Prevent Business Failure for Your New Startup
Starting a new business is exciting. You have the chance to be your own boss, do what you love, and create a sense of stability for your future. But without proper planning, your new venture might suffer small business failure.
According to Forbes.com and the Small Business Administration (SBA), 90% of startups will fail. With such bleak statistics, it is important to make good decisions about your new business venture so that you are in the 10% of startups that succeed.
Reasons for Small Business Failure
Surveys of small business owners reveal common reasons for small business failure, which include:
- Ran Out of Money. Running out of money is a symptom of a bigger problem. The money ran out because it stopped coming in, or never came in in the first place. This could be due to poorly managed costs, because sales were not high enough, or an inability to obtain financing. Running out of money is obviously a bad thing, but it also exposes you to personal liability by creditors.
- Wrong Market. To be successful, your startup must meet the needs of a specific target market. Trying to target ‘everyone’ or ‘everyone in your town’ simply will not work. To succeed in business, you need a narrowly defined niche so you can effectively market your services to the right audience.
- Lack of Research. You need to know what your customers want. Too many startups fail because business owners think they have a great product or service without realizing that too few people actually want their service or product. By doing your market research, you will know and understand what your customers want, and how much they are willing to pay.
- Bad Partnership. Many people go into business with a partner. Maybe your partner will help finance the business, or perhaps one of you is an expert in one area and the other is an expert in another. But you will have different ideas about the business. Without a clear plan and a way to resolve your differences, the partnership will dissolve. With a clear business plan, you can avoid many of these conflicts before they arise.
- Poor Marketing. Most business owners know their craft, but may not be adept at marketing. Avoid this small business pitfall by hiring out that aspect of your business. It costs money up front, but when done right you will bring in far more than you spend.
How to Avoid Small Business Failure
To avoid small business failure, there are key points to consider when starting a business.
- Set Goals. Know where you want to be, when you want to be there, and have a plan to make it happen.
- Have a Plan. A sound business plan will address financing, product rollout, and management issues, as well as identify the opportunity you are pursuing, your competition, and the risks and rewards. It will serve as a road map for owners and employees, and will help organize your thoughts as you move forward. While you can do your own business plan, there are other resources that can help such as your local SBA or SCORE
- Create a Board of Advisors. A business should have, at minimum, a trusted attorney, business consultant, and CPA. They can act as a sounding board to help you limit unnecessary expenditures, minimize risk, and improve efficiencies. That said, these things cost money. As such, you still need to do your homework and use such resources efficiently. Additional valuable resources are knowledgeable small business bankers, real estate agents, and insurance agents.
- Provide a Product or Service of Substance. Businesses fail when they do not solve a problem. In a Fortune magazine survey of failed business owners, 42% identified “lack of market need for their product” as the single biggest reason for failure. If you’re going to invest time and money in your product, make sure it’s the right product, for the right market, at the right time.
Fremstad Law. Moving Your Business Forward.
Entrepreneurs get caught up in the excitement of launching a new business. But without proper planning and risk assessment, a new venture can easily fall into the 90% of startups that fail. To minimize the risk of failure and protect against the perils of doing business, it’s important that you take precautions to protect your business, have an exit strategy, and protect yourself as your venture grows and evolves. Working with an experienced lawyer when starting a new business can help you select the right entity, ensure compliance with the law, minimize the risk of liability, and protect you against being sued.
At Fremstad Law, our experienced lawyers have helped hundreds of businesses, from start-ups to established companies, that have faced challenges involving business formation, employment issues, mergers and acquisitions, contracts, collections, and litigation.
If you are starting a business, put the experience of our lawyers to work for you to avoid mistakes that other business owners have made. Our lawyers frequently work with new business owners. We will help you plan and avoid costly and time-consuming mistakes so your business can succeed.
At Fremstad Law, our mission is to move our clients forward. If you are starting a new business in North Dakota or Minnesota, Joel Fremstad is here to help. Learn more about our business law services, and contact us today to schedule a meeting to discuss your business needs.