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Seven Reasons Why Start-Up Businesses Fail in the First Two Years

Research has shown that over half of start-up businesses fail in the first few years of operation, and here are seven common reasons why.

1: No Competitive Advantage

When you decide to set up a business you do so primarily to make a living. You choose your particular business because you believe that there is a market waiting to be tapped. Too many start-up businesses go into a market without realising that there are established operators in that sector, and therefore they have no advantage over their rivals.

How often do we see someone set up a particular type of shop, dismissing the fact that there is already one – or more – in the same town? This is a common mistake, and one that should be avoided. Look for something that is not already there, and that customers want.

2: Being Too Specialised

It’s all very well believing you have found a niche market – and many have – but does that niche offer the potential to keep a business afloat? If the customer base is too select you have no opportunity to grow, and you will undoubtedly strike problems very quickly.

Too often people come across a market that is not represented in their chosen area, and seeing a gap in the market, plunge into it. What you have to consider is why that market was not represented in the first instance; there is a strong likelihood that demand was – and is – non-existent.

3: Over-ambition

Running before you have learned to crawl is a common failure in start up businesses. Things may look rosy from the outset, but expanding too quickly is a suicidal move. Growing a business requires time and investment, and no matter how good your forecasts are you should not assume they will expand exponentially. There is only so much custom to be had, so make sure you corner a sensible chunk of the market before committing to more expenditure.

4: A Lack of Research

This is perhaps one of the most common reasons why start-ups fail quickly. You think you have a fantastic idea that is going to be a great success, and all your friends and family have told you so. The problem is simple: your friends and family make up only a small proportion of your potential customers, and do so because of their personal connection. It is not they you need to canvass for an insight, but people removed from your immediate personal space. Poor research – believing that there is a market when there is not – is a major mistake.

5: Poor Management

Put simply, are you the man for the job? You have this great idea, you have researched it well, you have a brilliant business plan and you are ready to go. Sometimes, however, you might find that your management skills are sorely lacking. Pride gets dented very easily, yet your business is not a vanity project. Don’t be afraid to let someone else man the controls, it may be the best thing you ever do.

6: A Lack of Investment

We all want to keep expenditure to a minimum – quite naturally – but sometimes this can lead to cutting corners initially. The perfect example is that of a retail outlet that spends only the bare minimum on stock, in order to ‘see if people will come in’. They will, out of interest, but when they see that what they want is not there, they won’t come back. Make sure you have the right level of investment, or it is wasted money.

7: Taking on the Big Boys

Sometimes an entrepreneur will believe that by undercutting already established market players he can take business away from them. Never underestimate the power of the bigger players in the market when it comes to taking them on. Put it this way – whose business are the suppliers going to want to keep, theirs, or yours?

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