Why businesses fail
There are many reasons why new businesses fail.
- Overestimating how much the business will sell or underestimating how long it will take to achieve initial essential sales targets.
- You are underestimating costs.
- You fail to identify your market correctly because of inadequate market research or no research.
- They are failing to control costs.
- I was carrying too much stock.
- I am being personally and financially unprepared for running my own business. Or, in other words, failing to have a winning business plan.
Researching your idea
There are various areas of your idea that will have to be researched and examined. However, the primary place you need to concentrate on is researching your product or service thoroughly. Look at these from every possible angle.
Product or service
It would help if you were as sure that either the product or service you are about to launch will appeal to your target market. Here’s something to think about – why was the teabag a roaring success and the coffee bag a colossal flop? I don’t think anyone has managed to answer this one, but it does show that sometimes even though something similar has been an enormous success, it doesn’t mean that your new idea will work too. You can stack the odds in your favor by undertaking thorough research.
Currency fluctuations and transportation costs
Suppose you’re sourcing either products or raw materials from abroad. In that case, you’ll need to make sure that you allow provision somewhere in your costing for those inevitable currency fluctuations and other costs that can adversely affect the price you pay for your goods. Also, remember that the price that suppliers quote you when you’re working out your initial costing may not be the price you have to pay when you open for business. Another factor you’ll need to consider is transportation costs, which can rise significantly in an oil price increase, civil unrest, or natural disaster.
Minimum quantity orders
Beware of the effect that order minimum quantities can have on your business. We buy our Dutch bikes direct from Holland, which means we have to pay shipping costs. Our suppliers send our bike deliveries as fillers for other business trailers to keep costs to an absolute minimum. Hence, our bikes travel with all sorts of other goods such as fruit, flowers, vegetables, and even cakes. The benefit to us is that we pay low transportation costs, as our order is nothing more than a way of the haulage company ensuring they fill all the space in their trucks.
Making your products
You intend to start a business where your unique selling point is to make all your products. How quickly can you make them? You’ll need to be sure that you can keep making them while still running your business. Whatever it is you’re selling, make sure you can produce it as quickly as needed to make your business profitable. If you’re marketing homemade produce, your customers will expect that’s what they’re getting. Offer anything else, and you may well destroy your uniqueness.
Packaging and promotion
Packaging and promotion of your goods often go hand in hand. A product that is imaginatively and attractively packaged will have a greater chance of being sold over one that is not. For example, toy manufacturers spend millions of pounds annually on making sure their products grab the attention of their intended audience, children.
The two most common and potentially disastrous mistakes made by novice entrepreneurs are deciding on a product or service and then trying to find customers to buy from them and start a business without a written business plan. The advantage of working out a winning business plan is identifying and addressing potential problems before it’s too late.