Ten Common Small Business Mistakes

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by Jayaram V

Small businesses face many hurdles. Their failure rate is also high. It is difficult to say what is exactly the failure rate of small business one or two years after they have been started, since the statistics produced by different agencies widely vary. According to the Bureau of Labor Statistics about 40%-50% of small businesses fail after five years. According to the Forbes magazine, about 80% of them fail after 18 months.

While we cannot exactly measure the failure rate, let us acknowledge that small businesses face a lot of headwinds in the early phases of their growth. Hence, they require exceptional business and entrepreneurial skills and commonsense practices to survive and succeed especially in a free economy where customer expectations and preferences constantly keep changing.

Unless they know how to adapt, improve and innovate, they will face many hurdles and even a quick collapse. Government regulations and other macroeconomic factors such as import and export policies and overall economy can also make them vulnerable to failure and losses.

Businesses may fail for various reasons. Sometimes, they may fail due to small mistakes or even chance events, fortuitous circumstances or unexpected developments. In the following discussion we focus upon ten important reasons why small businesses fail. They are the most common ones.

1. Capital constraints: Poor cash management, inadequate capital, wasteful expenditure, lack of checks and balances, bad creditors, fraud, absence of accountability in expenditure, using business accounts for personal use are some of the common problems with small businesses.

2. Employee problems: Inadequate staffing, recruiting family, inefficient workforce, lack of discipline, inability to hire right candidates, poor working conditions, weak and uninspiring leadership, etc., are a few problems that severely undermine employee productivity, performance and motivation.

3. Competition: Small business have to compete with a variety of competition from both big and small companies. They also have to protect their skilled personnel from leaving the organization to join their competitors. Due to capital constraints, their marketing reach also remains limited. Hence, they have to work harder to establish their public image, credibility and trust.

4. Market constraints: Marketing of any product or service requires expertise and specialized skills, especially when the brand is not fully established. Small business cannot employ highly qualified and successful salespeople due to the high costs involved. They cannot also allot a lot of money for advertisement or publicity.

5. The lack of unity among stakeholders: Disputes and misunderstandings between partners and stakeholders in partnership companies and small business corporations are common, which often lead to their dissolution. If they hold different visions, opinions and ideas on how to manage the organization or the business, the business suffers due to confusion, conflicts and uncertainty.

6. Competitor activities: Small businesses are vulnerable to competition from big companies with vast resources. Amazon and Walmart are good examples of how small and local businesses can be put out of business by aggressive and predatory marketing tactics. These Companies can offer their products at cheaper and discounted rates since they can recover the losses from other revenue sources.

7. Unrealistic expectations: Many small businesses start with great hope and enthusiasm. However, that excitement tapers off as time goes by. Poor planning, failure to estimate market trends, product demand or customer expectations, setting unrealistic goals, incorrect pricing, defects in quality or service and failure to plan for contingencies, are some of the debilitating problems which many small businesses face and fail to handle.

8. Weak management: Small businesses face a number of hurdles in the early stages of their formation. They need to be run with focus, dedication and professionalism. If the management is not competent, does not have focus and proper business plan or agenda, the chances of failure are very high.

9. Government policies: Small business have to cope with government oversight, taxation, safety and environmental regulations, licensing and trading policies, union relations, minimum wage policies, employee benefits, pension funds, insurance, gender discrimination, record keeping, etc., which can make doing business in a country a hassle with too much accountability and little opportunity to grow and succeed.

10. Monopolies: In today’s world certain business and multinational companies have a huge advantage over not only their competitors but also almost every organization that depends upon Internet for marketing, commerce, communication or publicity. These Companies control the Internet traffic, decide winners and losers and manipulate user data and the market sentiment to suit their own business agendas. Small businesses have to adapt to their policies and programs and pay them for publicity or risk being downgraded or sidelined in search engine rankings and public opinion.