Why Businesses Fail

A startling percentage of start-ups fail each year, for a variety of reasons. Perhaps two of the most common reasons for their failure are that the entrepreneur either chose to enter the wrong kind of business for his or her skill set, or failed to organize the new operation as required to adequately compensate for the chosen business' inherent weaknesses. Just as a General must know his or her enemies in order to have any chance at victory, the business owner needs to know the most common reasons businesses fail if he or she hopes to make the chosen venture a success.

Top Three Reasons Businesses Fail

• One prevalent reason that businesses fail is that the aspiring business owner tries to turn a cherished hobby or personal interest into a profitable business without completing the market research to ensure that sufficient consumer demand exists for the products or services offered. Not only must there be a sustainable, marketable interest in the products or services, the business owner must learn the difference between feeding a hobby and running a profitable enterprise. This mindset must affect every aspect, from initial marketing to customer relations to handling accounts payable and receivables.

• Another common reason for new business failure is lack of planning. Adequate preliminary market research must be performed to determine whether there exists a concrete and sustainable consumer demand for the products and services to be offered. But even the most solid idea, built around a product or service with a broad, well-established market, can only be implemented by setting realistic goals and using meticulous planning in the efforts to realize those goals.

• A third reason that many small businesses fail is that the business owner doesn't ask for help when help is clearly needed. Many new owners are quite reluctant to ask for help under any circumstances. Such resistance may be due to the individual's pride, or it might be an outgrowth of the very independent spirit that led the person to strike out on his or her own in the first place. In other cases, the business owner might not seek help because he or she is not aware of any available resources that can provide the much-needed assistance – especially those that might actually be affordable to a fledgling business enterprise. Sadly, such resources are not always common knowledge, and the means of finding them is not always particularly intuitive. However, help does exist for those who learn to ask for it, and it's not necessarily expensive. In many cases, especially through the Small Business Administration and other government entities, you can get help and advice for free. Thankfully, the websites for these government entities are not only becoming more accessible and easier to find, they are also being made more intuitive and user-friendly all the time.

Ways to Combat Common – and Frequently Fatal – Errors

• Do research within your industry. Talk to others who operate successful similar businesses. You may be surprised how willing many entrepreneurs are to share their wealth of experience and information. Of course, you don't want to start asking these mentors for trade secrets, but they are usually more than happy to help you with the basics. You just have to be willing to seek out the right people and ask them for their help.

• Use the Internet to get a better feel for your chosen industry, as well as your prospective customers. Read all you can on professional forums, consumer blogs, and other forums dedicated to whatever activity or interest your chosen business will serve.. As noted above, there are also numerous government agencies offering help and guidance, much of it free of charge.

• The local Chamber of Commerce is a good resource for a variety of business-related information. Business and trade associations and group meetings often provide a priceless network of mentors and connections with other associates within your industry. Depending on whom you are asking and the types of information you are seeking, it may be appropriate to consider offering particularly learned associates a consulting fee to "pick their brains" for useful hints and tips they have gained from their years of experience. Finding out about the day-to-day operational necessities of running a particular business from the voice of experience can be well worth a small up-front investment.

• Work for someone else in the industry. Apprenticeships and internships are a time-honored method for on-the-job training. While apprentices are typically paid very little – and interns are typically paid nothing at all – the knowledge you will be able to absorb just by working within a successful organization could pay off handsomely when you've started your own business. Beyond not having to "reinvent the wheel" when developing and implementing every proven, successful idea, you will have the benefit of learning from costly mistakes before you are in the position of having to pay for those mistakes. And that, if nothing else, makes the idea of working for an established business a brilliant idea, at the very least.

THIS IS NOT INVESTMENT, TAX OR LEGAL ADVICE. Consult with a financial advisor, accountant or attorney before making important decisions in these areas.