The start of a business is an exciting time. You’ve got a great idea for a business and are enthusiastic to get started.
It’s important to plan ahead to give your business the best chances for success. Planning ahead means anticipating challenges and developing ways to successfully address them, so they don’t upend your start-up.
Here are three reasons why start-ups fail and ways you can avoid them.
Lack of market demand
You need to have a market to make money. That means there needs to be enough people who need your product or service and are willing to pay money to buy or use it. Without that, you won’t be able to cover your costs or earn enough to survive. Before you spend your time, money, and energy starting a business, make sure there’s a need for it.
Some ways you can identify need:
Look for competition. If no one else is offering the service, there’s a chance there’s no market for it. That might not initially stop you from moving forward, but if no one already offers your product or service—or anything close to it—you’ll have to do more to prove there’s a market.
Conduct market research. Studies and interviews help determine whether people in your target market agree with you that there is a need for your offering and that they would pay for it.
Lack of expertise
Entrepreneurs might be tempted to partner with or hire their friends or family—people they genuinely like and would work well with. That doesn’t always translate to success, however. For your business to be successful, you need specific expertise, and you need people whose skills complement yours.
You also need people who are willing to discuss your decisions with you and make sure there’s a business case to be made for each decision you make. Someone with a differing perspective provides a vital way to double-check whether your decisions are best in the long-term for your business, or whether other options are available.
Ensure you hire people with balanced competencies. If your business relies on software, you might need a technical expert to ensure the technology runs smoothly. You’ll likely also need a financial expert to help you with bookkeeping and possibly a manager to oversee employees. Likewise, if you open a restaurant, someone on your team should have restaurant experience, ideally, a few people in managerial roles will have relevant experience.
It’s fine to hire people you like, but make sure your team also has the skills to successfully manage your business.
Lack of finances
You need money to produce your goods and services and ensure all employees are paid. It’s not enough to know how much money you need month-to-month, you need to forecast your development cycle, how inventory moves through your supply chain, and variations in seasonal income.
If your business doesn’t earn as much in the first few months as you predicted, you’ll need to bring in more money quickly to save your business.
Consider alternative sources of funding, to diversify your options and improve cash flow. Don’t rely just on yourself and friends or family, consider angel investors, business incubators, venture capitalists, and business grants.
Final Thoughts
By planning ahead, being strategic with who you hire, ensuring there’s a market for your offerings, and considering alternative sources of funding, you can significantly improve your odds of success.
