The smell of freedom.
The ability to set your own rules, take vacations whenever you want and be financially independent.
That is the goal of most entrepreneurs when they start their business. Despite this, 90% of all starts up fails in their first year. While 96% of the remaining will fail within the first 10 years.
Having your own business can be fun and equally demanding. Most people go into business because they have heard that is the fastest way to becoming financially rich. Others do so for the fun and thrill of starting up something they believe in.
Whatever your reason might be for going into business, there is every possibility that your business may not exist after 5 years.
There are dozens of reasons this might happen. Sometimes it may be due to mistakes most businesses make and often times, it may simply be due to any of the following three reasons.
There 3 Major Reasons Startup Fails:
- Trying to do everything by yourself:
If you are in the middle of growing your own business, you will realize that been an entrepreneur is often the most lonely road travelled.
This is because the whole business is built around you. You are the chief CMO, CTO, sales executive, security guard and the CEO of the company.
This can often cast a heavy burden on your shoulder in trying to meet up with the demand that these positions entail. When this happens, three things are possible
- You do not pay enough attention to all of this roles
- You try to pay same attention to all of them and end up achieving nothing
- You get burnt out.
This major reason makes most businesses fail. At the beginning of your startup, you may not have all the business plan and nitty gritty all figured out. This is why it is important to ensure that you only focus on the core of your business while outsourcing many of this task that you can.
- Lack of proper understanding of the market:
Recently I was discussing with someone who wanted my advice. He has a business and resides in Lagos but according to him, his market is in Abuja. This immediately made me realize that there is a potential mishap going to happen. Except if he can successfully sell his products online, there is no way he is going to survive staying out of his market zone.
That is what happens when you do not totally understand your market. Sometimes you build products that either the market is not ready for or their product is way too ahead of the market. This can lead to frustrating starts.
Today most startup in the US moves to Silicon Valley. Their main reason is because this is where investors and budding entrepreneurs are. They can easily leverage on the close location of their network to grow their business.
What then should you do?
Create a proper framework for your market. Identify your target audience. Take your time to answer the following questions.
- Who are they?
- What is your blue ocean strategy for entering the market and most importantly?
- Why should they buy from you and not from your competitors?
- Lack of cash
Financial management can ruin your startup. When you do not properly manage your finances, there is no way you can scale that business.
Most financial handicap comes in various ways. You may be
- Unable to raise enough capital to grow the business
- Have too much cash that you believe the business is already successful
- Mismanagement of the available fund you have
This is why properly financial management is the key to a successful business. You need to conduct your due diligence before starting the business.
Financial statement that you need to prepare includes:
Cost of starting the business and growing it to full capacity – This template will contain the initial cost of everything you need for your business. The cost of renting an office (if you absolutely have to), the cost of advertising. Everything here will be your initial take off cost until you start having profitable customers.
Monthly expenses– After the initial cost implication for starting up, you need to know the cost of marketing the business on a monthly basis. The document contained in this file will be monthly recurring marketing cost of acquiring new customers.
Projected cash outflow/inflow for the next 5 years – What is the expected cash inflow from your customers. How many customers do you need to gain before you can beat your expenditure? If you attain a certain level of customer base, what is the projected income – projected expenses.
Can you prepare this on a 6onths, 1 year and 5-year term?
Understanding your financial status, will go a long way in helping you decide if the business is worth it, help keep you in check and let you know the financial health of your business at a glance.
Making a startup work can be a daunting task. Most startups that has failed have done so because they failed to live up to the 3 expectations above. To make your startup work, you have to control the following three things
- Avoid doing anything yourself- Outsource as much as you can
- Understand the market- Do not go blindly into the market. Have a blue ocean strategy for entering the fold
- Manage your finance very well- Hire a financial expert or a business coach to help you with proper accounting management
Businesses that last do so because they are simply lucky or they are well prepared to enter the market.
Which do you think have the greater chance of not failing?