Kim Peterson, CEO CommonSenseHealth.org
Before making the leap into Entrepreneurship it’s important to learn as much as you can from those who have gone before you, both successfully - and not so successfully.
You, then can reflect on your business model, plan and resources, then make better decisions moving forward, rather than flying blind.
Here is an abbreviated summary of an extremely insightful overview from Jay Glotz via the New York Times. See the complete version here.
1. The math just doesn’t work. There is not enough demand for the product or service at a price that will produce a profit for the company.
2. Owners who cannot get out of their own way. They may be stubborn, risk averse, conflict averse — meaning they need to be liked by everyone (even employees and vendors who can’t do their jobs). They may be perfectionist, greedy, self-righteous, paranoid, indignant or insecure. You get the idea. Sometimes, you can even tell these owners the problem, and they will recognize that you are right — but continue to make the same mistakes over and over.
3. Out-of-control growth. This one might be the saddest of all reasons for failure — a successful business that is ruined by over-expansion.
4. Poor accounting. You cannot be in control of a business if you don’t know what is going on. With bad numbers, or no numbers, a company is flying blind, and it happens all of the time.
5. Lack of a cash cushion. If we have learned anything from this recession (I know it’s “over” but my customers don’t seem to have gotten the memo), it’s that business is cyclical and that bad things can and will happen over time — the loss of an important customer or critical employee, the arrival of a new competitor, the filing of a lawsuit. These things can all stress the finances of a company. If that company is already out of cash (and borrowing potential), it may not be able to recover.
And according to Paul Chaney of SmallBizTrends, a summarized version of his top 5 are as follows. See the complete version here.
1. Starting for the Wrong Reason. According to Forbes, more than 500,000 businesses are started each month — many for the wrong reason. Case in point, an electrician who worked for a building contractor decided that he no longer needed to answer to an employer and could do better financially by stepping out on his own. What he failed to realize, however, was that although he had the skills to do the electrical work, he lacked the acumen to manage a business successfully. Over time, his enthusiasm waned. He shut down his fledgling company and, happily, went back to work for his previous employer.
2. Insufficient Capital. Starting a business without sufficient operating capital is almost certainly a death-knell. Not only that but many new business owners underestimate the perils of riding the cash flow roller coaster. In fact, according to Hiscox’s 2015 DNA of an Entrepreneur Report, 21 percent of US entrepreneurs have resorted to using their credit cards to fund their businesses.
3. Improper Planning. Lack of proper planning is another common reason small companies fail and go out of business. All too often, entrepreneurs focused on achieving their dream of financial independence fail to take the painstaking but necessary step of creating a strategic business plan that factors in components such as workforce needs, analysis of competitors, sales and expense forecasts and marketing budgets.
4. Poor Management and Leadership. Effective management and leadership skills are essential to business-building success, and a lack of either can lead to confusion and conflict within the ranks, poor morale and reduced productivity.
5. Expanding Too Quickly. More than one company has experienced bankruptcy as a result of the business owner’s reach exceeding his grasp concerning expansion.
Decide about expansion only after carefully reviewing, researching and analyzing what you will need regarding new employees, facilities and systems.
And according to Freelance researcher Moya K. Mason. See the complete version here.
1. Choosing a business that isn't very profitable. Even though you generate lots of activity, the profits never materialize to the extent necessary to sustain an on-going company.
2. Inadequate cash reserves. If you don't have enough cash to carry you through the first six months or so before the business starts making money, your prospects for Success are not good. Consider both business and personal living expenses when determining how much cash you will need.
3. Failure to clearly define and understand your market, your customers, and your customers' buying habits. Who are your customers? You should be able to clearly identify them in one or two sentences. How are you going to reach them? Is your product or service seasonal? What will you do in the off-season? How loyal are your potential customers to their current supplier? Do customers keep coming back or do they just purchase from you one time? Does it take a long time to close a sale or are your customers more driven by impulse buying?
4. Failure to price your product or service correctly. You must clearly define your pricing strategy. You can be the cheapest or you can be the best, but if you try to do both, you'll fail.
5. Failure to adequately anticipate cash flow. When you are just starting out, suppliers require quick payment for inventory (sometimes even COD). If you sell your products on credit, the time between making the sale and getting paid can be months. This two-way tug at your cash can pull you down if you fail to plan for it.
Keep in mind that these are but a few of the pitfalls that are awaiting you in the Entrepreneurial “fire swamp” of small business; and no matter how much you study and commit yourself, please know (based on personal experience) there is no “sure fire” template to follow.
There is no “step by step” program that will ensure your success.
You must have passion, be willing to dedicate yourself fully, be prepared to continuously educate yourself and step out of your comfort zone daily in order to have ANY chance of success in the realm of small business (Typically, a small business employs fewer than 100 workers and has revenues of less than $25 million.).
So what do you think? Do you have what it takes?
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