Entrepreneurial dreams are what drive America forward. But many people learn the hard way through trial and error that running a business is not as easy as dreaming about it. Like a game of musical chairs, players come and go, so business survival is not as predictable as some may imagine. In fact, most startups collapse or become financially-strangled within a few years while only the most resilient companies grow and thrive.
Competition Weeds Out Weakness
One of the top reasons most new businesses usually go out of business within a few years is a few top players take most of the market share. This situation makes it extremely difficult for new small businesses to gain a foothold in the market. That’s why prior to entering a market the entrepreneur should research where there’s demand for new competition in an industry or region.
Failing to do sufficient market research is often a recipe for business failure. The path to success is often more about discovering market holes where demand isn’t met than building a field of dreams and hoping a market will come to pay for it. By identifying market holes, a new company with enough financial backing can disrupt traditional brands. Funding, though, is usually where many startups fall short.
Financial Traps and Expanding Debt
Some people were born into wealth and are able to invest in their ideas at an early age. Most other people have to start from scratch even if they’ve built up thousands of dollars in savings. Entering a market that’s already crowded with competitors is one way to get weeded out quickly.
While it’s not wrong for businesses to borrow if they have a revenue stream to pay back the loan, startups must be very selective of how they run up debt. A company that has no plan for earning revenue but wants to experiment with a loan is in a high-risk situation.
Another way to get crushed by giant competitors who can afford mass marketing is when a startup drains too much cash on marketing without seeing a return on investment. It’s important to note that marketing campaigns must be tested, measured and refined before a firm can expect to see results. Trying to reach too many people at once can be a strain on the budget, especially if it doesn’t generate leads.
It’s typical for many young entrepreneurs to be more focused on their dreams than the financial fundamentals of running a business. Ideally, a business builds assets over time, which it can leverage for future funding of projects and new ideas. When a business is struggling month to month just to pay for the basics, it can’t build assets. Once the business becomes more of a liability than an asset, it’s time to either let go of it or commit to transforming it.
Obstacles to Business Success
– Lack of funding or access to credit
– Inexperienced management
– Not bringing anything new or unique to the market
– Supply chain disruptions
Market Challenges Keep Changing
Another hurdle for startups to jump over is the constantly changing business technology that can be expensive to keep up with. In the past decade many businesses reinvented themselves by going more digital and moving to the cloud. It elevated local businesses to become members of 24/7 global networks. But there’s always a Nextgen (IoT, 5G, etc.) designed to outdo current technology. Following too many trends and spending too much on cloud services can cut into profits, so it’s important to think about cost efficiency for a technology budget.
Keeping up with new technology are just of one of several market challenges an entrepreneur must face. Management and strategic planning decisions come into play as well. A big question is: does the company have the talent to deliver quality products or services? Whether it’s design or sales talent, it takes people to bring revenue to the company. Other challenges are meeting expectations of consumers and the broader community, such as going more “green.”
The path to becoming a successful entrepreneur usually involves learning through experience as well as deep research. It may take many years for a new idea to catch on, meanwhile tapping into under-served markets is the key to faster business success. Use of the right digital tools along with creative strategic planning can help a rising business outshine competitors.