The Five Pitfalls of Business Failure

Joachim De Posada

By Joachim De Posada

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The Five pitfalls of business failure and what to do about it.

 

I had the privilege of speaking to about 300 entrepreneurs that signed up for the “Desarrollo para el Pueblo” Government program for entrepreneurs at the Puerto Rico Convention Center.

 

It never seizes to amaze me the talent and the creativity of so many people that decide to open a small new business in order to provide services to clients, make money and live a better live.

 

I was also interviewed by my dear friend, Carmen Jovet who I have been told has attended all 48 previous activities this program has held all throughout Puerto Rico. Yesterday was the celebration of 500 businesses created in the last two years and she was present.

 

This is why I am dedicating today’s column to all entrepreneurs and business owners. They are a key factor in our future.

 

Some years ago I did some work for Kent State University out of Detroit and the figures they were publishing were that 50% of new start- ups fail within the first two years and over 90% within five years. I think the odds are better now a days but it is still a very risky proposition for these men and women who sometimes risk everything in order to open their small business.

 

If someone opens a new business it is because they strongly believe that it is going to be successful. If that is the case, why the high failure rate?

 

There are many reasons but in today’s article, let’s concentrate in five.

 

1.     People sometimes start new businesses for the wrong reasons. It is very common for you to ask someone why he or she started the business and the answer might be “to make a lot of money”. Other reasons given are to be independent, to not have a boss, to do what you want to do, etc. These are not good reasons to start a business. How about if you start a business because you have a passion for what you will be doing? You have identified a real need in the marketplace that you can meet and meet it well. You are persistent and have a lot of discipline, two essential characteristics that if you lack, it is impossible to succeed.

2.     Poor management: This might be the most important reason most businesses fail. New business owners usually know how to do the task or perform the service they will be doing in their business.  They are good hair stylists, good cooks, or good salespeople but they lack essential business and management expertise in areas such as finance, inventory control, production, purchasing, managing people and hiring. If you don’t have expertise in these areas, you either have to acquire it before you open the business or you have to hire the right people to help you. And they better be the right people or you are going down the tube. You need a good business and marketing plan and precisely, this government program does exactly that plus funding for your business and periodic follow up by a professional consultant to guide you in the new business. This is why they have such a positive record of businesses that are doing very well. Let’s face it, if you need to borrow money, no banker or financier will give you the money unless you have a good business plan that will convince them that they will be repaid.

3.     Not enough capital. This is often a fatal mistake. Business owners often underestimate how much money they will need in order to be successful in the business. This program I am describing will give loans up to $20,000 and if there is need for more, they will help you find financing.

4.     Location, location, location. In the case of restaurants, retail stores, businesses that need to be found by clients, location is very important. If your business can be done electronically or through the internet, location then is not a factor.

5. Not having a website, having a lousy website or having a website that no one can find. If you have a business today, you need a good website that can be found by your prospects wherever they are. And make sure that it can be accessed from a mobile device. That site requires different technology than a regular website. I am convinced that every business should be able to sell something through its website. People must be able to find your site, navigate through it easily and then be able to make a purchase either through PayPal or a merchant account. There is now a fabulous new service called squareup.com where you can accept a payment in your IPhone, I pad or android that is fantastic. Check it out.

 

Let me end this article with one important question: What is the most important factor for a business to be successful? Now that I think about it, I should have asked the question in my speech yesterday but I didn’t and it could have been a great question for people to think about.

I rarely get the correct answer.

Most people answer: A great idea, a good location, a good product or service, good employees, a good marketing campaign, a good advertising campaign, good prices, etc. etc. etc. Although these are important factors, almost no one mentions the most important which is:

Clients. The most important factor for a business to succeed is to find clients, sell them and keep them. You do that and you will be successful.

 

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