Monday, August 5, 2013

Top 10 "Lacks" That Cause Business Failure

All too often new business owners sink their hearts, souls, and life savings into starting their business only to have it fail. They are good people: intelligent, articulate, ambitious, and motivated, and yet they still fail. Sometimes it is for external reasons, but usually it is because of things they haven’t done or things they lack. So why did they fail? Here are 10 of the most common “lacks” that cause businesses to fail.

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1. Lack of Funds. More businesses fail from lack of funding or under funding than anything else. It may be 18 months before income exceeds outgo, so where is the money coming from to withstand that drain? Do a thorough cost analysis in advance. Set competitive yet profitable prices. Make your revenue projections conservative and over estimate your expenses. Set up a contingency fund or a line of credit to cover unexpected expenses.

2. Lack of Research. Research everything and then research it again. You have to do a thorough SWOT analysis of every aspect of your business: your competitors' businesses, who your ideal customers is, what rules and regulations are involved, what your costs are (fixed and variable), what's your niche, and what makes you different from the others. Use Statistics Canada or LMI or good old fashioned leg work but check everything out in advance. What registrations, licenses, certifications, or regulations will you have to comply with? Find it all out before you start so you don’t get suprised by them six months down the road.

3. Lack of Planning. I have said this before and I will say it again. "Fail to plan and you plan to fail." Most small businesses don't plan, they just DO. The business fatality rate is so high because of things that have NOT been planned for. People start a business before they even know what they don't know. You need to have a strategy going in. A thorough Business Plan will become the blueprint for running a successful business. Your business plan should include an exit strategy.

4. Lack of Passion. Unless you have a true passion for what you are doing, you are doomed to fail. Find something that you love to do and figure out a way to get paid to do it. I would (and do) coach entrepreneurs for free periodically because I want to pass along my knowledge and experience. Getting paid to do it is a huge bonus! Going into a business that you care nothing about just because there are huge profits in whatever widget it is will ultimately lead to failure. Find something that excites you and devote your energies to it willingly and you will increase your chances of success

5. Lack of Training. Businesses fail because business owners attempt to start in unfamiliar industries. Entrepreneurs should try to find part time work in the field they are planning to open their business in so they can learn more about it. They should have advisory boards to bounce their ideas off before they implement them. They should take certifications that are required for the industry they are entering, and do the appropriate professional development they need to run their business adequately. I have seen hundreds of entrepreneurs who dreamed of opening their own restaurant yet they have never worked in one in any capacity, let alone managed one. Unsurprisingly, many of them fail.

6. Lack of Organization. Most new business owners don’t even start with “Shoe Box Accounting” and as a result they get into cash flow difficulties without even realizing they are getting into trouble. Basic record keeping should be implemented from the very outset. Get someone who is qualified accountant or bookkeeper to set up a basic manual record keeping system for you even if you plan to keep the records yourself. Invest in Sage Simply Accounting or QuickBooks and someone to set it up for you and teach you how to use it.

7. Lack of Marketing. If you're thinking, "I have built a better mousetrap so the world will beat a path to my door. My business will grow by word of mouth." WRONG! People can't beat a path to your door if they don't know where your door is or that you have a better mouse trap. The Marketing Plan portion of your Business Plan is a separate plan all of its own. How are you going to reach your ideal customer? Have you even defined who that ideal customer is? (No, "Everybody" is not a valid answer.) How much are you going to spend on advertising? Where? When? How often? How will you TRACK the results?

8. Lack of Networking.  Networking relates back to number seven. Far too many entrepreneurs set up their businesses and then just sit back and wait. Without customer interaction the business withers and dies. Whether it is good old fashioned handshakes and conversations at Chamber of Commerce meetings or a social media marketing plan, they need to be out there promoting their business and getting their message out. Which platforms fit your business? If you sell B2B you need to be on LinkedIn. B2C is better suited to Facebook. Is your business visual? Put it on Pinterest. Set up a web site. Attach a blog to your web site. Create presentations and movies on Slideshare and You Tube. Are you in the hospitality industry? Put yourself on Foursquare. Link all of this stuff together. Don’t know how? Hire someone who does!

9. Lack of Focus. AKA: “Re-inventing the wheel.” The tendency of small business owners is to wear too many hats, especially during the first year of a start-up. As a result they wind up spending hundreds of hours working on their business without actually working in their business. The owner takes the time to learn how to do every aspect of business and get themselves bogged down doing things they could be delegating to others. If the owner’s wage is of 40 hours a week generating revenues is worth $150.00 per hour ($6000 per week), why on earth would they spend 10 hours doing simple tasks that they could outsource to someone else at a lower rate of pay?

10. Lack of Coaching. Entrepreneurs have a tendency to “Go it alone”. Too often they embark on projects or full fledged business ventures without any input whatsoever. Many do this because they don’t want to hear negative thoughts about why what they are trying to do wont work. Unfortunately that attitude can lead the bold entrepreneur into ruinous mistakes. It is critical to establish an “Advisory Board” of experienced business people who you can use as a sounding board. Look for people who are strong in areas where you perceive weaknesses and elicit their opinions.

If you can’t find an advisory board on your own, try hiring a business coach to be your mentor.

Richard Lindfield is a Business Coach specializing in Business Planning, Business Management, LinkedIn Basic Training, LinkedIn Company Page Development, Social Media Marketing Strategies, Content Development and much more. Visit the Fraser Valley Training Group to connect with Richard at