Starting a small business might be the ultimate life goal for many, but the reality is often harsh. After all, 22% fail in the first year and 50% within five years. Nonetheless, the reasons often come down to avoidable mistakes, such as poor cash flow, lack of strategy, or misunderstanding of the market. Reduce the risks and even avoid the most common pitfalls of small business failure as you set it up for success with the help of this guide!
1. Over-Romanticizing Your Business
Passion fuels the start, but successful businesses run on data and strategy. It’s not inherently bad to dream big for your business, as its success can also help complete life goals. However, keeping your head in the clouds may do more harm than good.
Remember, treat your business like a business. Track finances, set up processes, and make decisions based on metrics. Avoid finalizing choices based on emotions, as doing so can aid in the development of a system for evaluating success and adjusting strategies based on real performance.
Take for example Quirky, a startup with crowdsourced inventions. Although it showed promise, the company ignored unit economics, burning $185 million and filed for bankruptcy in September 2015.
With that, remember the following statement by businessman, inventor, and investor of Apple Inc., Steve Jobs:
“You can’t just ask customers what they want and then try to give that to them… By the time you get it built, they’ll want something new.”
It's okay to have big dreams for your business. However, remember to stay grounded and focus on realistic strategies and tangible goals.
2. Misunderstanding the Customer’s Problem
Put yourself in the shoes of your potential customers. That way, you, as a business owner, can solve problems that people are willing to pay for. Note that misunderstanding customer needs can lead to a fatal blind spot.
One example is Quibi, a short-form streaming platform that shut down six months after its launch date. The Netflix competitor failed to meet subscriber goals and has to close down its business after investing almost $2 billion into it. One of the reasons for Quibi’s closure is that its viewers didn't want to pay a premium for short-form content, especially with YouTube and TikTok already dominating this niche.
A business’ closure can be the ultimate result for failing to notice customer needs. Other consequences can also appear before this conclusive end, which include wasted resources, lost trust, and missed opportunities.
As a business owner, consider conducting customer interviews and market research to pinpoint pain points. The insights acquired from these tasks can help you develop a clear value proposition, resulting in a strong understanding of your target market’s needs.
3. Ignoring the Competition
An increase in sales isn’t the only metric to look into to check if a product is good or not. Additionally, a high-selling product shouldn’t indicate that you’re doing better than the competition. Remember, ignoring rivals can be fatal for a business.
One famous (or infamous) example is Blockbuster, which dismissed Netflix's DVD-by-mail model. As most people know, the latter turned into a giant online streaming platform for various media. Since Netflix decided to evolve its business venture, it led to Blockbuster's tragic 2010 bankruptcy.
As Chinese military general, strategist, and philosopher Sun Tzu once said:
“Know thy enemy and know yourself; in a hundred battles, you will never be defeated.”
Remember, complacency is often seen as a drug that blinds businesses from shifting trends and failing to meet customer needs. With that, thriving in the market, particularly your chosen niche, is possible by using different techniques, such as the following:
- Analyze rivals holistically. Track prices, brands, and customer paint points.
- Differentiate from the competition boldly. Stand out from competitors by considering different elements, including affordability and humor.
- Adapt relentlessly. Never stop evolving your business model in the ever-changing world of business. Stay agile or risk irrelevance.
- Seek help. Hiring a marketing strategist or competitive analyst on Fiverr can help you identify gaps in the market and create a stronger brand presence at an affordable rate.
4. Relying on a Great Product Alone
As mentioned earlier, businesses shouldn’t rely on a single product to measure success. Also, remember that even the best product won’t succeed without visibility and credibility.
Looking back, history tells of innovative products that failed to gain traction because of reasons like complacency and poor marketing practices. One notable example is Google Glass, which seemed to be a breakthrough piece of technology at the time of its announcement.
In 2013, Google Glass flopped because of various reasons, such as unclear messaging, privacy concerns, and minimal consumer outreach. It was also a time when people were unsure of the capabilities of augmented reality (AR), leading to public woes.
Although Google Glass had the potential to become great, it didn't look good in the eyes of many potential customers. Eventually, the search engine and technology giant had to stop the product’s production in March 2023.
As a business owner, consider the following techniques to prevent overreliance on a great product and small business failure:
- Build authority. Collect testimonials and use social proof to formulate meaningful strategies.
- Invest in marketing. Use ads, storytelling, and SEO to capture the eyes, hearts, and wallets of potential buyers.
- Prioritize consumer experience. Don’t forget to provide optimal customer service experience to promote long-term customer relationships.
5. Failing to Build a Brand
Heed the following words – A company isn’t a brand, for a brand is built with intention and consistency.
Remember, failing to craft a distinct identity can render a business invisible in today’s crowded market. Founder, executive chairman, and former president and CEO of Amazon, Jeff Bezos, is widely quoted for the following statement:
“Your brand is what people say about you when you’re not in the room.”
So, innovative ideas often fade into obscurity without a cohesive voice or visual identity. But why does brand-building matter? A successful brand that dominates a particular niche can take advantage of different benefits, such as the following:
- Increased trust. Improved opportunities due to additional word-of-mouth advertising from satisfied customers.
- More networking opportunities. Turn long-term customers into brand advocates.
- Monopoly of the competition. Create a clear persona with relentless consistency.
Enjoy these benefits by defining your brand and sticking to it. For instance, have a clear and well-defined logo that'll make potential buyers immediately know about your brand with one look. Also, don't forget to deliver standout services that clearly mirror your promises and values.
6. Resistance to Change and Innovation
Bear in mind that business environments and customer preferences shift. Setting up for small business failure is possible by not adapting to the ever-changing market. So, follow and keep up with industry trends and customer feedback. Also, invest in product updates and new strategies to stay above the competition.
Remember, resisting change may result in a one-way ticket to becoming obsolete. Ask yourself if you’d like your business to be nothing more than a memory. If not, then follow these techniques to avoid this pitfall:
Listen to your customers. Gather valuable insights through surveys, reviews, and social media.
Embrace experimentation. Be on the lookout for new tools or business models and test them gradually. Also, consider implementing solutions, even if it means charging more than before.
Invest in R&D. Allocate some of your business’ resources to innovate, even if it challenges legacy systems.
7. Thinking You Know It All
Confidence is an integral element of owning and managing a small business. However, overconfidence can kill what has been built.
In particular, assuming that small businesses don’t need help can blind leaders into identifying pain points and optimal solutions. For instance, Kodak, which was once a photography titan, dismissed the idea of a digital camera in 1975. The company was trapped in the belief that “film would always dominate.”
This overconfidence and failure to adapt to newer technologies eventually lead to Kodak’s inevitable downfall. In April 2012, the photography company filed for bankruptcy protection in 2012 and exited the business world.
Reduce the risks of small business failure and the same fate as one of the large corporations of yesteryears with the help of these tips:
- Recognize when you need help. Delegate and trust experts to handle specialized tasks. Hire consultants, freelancers, and specialists outside of your expertise.
- Listen to customers. Don't forget to place feedback from potential and existing customers in high regard, as these pieces of information often reveal blind spots.
- Invest in learning. Remember, markets evolve, and so should you.
