Why New Businesses Fail

We live in a world where new businesses pop up every day. People start their own businesses from home. They open small stores or start ecommerce shops. They start consultancy businesses or their own marketing firms from the comfort of their own homes. They turn things like blogs, which started out as a hobby into a money-making business, and they find new and exciting ways to make money.

In 2016 in the UK 80 new businesses were registered every hour. More new companies started up in the first six months of the year than in the whole of the year before. In the US, between 2014 and 2016 the number of self-employed people registered grew by over 150000 to 8751000. The internet means that starting a new business is easier than ever.

This is fantastic. It’s great for the economy; unemployment is falling, people are happier at work and groups like mothers, who have to work around other commitments are happily returning to the workplace, working on their own terms around their other responsibilities and needs. But, it rarely lasts.

It’s thought that 80% of these new businesses will fail within the first 18 months. Some argue that this is because a vast proportion of these people are young, inexperienced and naïve, but in truth of those nearly 9 million self-employed, over 85% are over 40 years old. So, why do so many businesses fail so quickly?

Spending Too Little

Many new businesses start on a small budget. A lot of people starting up on their own are doing it out of necessity. They are out of work or unhappy. They need something else, something different. So, they go it alone. They have next to no money and little chance of winning investment. This means that they have no budget for marketing to get the word out about their business. There’s no budget for market research, or product development and machinery and equipment are second hand or cheap and unreliable.

Then, even if the business is able to grow, it’s owner fails to invest in quality compression springs and other replacement parts. They fail to market or employ staff, and they find that progress stalls.

Spending too Much

On the other hand, many business owners rush out and spend or expand too quickly. They spend more than they’ve got, assuming they’ll make it all back. As a new business owner, finding the balance is crucial.

Lack of Research and Planning

A key reason for over or underspending is a lack of research and spending in the wrong places. Many new businesses rush out and get going without researching the market. They leap into a marketplace that has no need for their services and get stuck.They also go in without a clear business plan. With no clear goals or ideas of how they are going to get there. A solid business plan, with research and a clear focus, is crucial.

Poor Location

Many businesses and shops, even online businesses, fail because they are in the wrong place. Perhaps due to a lack of research. Footfall or online traffic is essential. Without it, you are setting yourself up to fail. Businesses should take the time to find their audience before blindly launching.