point in selling kayaks in the middle of a desert, after all.

Customers provide insights on product value, so having ongoing conversations your potential client or customer base can help steer your organisation to success. Even if it’s something as simple as a follow up phone call to your two biggest customers or clients to understand their needs, their wants, and how your organisation fits in with what they’re working towards. Tips on effective customer communications can be found in this rather ancient but still very relevant Tech blog.

No point of difference

Similar to the first part of the first point, the client/customer base needs to see your service or product as being something different from the rest otherwise they will not see value in changing from their established brand loyalties. Even if your product is different from competitors’, it has to be different enough, and that difference has to be a positive one. Forbes has some good ideas on how to make your point of difference noticed.

No voice

You must convince people that you have something that they want if you want them to invest in your ideas. Your organisation will stand or fall on the strength of its marketing strategy. A good marketing strategy will inform potential clients or customers what you have to offer them and why they want it. Engaging with new clients after you build your initial client base will ensure your organisation grows and give you a stronger understanding of what your clients want and how your organisation can shift to meet those needs.  You may find Forbes’s tips for building a good marketing strategy helpful.

Lack of business model, lack of cashflow

If your organisation is to succeed, there needs to be enough money to sustain its operations. Even if yours is a non-profit organisation cashflow is another vital component of a successful business as staff need to be paid and overheads have to be met. The most common business models are:

  • The Aggregator model (e.g. Uber, Air BnB)
  • The Marketplace Model (e.g. Trade Me, eBay)
  • The On-Demand model (e.g. New York Times online, Medium)
  • The Reverse Auction model (e.g. organisations looking for a particular service/good)
  • The “Freemium” or subscription model (e.g. Whatsapp, LinkedIn)

Lack of leadership or poor management

Even if you have all of the above locked down, if the person who is at the helm of your organisation is incompetent there is every chance that the organisation will either drift aimlessly or go under. An effective leader has the following traits:

  • They share the vision they have for the organisation
  • They lead by example
  • They demonstrate integrity
  • They make hard decisions
  • They communicate effectively
  • They recognise success
  • They empower others
  • They motivate and inspire others

It is easy to imagine what damage someone who has the opposite of these traits can do to an organisation. A manager with lack of vision, lack of direction, dishonesty, poor communication and distrust will be the kiss of death for an organisation.

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