Seven Common Causes of Business Failure

It is very important to identify and analyze why certain businesses fail, so that we can learn from their mistakes and take guidance from 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 this. 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 the 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 in 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, anyways. 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 Partnership.

You should get into business partnership only if you find that your ideas match with the probable partner, 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 times the whole exercise can drain you and your business completely, without much success. Very few and limited 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 a business lawsuit and bankruptcy

Business lawsuits that are not in your favor 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 what ever 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% of all potential legal threats which could go against your personal assets.

7. Getting involved in messy Divorce Proceedings.

In many cases when marriages fall apart for people, their businesses also come to a halt because of the financial disagreements arising out of divorce proceedings.

Tip: At the time of the marriage, get an attorney to prepare a prenuptial agreement that clearly states the financial implications of divorce proceedings, if any, on the businesses that you hold with your partner. Avoid the above pitfalls and the path to business success will become much smoother for you.

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