According to GEM survey of 2012, which included 198,000 participants among 69 countries, the highest numbers of entrepreneurs worldwide are for age group between 25-34 years olds. These young entrepreneurs enjoy good education level and have positive expectations for their future. They their homework well, and become ready for their new venture. They discuss their ideas with friends and once they get positive comments, they decide to start their business. So far, things look promising. However, at this stage many entrepreneurs fail because they neglect many other causes. I call these causes external causes because they are outside the personality of the person. These are causes determined by outside factors and are related to market conditions, cash level, business concept, and planning. There are many causes for failure and consultants are not united about them, but here I list the factors that can ruin the business from the start.
Major external causes for entrepreneurial failure:
1-No business plan: Numerous studies show the direct link between lack of written business plans and high failure rate for small businesses in the US. Writing a business plan is the most essential step for entrepreneurs, and without it, the project is more like a dream which makes it a must. A Business plan is like setting up a goal. A goal must be written as SMART, and so is the business plan, but with more details. The business plan must include the mission, vision and values. Remember that not all business plans work. However, a comprehensive & detailed business plan, although can be lengthy, is worth the effort because it can save a lot of unnecessary future steps, which will ultimately save money. Your map for your entrepreneurship trip lies in the business plan.
2-Lack of cash: A revolutionary idea can not be implemented without enough cash. Cash or capital is needed for starting and continuing any project, and the needed cash amount is variable, depending on many factors such as the size and nature of the venture. Clearly a factory which requires a lot of machinery is different in cash requirement from a website that is targeting local target customers. Cash is needed from the start for operational activities including rents, marketing, licence fees, and other operational costs. As a rule of thumb, entrepreneurs need cash that can cover operational costs for at least 6 months.
3-Lack of financial discipline: Most entrepreneurs spend money on impulse. Some entrepreneurs tend to over spend. Over spending is a significant cause for start up failure, according to many studies. Brian Tracy and other top experts talk about the importance of starting any business with a cost-saving approach. Another problem is spending on unnecessary items. Instead of allocating major spending on marketing and operation, many entrepreneurs spend on unimportant items. Another negative tendency, when the project starts to generate cash, some entrepreneurs spend that cash on personal things rather than allocating that cash for future business operations, including emergency reserve. All of these behaviors can ruin the business.
4-Lack of feedback: Market conditions and competition behavior changes. There is always something new about business whether it is new competing products, customer responses, changes in prices, recession..etc. Entrepreneurs need to have the right feedback mechanism in order to measure and change according to those variables. Feedback can be the GPS for future changes.
I understand there are other factors that can ruin any business such as recession, natural disasters, wars…etc. However, successful entrepreneurs encountered some of these causes, yet they managed to succeed. One classic example is the story of Soichiro Honda, the founder of Honda Motors.
Entrepreneurs can succeed but only if they recognize and avoid the causes of failure.
There is More to Come