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3 Reasons 5 Out of Every 10 Businesses Fail (And What You Can Do About It)

In 2014, Sen. Rand Paul made the startling claim that 9 out of every 10 businesses fail. Mercifully, he was wrong. According to the U.S. Small Business Administration, the correct number is 5 out of 10; more specifically, 50% of businesses no longer exist after five years.

But that’s still a pretty dire statistic, especially if you’re setting up your own venture for the first time.

The silver lining is that once a business gets past the five-year mark, its survival rate increases dramatically. Here are three of the most common reasons small businesses fail, and how you can avoid them.

Lack of Market Need

It seems like a no-brainer: If no one needs (or even wants) your product, your venture will fail. Still, many founders persist, convinced that it’s a necessity: The customers just don’t know it yet. It doesn’t help that most entrepreneurs are confident by nature, or that the internet is awash in clickbait-y articles promising “the most important tool you never even knew you needed.”

Solution: Before sinking all that money into development and production, do your research. What do your customers really need? What pain are you trying to solve? Is it an actual pain? Is your product going to be a nice-to-have instead of a need-to-have?

What if you’ve already launched? Whether you’re already initially succeeding or not, dialogue with your customers is still critical. Your product or service should keep evolving with your customers’ needs throughout the years – that’s the only way you can keep your business running for a long time.

Cash Flow Problems

There are several ways to get to this situation. Backing out irresponsible spending, you could be looking at lack of capital in the first place or unsustainable overhead costs. It could also be taking too long for the product to catch on, and in the meantime, you still have to pay salaries and overhead.

Solution: Look into remote working arrangements. Not only is the current workforce more open to this than ever, many of them actually prefer it. Many studies have shown that working remotely makes for happier employees: no commute, flexible hours and no dress code, among other benefits.

As for you? There’s no need to rent office space, which immediately saves you a nice chunk of cash. You don’t need to commute, either, and you can grab leftovers whenever you get hungry. They may seem like minor things, but you’ll need to save every penny you can.

Embrace the concept of the minimum viable product, too. This means launching as soon as you can, instead of waiting to come up with the perfect, user-polished product. In this way, you’ll start making money while still making improvements. Even more importantly, you’ll get early feedback from your customers, which only helps you improve in a real-world sense.

Founder Dysfunction

The most successful business founders are notoriously hardworking and detail-oriented. While those are obviously good qualities, they also go over to the neurotic side too easily. At their worst, these traits could translate to obsession and the inability to delegate.

As an entrepreneur, one of the most important lessons you can learn is that you can’t do everything on your own. You’re only one person, and you don’t possess every single expertise necessary to build a successful business.

Solution: Build the right team around you so you can focus on the thing you do best. Are you good at developing product? Find someone who enjoys and is good at handling the day-to-day operations. Not good at confrontation and holding your team to the highest standards? Get a manager who’s good at balancing being a people person and holding people accountable.

If you’re lucky enough to find a good employee – someone who isn’t just skilled but has grit and a great attitude – do you very best to keep them happy. And no, that doesn’t mean babying them. It means challenging them just enough to create a sense of self-fulfillment, providing them with the space to make their own decisions and mistakes, giving them ownership and compensating them the best you can.

Speaking of delegating, McManamon & Co. can take care of your small or mid-size business’ accounting and tax needs, paperless office and broad consulting services. Get in touch with us online or call us at 440.892.9088.


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