Mergers & Acquisitions Advisory

A Neumann & Associates, LLC

July 18, 2017

4 Reasons Why Businesses Fail

By Achim Neumann

Entrepreneurship is not an easy nut to crack. In fact, failure occurs so frequently in business, it is often celebrated for the lessons it teaches us.

That being said, it is best to learn from the mistakes of others rather than suffering the pain of making them.

In this article, we’ll discuss the most common reasons small businesses experience failure.

1) No market for their product/service

Most businesses form in response to a problem in a specific market. In some cases, though, a founder will come up with an idea for a product, and then attempt to sell it to consumers.

By inventing a solution to a problem that may not even exist, these companies often end up folding within a relatively short period of time.

Others launch their business in a market that is over-saturated with established players. Unable to out compete companies with a huge edge in capital and reputation, they end up going out of business within a few years.

When starting an enterprise, a business owner should always define their target market, and then craft a product or service around unaddressed problems.

They should also niche down until they are able to compete for customers who aren’t being adequately served by companies already in that space.

This will allow a startup to claim a piece of the pie big enough to allow them to become a leader in their chosen market.

2) They don’t listen to their customers

Some entrepreneurs make the mistake of ‘knowing’ what consumers want without asking them first. This is how many thousands of dollars are wasted by well-meaning inventors every year.

On the other hand, the smart businessperson gathers as much relevant data as possible about their target market.

They do this by combing through government statistics, conducting phone and street surveys, and consulting consumers on social media. This way, they can create a product/service that actually makes people’s lives better.

Once a business has been launched, platforms such as Facebook, Twitter, and Instagram should be used to interact with customers, and not just as a channel to market products and services.

According to experts, an 80/20 balance between engagement and promotion should be maintained.

3) They lack proper team members

In a bid to scale up their ability to reach customers, businesses will hire as quickly as possible. While speed is key in today’s marketplace, not taking the time to vet candidates can load a company down with employees who are just looking for a paycheck.

Another challenge lies in attracting ‘A’ players in the first place. When a job opening is advertised, dry job descriptions should be avoided.

Rather, emphasize the most exciting parts of a position and the company, as many talented individuals are looking for an organization that is going places.

4) The founder decides to do something else

Many business ‘failures’ have nothing to do with unmotivated employees, hyper-competitive markets, or a communication disconnect between a company and consumers.

Often, an entrepreneur will get tired of running their enterprise, or they’ll decide to pursue an opportunity in a completely different field.

Unable or unwilling to sell the company, they simply opt to complete outstanding work, sell their company’s assets, and then close up shop.  

About A Neumann & Associates, LLC

A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732-872-6777 or info@neumannassociates.com

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