Starting a business is scary and hard, and unfortunately it’s very common for a new business to fail within the first two years, if not before. The statistics are startling and depressing. Unfortunately, if you’re running a new business, chances are you’re going to face a failing business. If you’re already there, times are certainly rough, but you don’t have to give up just yet. Figure out why your business is failing. Sometimes identifying the critical errors puts you on the right track to getting your business into the success zone.
You’ve admitted it to yourself: “My business is failing.” It hurts, but this is the first step to salvaging your business, if it’s possible. Recovering from business failure is difficult, make no mistake. But if you catch your failures early enough, you can work to turn your business around and hopefully see some success. Take a look at how you interact with customers, your management style, what you offer to the public, and your business finances and plan. You need these components to run a business, and if you’re lacking even one, it can lead to business failure.
You aren’t connected with your customers
Customers are essential to businesses, yet when entrepreneurs start new businesses, they often get so bogged down in actually running the business that they forget about the customer. So you have to ask yourself: Do you know your customers at all? Basic demographic information isn’t enough. You need to know what they want, what their pain points are, and what they wish they knew more about. You need to know them the same way you know yourself.
Do you communicate with them?
How often do you actually talk to your customers? Reasons for business failure often center around not knowing what the customer wants, or worse, not knowing why the customer is unhappy. First, you need open channels for customers to reach you. Use a few social media sites, plus a phone number, plus a contact form on your website. Then, interact with the customer via the platform that they prefer. Finally, listen to what they’re saying to you. You can gain a lot of insight about where your products or services are failing by listening before you try to fix anything.
You don’t offer anything new or different
How is your product different than anything else out there? At the very least, you need to offer the same thing as everyone else at a lower price. Or, you need to offer a slightly better version of what everyone else has, but at the same price their lesser product goes for. In a different vein, you need to hit a niche market and offer something a little different for a specialized audience.
Take stock of what you offer
Do you hit one of those three qualifications? Low price, better product, or niche market? If you can’t answer yes to those questions, you might have hit on your major causes for business failure.
A few reasons for this problem stick out. One of them involves your business’s mission. Yes, even small businesses with only a few employees need a mission. This raison d’être helps you pursue both short- and long-term goals with a purpose in mind. It also gives your customers a reason to shop with you that’s beyond your products. If they believe in what you believe in, they’ll feel connected to your company.
The second involves your brand itself. As in, do you have one? If you’re an electrician, have you branded yourself to stick out from the competitors in some way? Sometimes all you need to hit a niche market is to reach out to them. Everyone needs electricians, so choose a market you think is confused by what electricians do, or who the other companies aren’t advertising to. Say, millennials. Then, brand yourself in a way that will connect with the millennials in your area. Make it clear you’re in business to provide them with electrical services.
You lack the right management skills
A lot of people start businesses because they think it’ll be easier to work for themselves than for a boss. What they forget? They then become the boss, and have to hire other employees. Unless you work on a freelance basis or are a sole proprietor, you’re going to have to lead other people.
Learning better management skills
Lacking management skills doesn’t mean you have to shut down your business. First, you need to ask yourself if you’re actually interested in being a manager and leading a small business. If you are, you might be able to fix some of your problems. One major way to get management training is to find a mentor. Look for someone in your industry who has led a small business before. Get tips and advice from that person on how to run your business better.
Hiring good managers
If you’d rather be a hands-off CEO, try hiring a manager for your business. You need someone who can inspire your employees while making them feel valued. A good communicator is what you want, because you need to be able to communicate with that person, and they also need to communicate well and openly with your employees. Remember, you’ll still need to lead this manager, so if even that’s not for you, then you might want to rethink having employees at all.
Your business plan needs work
No matter what else you offer, your business cannot run without profits. So if your business plan is flawed, your business will start failing. Many financial woes for businesses can be traced back to overhead that’s too high, bad financial records, or a bad business plan.
Understand the market
Did you do market research before you started your business? If you didn’t, you might have opened a business in a saturated market without a niche to differentiate your products and services. You don’t have to close your doors, but you do need to find a customer base. Since this is your industry, it’s never too late to do your market research. Find a niche that similar businesses aren’t filling, then develop a new business plan so you can fill it.
Find your profit
Can you point to the parts of your business making you a profit? Not making money, but actually making a profit, after you’ve deducted the expenses that go into those parts of the business? Imagine a cake shop that doesn’t actually know how much it costs to produce one of their cakes. If they can’t put a number on the cost of the cake, how do they know if they’re selling cake at a profit? Plus, if you ever want to do a sale or lower prices, you must know how much it costs you to make that cake so you don’t sell below cost.
Three main things create your product cost: labor, overhead, and materials. Once you have that, figure out how much of a profit you’d like to make on your product. Keep in mind that people might not want to buy it at that price, so you may have to lower the cost if people aren’t biting.
Hire an accountant
If you have the customer base you were expecting, the problem is somewhere else in your finances. Either get quality accounting software, or hire an accountant to look at your finances. Yes, both of those are extra expenses you feel like you can’t afford right now. Finding out where your business plan is failing and your company is bleeding money is worth it. Sometimes the solution is something as simple as paying a supplier too much, or discovering ways to reduce overhead costs.
Unfortunately, sometimes the best thing for a failing business is to shut down. If you can’t make your numbers work, don’t have the customer base, or lack a viable product, you might need to start over. It’ll be depressing for a while, but remember: this is a learning experience. You took a leap and started a business, and now you have lots of information about what not to do. If anything, spend time analyzing why your business failed even after you’ve said goodbye. You can identify exactly where you went wrong, so when you want to try again, you’re armed and ready.