4 Reasons Businesses Can Fail in the First Year

by Thom Tracy

2 min read

Starting a new business brings excitement and opportunity, but a small business owner should be aware of factors that can cause a startup to fail in its first year. Being familiar with these issues allows you to be fully informed to help give your business every chance of success.

Starting a Business for the Wrong Reasons

A small business can fail in the first year if it is started for the wrong reasons. If you are starting a business solely to make money or to escape an office job you loathe, reconsider your plans. If you don’t have a passion for the products and services you intend to sell, you may not have the determination, positive attitude and patience required to face the challenges and opportunities a new business presents. Conduct an extensive analysis of why you want to start a business to ensure your reasons are justified. You should have an entrepreneurial spirit, getting inspiration by finding new and innovative solutions for consumers. For example, you may learn about a new technology that drives you to develop a product in an underserviced market.

Lack the Necessary Skills and Experience

A lack of skills and experience in crucial aspects of a business such as finance, marketing and human resources can cause a startup to fail. For example, you may have a great product idea, but you lack the skill to market the product effectively. Small businesses can fail if owners don’t have the experience to identify where things are going wrong. Issues that are left unresolved can result in lost revenue, missed opportunities and possible lawsuits. You could hire independent contractors to help fill a skill void. Consult a mentor for guidance on important decisions that require practical experience.

Lack of Differentiation

Small businesses may fail in the first 12 months if they can’t differentiate themselves from their competitors. Selling generic products that don’t add value to the customer is likely to result in customers shopping with an established retailer where they can purchase a similar product at a cheaper price. For example, a customer who is shopping for general patio furniture is more likely to purchase it from a large retailer than a small business. Provide your customers with value by having expertise in a specific niche. Offer a limited line of products, and be an authority on those products. Differentiate your small business by being known as an expert in whatever you’re selling.

Lack of Capital

Starting a business can be expensive. Overlooking necessary startup costs could cause a small business to fail before it has a chance to become successful. For example, an online product seller could significantly underestimate the cost of a digital marketing campaign, resulting in limited website traffic that makes sales almost nonexistent. Consult with a business advisor and an accountant to ensure you have realistic expectations about the funding requirements to start and operate your business successfully.

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