Why New Business Start-Ups Fail - Essay Example

Management Skills and Entrepreneurship Management skills and entrepreneurship Why new business start-ups fail a. Adoption of poor market strategies in a business plan. Failure by most business start-ups has been largely attributed to the unavailability of proper market strategies by the owners. When establishing a business, it is critical that one develops a strategy that would propel the business into profitable states in the future. For start-ups businesses, owners fail by only focusing on the products and not on future prospects of the market. A good market strategy, when adopted by business start-up, will enable them to plan appropriately for the future. Failing to observe the same would result in a business failure. However, a marketing strategy if designed and not put into practice would, as well, lead to the downfall of the business. Therefore, business owners and upcoming entrepreneurs should strive to implement the facets of their business plans (Feinleib 2012, p.23). b. Lack of sound business ideas A sound business idea is critical for the establishment of any business. Most business start-ups fail especially in their first year due to lack of a transformative idea that can be channeled into meaningful activity. When investors get ready to invest in a business, an area of concentration is on those entities that are scalable, and this decision is made based on the soundness of the ideas presented. This means that businesses that have a wide mandate in the market are never a viable option for potential investors. Investors always go for those businesses that are not general but specific with respect to some target market. To this extent, start-up businesses fail in the sense that there is no idea that that is specific to the businesses that are being established (Reuvid 2011, p.45). c. Inexperience of the owners For start-ups, experience is a big issue given that the business entities are still new, and with no proper market survival techniques or experience needed for their sustenance. As such, quite a number have failed, without the owners acknowledging the need to have hired appropriate personnel to bridge the skill gaps. Experience in a business entity has all to do with knowing the right forecasting methods, cost structures and resource utilization. In this sense, it becomes possible for businesses to engage in risky affairs that can lead to failure, and without adequate experience, will likely fail. Upcoming businesses should learn from failures of the former and realise that the short period served in the market is as a result of having no experience in a particular line of business (Smith 2012, p.10). d. Improper management Poor management strategies employed by a new business is likely to cause its failure in the sense that the form of input put into the business may not be of the right form. Good management strategies can be very beneficial to a business. However, recruitment and selection of the management processes may pose challenges. As a management strategy, there can be a wrong strategy in the sense that those not eligible can be hired. Consequently, leadership structure as a form of management may be a threat in the case of family/joint businesses. When there are confused roles and duplication, confusion in production emerges causing business owners not be able to attain the right form of growth anticipated. e. Inappropriateness in planning and budgeting Planning is a critical aspect to any business and approaching business without a well-organized plan is disastrous, a trap to which most start-ups have fallen. Planning for the future shows the desire to remain relevant in the market for the longest time. Business start-ups fail because there is no proper planning (Smith 2012, p.10). A budget plan is essential for a new business as it will reflect its financial needs. Without planning, the business is bound to go through difficult sessions. Drawing up of action plans for any eventualities in business should be able to indicate to the owners whether the set goals will be attained. Consequently, budgets are essential in the sense that they form the basis for resources utilisation. When they fail to plan, issues such as financial constraints can push the business out of operations. However, with proper planning action plans become ready for implementation in case of eventualities (Cohen 2010, p.13). f. Poor choice for business locations Choice of business location is a key ingredient to the success of a business. Some locations may not be suitable for business, and entrepreneurs err in settling in such areas. In a marketing mix, location is one of the greatest aspects relating to the customers. When a business is not at an appropriate location, the customers find it difficult to gain access to the business; thus, becoming irrelevant to the business. The Importance of sound business model A sound business model is important to a business start-up in the sense that it gives a determination as to how the entity intends to collect its revenues. This is because new businesses depend on the revenues in order to expand and keep track of their operations. Consequently, through the sound model, the business is able to note how the revenues are to be spent based on the needs of the entity. In some instances, a proper model is one that outlines the basis over which revenue is collected. A business entity can generate revenue through a number of ways. However, a proper plan is necessary in order to come up steps that are necessary for the business to ensure that no revenue is lost. Some businesses have failed because of improper models for revenue collection (Business, 2003. p.128). In the second instance, a sound business model is critical to a new business start-up in the sense that it helps in establishing partnerships and drawing investors to the business. No one would want to partner or invest in a business that has no proper channels of operation or concepts of attaining its set objectives. Investors are ever concerned about the viability of the business and the profiling. When there is a business model, it becomes relatively easier to explain the structure of the business and the different structures therein so as to provide an investor with the basis upon which to better understand the business and its operations (Jansen et al., 2007. p.34). Areas of concern to partners and investors may include the equity turnover of the business and the versatility of the business programmes. Supposing that there is no appropriate and attainable business model, a potential partner or investor might think otherwise about engaging their funds into the business. Another importance of a business model is in line with the acceptance of the understanding that the activities of the business may sometimes be critical in the establishment of the extent to which the company can go. The operations of an enterprise can only be drawn clearly through a model. This in essence means that every detail is drafted and outlined to the extent that there is a precise indicator as to what the business intends to do. When the activities of the business are made clear, it makes it possible for a business to know the scope and limits of operations. In some instances, businesses have failed because of going beyond their prescribed limits or operating without a model (Business 2003, p128). In this regard, it is critical in making the activities of the company known to the stakeholders so that there are no mix-ups. In establishing the activities of the business, it is critical for sound business model to be established to determine the scope of operations, in so far as the activities are concerned. A sound business model is also important in the sense that it helps in establishing the