Why Do 8 out of 10 Businesses Fail?

Why Do 8 out of 10 Businesses Fail?

The business world is very competitive and crowded. It's not easy to establish a new venture, market it, attract customers, and ensure it thrives despite fierce competition. Statistics show that 8 out of 10 businesses fail despite the entrepreneur's best efforts to stay afloat and this is going to get worse as competition grows.


No one goes into a business with the intention to fail and every prospective entrepreneur is enthusiastic about their chances of success, which hampers their objectivity. They go in with the best of intentions but are seldom prepared enough to deal with the process.


Why do people start their own business?


Prospective entrepreneurs start working on their own business venture for a number of reasons. Sometimes, the reason to enter the world of business is the cause of their failure, which is why it's important to assess the motivation and enter the field with open eyes. They believe a business will bring in more money, provide greater freedom, give them more control, and ensure they have some free time to socialise and enjoy life.


It's possible to achieve all of these things after the business is established and thriving, but it takes time for a venture to reach that level of success. It's easy to underestimate just how much work, time, and effort goes into establishing a business and it's the first factor that contributes towards the failure of the venture.


New entrepreneurs have to deal with crazy work hours, poor cash flow, a substantial amount of stress, lack of freedom, little to no time to socialise or take a break, and the ever-looming threat of failure. These realities often cause entrepreneurs to give up or lose control of their venture early in the game, which is why most businesses fail within the first few months of being established.


Just being good isn't enough


Entrepreneurs enter a business because they're good at their particular field of work. For example, a web designer might establish their own business because they're a great web designer and their services are in demand. But being a good web designer doesn't mean they will be good web design company owners because they need to have good business skills for that.


That's the key difference between being self-employed and being a business owner. A business has a set infrastructure, overhead costs, employees, office premises, and other such factors and an entrepreneur needs to handle all of these factors in order to be successful. Being good in a particular field doesn't guarantee business success. It provides a good foundation for the business to stand on, but doesn't guarantee any success.



A great product doesn't guarantee success


Many companies have great products, but they still can't reach the heights of success that they have the potential to. For example, an excellent fast food cafe with reasonably-priced food and great ingredients will still not be as successful as McDonald's or Taco Bell. It's not the quality of the product that hampers their success, but their marketing and reach.


If the prospective customers and the target market don't know about the product, customers just won't walk through the door. If there are no customers, there's no cash flow or profit. Excellent marketing programs and good branding is essential for success in the modern business world.


Passion and enthusiasm


New entrepreneurs are very passionate and enthusiastic about their products or services. They believe in their work and that customers will be equally impressed. While this passion and enthusiasm does help keep an entrepreneur on track and stops them from giving up, they alone can't lead a business to success.


Passion and enthusiasm are the motivating forces that keep business owners going when the business isn't successful but that's not enough. There are a number of other factors that contribute to their success such as marketing, cash flow, and profits. If these factors aren't in place, passion and enthusiasm won't help the business survive.


The formula


Cash flow and profits are the bare bones of a business venture, the most essential and fundamental aspects that help a business survive in the competitive world. Entrepreneurs need to keep an eye on these two factors for as long as they run the business. A successful establishment will have a good balance between cash flow and profits.


This formula helps businesses determine their levels of success based on the correlation between profits and cash flow. Cash flow multiplied by profits equals a healthy and thriving business. For example, if you rate cash flow at 10 and profits at 1, the result is still 10 and not 100. This means the business isn’t thriving and needs a boost. If you rate cash flow at 1 and profits at 10, the result is the same.


A good balance between profits and cash flow helps a business thrive for a long time and provides the foundation for business growth.


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