The world of entrepreneurship is not as glamorous as most people think it is.
We only hear about success stories, but thousands of start-ups fail every year. In fact, research has it that more than 20% of start-ups do not survive beyond their first year.
While it is true that many start-ups fail every day, there are several reasons that lead to the failure of most of them.
If you talk to entrepreneurs whose businesses did not survive, you will find that they all have similar reasons for their failure.
To make sure you don’t fall into the same trap, here are five death traps that every entrepreneur must watch out for.
Not Enough Capital
Securing adequate financing is the biggest challenge for most entrepreneurs. In fact, insufficient capital is one of the top reasons businesses fail.
Business owners can get the financial stimulus they need for start-ups via several sources of funding. Each source has its pros and cons, which means you need to be careful when choosing a financing method.
Regardless of which financing source you use, it is important to have a comprehensive business proposal that highlights the growth potential in securing the financing of your start-up.
This way, you will find that it is easier and quicker to attract the funding you need to keep your business afloat.
Trying to Please Everybody
In business, you can’t please everyone. If everybody is your customer, then you have no customer.
Too often, people try to come up with a product or service targeted at the general public without thinking about who their core customers are and what they must do to please them.
It is much better to take the time to find out exactly who your customers are so that you can channel your efforts into creating the products and services that will appeal to them the most. This means creating a unique buyer persona for your customers.
Over time, when you have satisfied people that make up your core customer base, you can then decide to offer products for the masses.
Bad Financial Management
One major financial problem that threatens the health of small businesses is the loss of control over inventory, expenses and receivables.
This is a very critical area that requires very serious observation.
Bad financial management can put your business in the red long before you can discover there is a problem. When you cannot account for how you spend money in the business or forget to follow up customers for accounts receivable that are due, this can damage the financial strength of your business.
You need to manage your company’s cash flow very well, plan financing, and find new ways to raise capital for development. Then you need to carefully watch expenses, inventory and receivables so that your business stays afloat.
Another type of bad financial management is combining business accounts with personal accounts. Whether you run a single person business or have people working for you, it is imperative that your business has its own business current account separate from your personal accounts.
This clear demarcation is important for so many reasons, least of which is that you can track all cashflow in the business properly.
Chasing too Many Opportunities
As you grow your business, you’ll be tempted by the growing number of new opportunities.
You can expand your product line, expand your international business, or partner with another business. In fact, as your business grows, there will be no shortage of opportunities knocking on the door.
Unfortunately, chasing after too many opportunities will cause you to lose focus in your main business, and this can affect the success of your business.
Of course, you can always analyse new opportunities and take advantage of the ones that look good, but the key to business success is to consolidate before diversifying.
Chasing After new Customers
Lastly, losing focus on customer retention can lead to your start-up failing.
If you focus so much on leading people through the door that you neglect the ones you already have, you will fall into a trap that can kill your business.
No matter how you look at it, customer retention is better than customer acquisition.
This is not to mean that you should not try to get new customers, but while you are working hard to attract customers, be sure to also work harder to keep them.