Most people would like to escape the world of corporate employment, have their own businesses, and work on themselves. But why do they often fail to become successful entrepreneurs? In this article, Ivan Kroshnyi is going to explore 5 main reasons why young businesses tend to fold.
- Lack of proper focus in the beginning
Choosing the right niche is the first step when starting your own business from scratch. A lot of newbie entrepreneurs repeat the same mistake over and over again as they try to take an already crowded market by storm and snatch their share. While doing so, they typically ignore the fact that oversaturated niches are called “bloody red oceans” for a reason. These are niches with extreme competition, already established leaders, and precise manufacturing, supply, and payment system. The market sharks have massive connections and a solid client base. They dictate their rules and have extensive experience, reputation, and capital. That’s why newbies have a very hard time trying to compete in such an intense business environment.
How to start a business to reduce costs
Young entrepreneurs need to look for a quick-growing narrow niche in the area they are interested in. It is much easier to meet the needs and wants of your target audience by creating the relevant product for it instead of desperately trying to lure customers away from much stronger and more experienced competitors. The right approach can significantly reduce the associated expenses in the beginning while helping minimize potential risks.
Here’s a shining example of that. Kucher ECO has initially chosen a narrow niche, i.e. the production of high-quality electric bikes and motorcycles on alloy wheels presented in several universal models. This model range feature is what helped Kucher ECO quickly find an audience and go global in 5 months’ time.
- Having no detailed business plan
Many aspiring entrepreneurs overlook the importance of the preparatory stage before launching their projects. This is another reason why their businesses eventually collapse. The lack of a well-articulated business roadmap leads to many problems an inexperienced entrepreneur will be struggling to deal with.
How to create a business plan
A solid business plan needs to have two key points: the one where you are getting started and the second one where you wish to get to within a certain period of time. For example, this can be a specific amount of revenue you expect your business to generate, let’s say, in a year’s time.
Before launching the project, you should also articulate and list all your interim steps. This may include a selection of suitable suppliers, communication channels with your target audience, efficient sales strategies in your niche, ways to receive payments from your customers, etc. It also makes sense to analyze your competitors and think of ways how you can make your offer truly unique and eye-catching.
You need to factor all of this so that in case of any emergencies and unexpected situations you could change individual items on your business plan without having to alter the entire concept of business development and your end goal. Having the right strategy will let you gain competitive advantages and win your market share with minimal risks and costs.
- Fear of attracting investors and partners
There are two main reasons why business owners are often reluctant to attract investors and partners for their projects. First of all, it’s because they don’t want to share profits. And second of all, they are afraid of possibly losing control over the situation once they partner up with somebody else. These fears may lead to lost opportunities for project growth and scaling. That’s why even the most promising startups that have an original vision and excellent prospects often shut down as they don’t receive enough funding.
I have learned from personal experience that the best and strongest businesses are those run in partnership. The reason for it is that choosing the right partner ensures efficient growth and development of the project. Aside from invested money, your partner can help strengthen and complement your business using their strengths such as precious experience, competencies, and connections. By having an excellent partner, you can earn anticipated profits much faster.
How to choose the right partner
You must choose partners whose core values and life principles are in line with yours. Before deciding to cooperate, make sure to discuss anticipated returns generated by a joint venture. If you manage to find a person with whom you share values, principles, and goals, your business will get its second wind. On top of that, you will be able to avoid potential conflicts with the business partner and focus on the common goal.
Separate chapters in my training course called “Business Roadmap” cover the topic of business plan development as it’s much easier to achieve goals together and a lot more efficient for the business.
- Wrong money management approach
Another reason why businesses tumble down is the lack of understanding of the difference between personal finances and profits generated by the company.
Young entrepreneurs often forget about the fact that revenues must be divided at least into three separate parts. Aside from personal finances that you will pay yourself as dividends, a portion of returns must be used for the project development and to provide the much-needed safety net. In this scenario, your business will have what it takes to compete in the market and scale up quickly.
- Lack of experience, knowledge, and self-confidence
A rule of thumb states that only those who believe in themselves and their project unconditionally are able to succeed and make it big. That being said, young entrepreneurs have a hard time dealing with stressful situations which are not uncommon in business. They make the simplest of mistakes and are often ready to give up when facing serious issues, all because they treat business failures as a personal defeat.
Basically, entrepreneurs make mistakes due to a lack of relevant experience and knowledge of the business. That’s why I recommend everyone who is planning to start their own thing to read books on business and give a mentorship program or a training course a try. This will help improve their knowledge of management control and how to run business processes properly.
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