Sometimes, knowing and understanding why certain businesses experience problems and even fail may be considered negative thinking, but I argue that understanding such issues helps you to act earlier to identify and avoid the same issues.  Being aware of the traps and pitfalls means that you can take avoiding action earlier.

Three main reasons why many new businesses fail are:

1. Choosing a business that isn’t very profitable.

Often, we convince ourselves that there is a market demand for our product and because WE believe it, we are prepared to take the risk and setup a business. The problem is that we didn’t conduct enough serious market research and we end up promoting a product or service that there is no real call for.  Asking your mates what they think about your business idea is not market research. As your coach, one of the earlier questions I will ask you is … “What is your market and who are your competitors?” and “Where has this market data has come from?”

2. Incorrectly pricing your product or service.

Either Quality or Cost but impossible to do them both well.  Just competing on cost usually means the quality is degraded and remember if you are sourcing from a non-local supplier, then lead times may well impact your ability to meet customer demands.As your coach. I will ask, “Have you established a base unit cost, a return cost if the customer is unhappy with the product, and are you providing any discount based upon quantity – if the customer buys more than a certain number, do they get a price discount?

3. Failure to adequately anticipate cash flow.

In the early stages of any business start-up, suppliers require quick payment for inventory (sometimes even COD).  If you sell your products on credit, the time between making the sale and getting paid can be some weeks, even months. This two-way tug at your cash can pull you down if you fail to plan for it.As your coach, I will be asking, “What financial backup do you have?  Have you forecast your income and expenditure? And, what is the worst case!”.

I am not saying, “Don’t do it!”, I am just saying, “Be aware!”

There are many reasons why star-up businesses fail, and these are just three of the many.  I strongly recommend that you use a coach to explore your business concept and at least consider what the downside could be. I can say hand on my heart that I know I have saved several entrepreneurs a lot of trouble and strife just by asking a few basic questions during a couple of coaching sessions.