Business: No One Said it was Easy
Stumbling blocks for New Businesses
14 things to be aware of to avoid failure in new businesses and startups. Keep this list handy if you are a budding entrepreneur and wish to avoid heart-aches and financial pain.
1. Bad initial concept.
At the core, I believe all businesses need to create value. Although the implementation is key, it wouldn’t hurt to start with a good idea. A good idea is one which fulfills a genuine need and has a unique selling proposition.
2. Inadequate planning.
I believe having a business plan really helps, even if it is sketchy. Firstly, the act of writing the plan forces the founding team to think through the steps and map out the landscape they will be operating in. Secondly, the plan can be a good communication tool between the parties involved.
3. Failure to do proper research.
Starting a new business takes time, money and commitment. I believe it really pays in the long run to research the opportunity, industry, domain specifics and competition before jumping in. A bit of work in the beginning can save you a lot of grief later.
In addition, some find professional help and mentors useful. I think it depends a lot on who is providing the help and in what form the help comes. However, anything you can do to avoid the same mistakes others have made has got to be a good thing.
4. Insufficient capital.
Many businesses fail because they under capitalise. The level of funding required depends largely on the type of business, barriers to entry and the skills composition of the founding team. Some industries just takes more starting money to create a viable business than others. Whatever your industry, I think it is important to understand what the cost requirements are before you start.
A key question to ask yourself is how long the business can survive before making that first sale. As a general rule, err on the conservative side – it tends to take longer and cost more than what you think.
5. Poor cash management.
Having sufficient funds is essential for any business to stay alive and grow. There’s no doubt about that. It doesn’t really matter how brilliant an idea is or how clever the founders are. If there isn’t sufficient cash in the bank to pay the suppliers, employees or monthly bills, a business cannot remain operating for long.
Apart from ensuring the ongoing survival of a business, I think cashflow management can enable a business to capitalise on opportunities as they arise. Why else do you think Microsoft has $50 billion in the bank for?
6. Lack of business domain specific knowledge.
Every industry operates in different ways. I believe having a good understanding of the market dynamics is important. It isn’t enough to just be an expert in your particular product or service. The deciding factor between success and failure could be a business’ ability to recognise and respond to changes in the market place. Having domain specific knowledge and a solid understanding of what customers need are essential ingredients.
7. Chasing any potential sale.
Some projects and customers have less strategic value than others yet may require the same if not more effort to work with. I’ve found this to be the case in my professional work as a Software Engineer for hire. There are clients who just don’t understand technology and it can be an uphill battle working with them.
In a small (but busy) business, the resources tend to already be stretched, so chasing all sales opportunities can be time consuming and wasteful. I believe it is more important to focus on the quality and not the quantity of a sale. As the saying goes, if you try to catch all the rabbits, you’ll catch none of them.
8. Late billing and collections.
I think this goes hand in hand with cash management. Concentrating on the product or service a business produces is important but being able to recover the costs and make a profit is essential. After all, cashflow is the life blood of a business. For new businesses especially, I think they have to be extra careful and ensure they are charged correctly, billing cycles aren’t too long and customers pay on time.
9. Lack of focus.
A new business can go through several iterations before its form and shape is finalised. In some instances, the part of a business that finally takes off may not even be something the founders had originally envisioned. I read this all the time. To me this is fine, as businesses must adapt as they learn more about the customers’ needs and usage patterns. However, I believe a business must focus at some point to turn a plan into action and actions into results.
10. Lack of internal control systems.
Running a business well is about having the right operational procedures. Internal control systems play a key role in ensuring that the right procedures are followed. To me, this is pretty important – without the right systems, how can you possibly manage the cost, ensure financial compliancy, timely invoicing, accurate product dispatches etc?
One thing I didn’t find much information about though is the fact that the type of systems put in place should probably match the size and complexity of the business. A simple business is unlikely to need a powerful reporting solution for example.
11. Hiring the wrong people.
Although I believe in being a generalist, I also believe when the time requires, hiring the right people can be beneficial for a growing company. A common mistake Entrepreneurs tend to make is not hiring the right skills when needed especially when they have solely been responsible for getting the business to its current successful state.
In addition, I think it depends a lot also on hiring the right people – not just people with the right skills but people who are best for the company. Ill fitted people on a team can adversely affect the productivity of the entire team as a whole. Choosing the wrong people can change a company’s dynamics and destroy whatever it is that made it unique and successful.
12. Reliance on few suppliers or customers.
Running a business is about managing risks. To me, businesses that rely on a few suppliers or customers are operating under risky conditions. Any change in the relationship or circumstances can significantly affect such a business. For example, how would a business cope if their primary supplier decides to increase the cost of all products by 5%? Or what impact does it have on a business when its only major customer decides to move their business elsewhere?
13. Not having enough perseverance and resilience.
It’s hard for me to say for sure, but it seems to me some businesses fail because they do not persevere long enough. There could be several reasons for this. Perhaps the founding team underestimated the timelines. Or the enthusiasm and passion have dried up. Whatever the reason, sometimes building in the redundancy and resilience is enough for a business to weather the storm and emerge victorious at the other end.
14. Insufficient performance metrics.
It’s pretty important to have metrics you can use to measure how you are progressing. It doesn’t matter in what area the business operates in, metrics that identify cost to produce goods, sales, productivity etc is essential. Sometimes what you think is happening can be completely out of synch with reality. Without timely metrics, management cannot make informed decisions.
Running a new business on your own can be trying and stressful. However, the rewards can be fantastic too. How successful you are is only limited by your own creativity and hard work. If you run a relatively new business, ask yourself how many of these common stumbling blocks have you encountered? Perhaps more importantly, think about the mitigating actions you can put in place before they occur. Avoiding some or all of these common stumbling blocks could be the difference between your business surviving or otherwise.
Cheong, Dave. Stumbling blocks for New Businesses:14 things to be aware of to avoid failure in new businesses and startups [Internet]. Version 5. Knol. 2008 Jul 24. Available from: http://knol.google.com/k/dave-cheong/stumbling-blocks-for-new-businesses/2xugru5luahyn/3.