Why Companies & Business Startups Are Failing

A business model is the method by which a company develops and creates value for its customers. It is an essential element of the company’s core strategy. However, if the business model isn’t solid or is fraught with problems, the business is inherently at risk.

Some entrepreneurs go into business because they are passionate about the product or service they want to offer. While having a passion is extremely important to making a business successful, unfortunately, passion alone isn’t enough.

Successful companies make sure they have all their ducks in a row before they ever open shop, which means the research and planning process often takes months. Here are some questions to be answered before a business is launched:

Who Are the Customers?

How Does Competition Work in the Industry?

Which Group Should They Target?

What Laws and Regulations Need to Be Followed?

Some businesses are run by individuals who have a great concept, but lack leadership skills. The following traits are often necessary to lead a company to success.

Experience and Understanding of the Business.

Ability to Think Under Pressure.

Ability to Prioritize.

Ability to Make Hard Decisions.

Ability to Inspire and Motivate.

Many businesses don’t realize how much money they really need to keep their company going. They may be wise to try “bootstrapping” their companies on a limited budget. However, successfully bootstrapping a company requires carefully monitoring finances.

Obviously, the goal of a business is to maximize sales and profits. But even then, running a profitable business does not necessarily guarantee survival. Many businesses have high sales volumes and healthy profit margins. However, problems can arise when a lot of these sales are on credit. The business must wait to get their money and some customers are likely to default on payment.

When consumers have less money to spend, businesses suffer. This creates a domino effect that touches almost every business. Recessions come and go, but particularly bad ones will be devastating and collapse many businesses in their wake. Those that survive generally find ways to operate on a leaner budget and offer value to their clients in spite of a rough economy.

Market trends often change and fads come and go. Some businesses fail to adapt to changing customer interests and expectations, which means at worst their entire line of products could become obsolete. In this case, a drastic change in the business structure and model may be necessary. But this is too often a change that many businesses are unwilling or unable to make.

Businesses are at risk from all angles here. For example, a lawsuit that ensues from a customer slipping on a floor can cripple a company, regardless of whether the business wins or loses. Or a business may be shut down for violating government statutes, such as health code violations or SEC regulations.

Businesses are also vulnerable to changing government regulations. If the government decides to be stricter about certain practices, they may enact policies that will increase the costs for many businesses. These practices are not intended to drive companies out of business and most will survive just fine.