No entrepreneur or business startup sets out to fail, yet in every industry, there are those companies that grow and dominate their markets, while others stagnate or ultimately fail.

2018-04 Why Do Businesses Fail to Grow?

There are many reasons why a SME will fail to grow or even fail completely, but if you don’t know what you are doing wrong, how can you fix the problem? What are some of the main reasons a business fails and how can you avoid these to develop and grow your business successfully?

Understand Lifecycles

Businesses have a lifecycle, much the same as any product does. The three lifecycle stages are start-up, growth and maturity. Each of which poses a unique set of challenges, needing different approaches at each stage to grow the business, gain and maintain market share.

For a new enterprise or start-up, the introduction stage of the cycle can be the most expensive. The costs of marketing a new business or the research, development and consumer testing of a new product can be very high. In these earlier stages, management capabilities are crucial to product success and business survival.

It’s all very well to have a great idea, or the enthusiasm to turn an interest into a business, but is it really a good opportunity? Don’t make the mistake of thinking because you have a passion for something that others will too. Are there enough people out there who want what you are offering, and for the price you are offering it at?

It’s critical to do your research before starting any new business venture to ascertain if it is a viable proposition. Develop a business plan to help focus your vision and objectives, support this with a strategy to detail how you will achieve your business goals. Do you have the necessary skills and sufficient resources to put the business plan into action?

Growing Pains

Okay, the research and planning are complete, you’ve launched your business and even established a client base. What now?

This should typically be a period characterised by a strong growth in sales and profits. The business can potentially benefit from economies of scale and an increase in overall profitability. This makes it possible to invest more in promotional activities to further maximise the growth potential at this phase.

Or not. It is also a time when many businesses flounder and aspiring entrepreneurs fail to realise their business goals. Reasons may be complex or simply due to a lack of attention but are often to do with business operations and leadership. This is perhaps due to burnout, or it can be because they were more enthusiastic about the creative side of the business but lacked the motivation and ability to undertake those other necessary and often mundane tasks.

Every aspect of running a SME is important and each functional area from marketing, sales, finance and inventory control should to be given the attention necessary for a business to thrive.

Common reasons organisations fail to grow in this crucial stage are due to one of more of the following:

Lack of time management

Spending time on critical tasks and leaving seemingly less important jobs unfinished or lacking the skills in certain areas to get the job done. Plan your day, make time to include personal development, find a couch, attend classes or study online. If you don’t have the abilities in certain areas, employ someone who does.

Poor money management

Most of your funds where invested in the business start-up or you failed to implement an adequate budget and now you have insufficient financial resources. Not having enough cash is a frequent cause of SME failures. Cashflow is critical to paying your bills and access to capital, via investors or a loan, is crucial for growing your business.

Ineffective sales and marketing

Do potential customers know what you offer and where to find you? Learn the basics, seek input from employees. If something doesn’t work, try a new tack. Social media offers a low-cost option to help raise awareness of your brand.

Bad customer service

Attracting customers is only part of the challenge, exceptional customer service is fundamental to keeping them. Losing customers through poor customer service not only loses you that customer but potentially many more through negative feedback and negative word-of- mouth. Pay attention to what your customer wants and have the inventory stock on-hand when the customer wants it. Respond to feedback, return calls and emails promptly. Identify and anticipate needs, make your customers feel valued and appreciate.

There are also external influences that can have an impact to why some SMEs grow, and others don’t. Market size, demand and competition are certainly contributing factors. Other barriers to development and growth that some small business owners fail to consider include government regulations, access to foreign markets that provide new sales channels for inventory stock, and the challenges of recruiting skilled and qualified employees.

Maturity

By the time a business has become established and reached the maturity stage, innovation is crucial to maintaining the market share already built up. Consider any product modifications, variations of inventory stock or improvements to the production process which might provide a competitive advantage.

An efficient learning organisation seizes technology, to improve business processes and inventory control. They invest in R&D innovation and employee training, and translate strategy into action by exploring new market opportunities to expand channels and improve capabilities in diverse areas.

Leading the Way

A good leader will listen and learn from others. They will build a talented and trustworthy team of employees, include staff in decision making processes, appreciate and recognise hard work and provide development and training opportunities for staff.

Passion alone is not enough. The most successful business owners and entrepreneurs follow a path of continual learning, they network, study and reach out to coaches and mentors to help improve their leadership skills.