target market for a new enterprise. Any business entity must have a target group in the market through which it focuses on. A business model, therefore, establishes the areas that are to be discovered in an attempt to reach potential customers in the market. In every form of market scenario that is being targeted by a business, there are a number of consumers, but, not all customers would subscribe to the merchandises or services being offered by a business. Therefore, a new business start-up would only have one practical solution which is to come up with a model that is capable of establishing the appropriate market target for the business (Watson 2005, p.28). When there is no model that establishes the correct target for the business, failures are bound to occur to the extent that the company may suffer a number of consequences. It should be distinguished that a new business start-up must have a target group in the market. For instance, an enterprise maybe established only to target low-income earners. In some instances, the middle class and the top level class. To determine correctly the target group in the market, business models are indispensable. It is, therefore, clear to note that a sound business model is critical for a new business start-up for the purpose of establishing a market target. A business model is critical in determining the sales channels for business, and a new business entity must ensure that the establishment of proper channels for the sale of its products is ensured in order for it to remain relevant in the targeted market. Case in point is that sales bring income to the business, and the absence of such an important entity can only mean failure to the enterprise. Subsequently, given that competition in the market may, in most cases, be stiff to the extent that would require a new business to come up with appropriate strategies to beat the odds. In this regard, the proprietors to the new business should be able to appropriately establish the sales channels capable of attracting consistent revenues to the business. The possibility of the same taking place is when there is an all-encompassing business model that is capable of establishing the appropriate sales market channels. Sales channels are sometimes done through the market mix strategies (Pfister et al., 2009. p.12). This, in essence, means that the price, promotion, place and product are some of the critical elements in so far as sales are concerned. In this regard, the model adopted by a new business start-up would be critical in establishing the manner in which sales channels are established. Ultimately, proper sales channels cannot be established without sound business models. The managerial skills required to break-even Management skills needed for any business entity cannot be over emphasized. In any given sphere of management, it is critical to note that an individual has to possess the right skills in order to achieve the predetermined objectives. Break-even to a business refers to a point in time in the business entity when the total costs are equal to the revenue collected. This in essence means that there is neither a loss nor a profit. Achieving a break-even point is never an easy affair for those in management as there are management skills that are required over the first two years of business start-up in order to achieve break-even business volumes. Decision-making skills are critical managerial skills that a person needs in order to achieve the break-even business volumes (Cafferky et al., 2010. p.134). In business, there are bound to be issues that require decisions to be made. A bad decision made in the business can cause the enterprise a great deal in matters such as finances, customers and business reputation. For instance, in business, there are certain activities that can be dangerous for a business entity. It is, therefore, critical for a business manager to make rapid and precise decisions that are able to save the business. Two scenarios can be eminent in so far as decision-making is concerned. A decision may be needed to save the business from making further loses or increasing the performance ratings of the business. When an accurate decision-making process is established in the business, it becomes possible to achieve a break-even a business volume. Business management skills are also essential in determining if a break-even point is realized. In achieving break-even in business volume, it is critical that proper business management skills are enhanced. One of the single most strategies critical in business is a strategy. As an entrepreneur, well-designed strategies should be commenced to guarantee that there is a level of certainty in so far as the prospects of the company are concerned. When there are no strategies that are workable for the business, the only practical end is loss. While losses are realized profits become inadequate, and this diminishes the prospects of the company in achieving break-even point (Solomon, 2008. p.10). Business functions should also be understood as appropriate. When there is a strategy aimed at achieving some ends in the business, it becomes possible to strike a balance as to the most-appropriate plan to ensure further that break-even point is realized. At the break-even point, it means that losses are controlled together with the profits. Proper management skills ensure that proper ideals in business are put into place to ensure that there are no issues in the general distribution in the business. Proper management skills entails proper establishment of strategies not to mention proper decision-making and flow of work. All these ensure that break-even is made possible in business volume. Conclusion Every business requires a sound business model in order to make sense in the market. It is, therefore, important for enterprises to come up with sound business models that are capable of producing results. Some of the areas of significance in so far as business models are concerned include the target market, revenue collection, sales channel, cost structure and resources just to mention a few. When there is a sound business model, the business is able to meet its objectives as outlined. References Business: The ultimate resource. (2003). Beijing: Citic Publishing House. 128 Cafferky, M. E., & Wentworth, J. (2010). Breakeven analysis: The definitive guide to cost-volume-profit analysis. New York: Business Expert Press. Chorafas, D. N., & Chartered Institute of Management Accountants. (2007). Strategic business planning for accountants: Methods, tools and case studies. Oxford: CIMA. Feinleib, D. (2012). Why startups fail: And how yours can succeed. New York: Apress. Jansen, W., Jägers, H. P. M., & Steenbakkers, W. (2007). New business models for the knowledge economy. Aldershot, England: Gower. Meyer, C. (2007). Entrepreneurship. Cape Town: Pearson Education South Africa. Muehlhausen, J. (2013). Business Models For Dummies. Hoboken: Wiley. Nuthall, P. L. (2010). Farm business management: The core skills. Wallingford, UK: CABI. Pfister, R. E., & Tierney, P. T. (2009). Recreation, event, and tourism businesses: Start-up and sustainable operations. Champaign, IL: Human Kinetics. Reuvid, J. (2011). Start up and run your own business: [the essential guide to planning, funding and growing your new enterprise]. London: Kogan Page. Smith, J. (2012). Smart business start-ups: Tips and techniques to start your dream business. Oxford: Infinite Ideas. Solomon, R. J. (2008). The physician manager's handbook: Essential business skills for succeeding in health care. Sudbury, Mass: Jones and Bartlett Publishers. Watson, D., & Serious Investor Groups. (2005). Business models: Investing in companies and sectors with strong competitive advantage. Petersfield [England: Harriman House Pub. Read More