Question

consider the four major reasons for new bussiness failure . What actions can enterpreneurs take to minimize or to avoid each cause of failure?

Answer 1

The four major reasons for the new business failure are the lack of managerial & business competence, lack of sufficient funds in terms of demand, wrong business ideas and weak implementation of business model among the other. Though, entrepreneurs can take important initiatives to prevent or minimize the reasons of failure.

The first reason is lack of managerial & business competence and this reason can be avoided, by building a team of experts or individuals that own the good knowledge, past experience in the same business domain and or competencies to deal with the problems arising in this business. It can be done by deploying consultants from outside also, depending upon the requirement of expertise. It will help entrepreneur to act proactively so that issues are resolved before becoming major concerns for the business.

The second reason is lack of sufficient funds. This reason can be prevented, by proper planning and estimation of different types of fixed, variable, and overhead cost to be incurred over a considerable period before the business starts generating revenue. It should be a very realistic estimation. Afterwards, there should be confirmed arrangement of funds either by self equity, funds from family, relatives and friend, or financial support from banks or capital support by Angel investors  / venture capitalists. It will maintain a smooth supply to funds to meet different expenses and prevent demotivation and high turnover among the employees.

The third reason is wrong business ideas in terms of demand. It can be prevented by proper demand analysis, demand forecasting as well as demand and supply gap so that business idea works and its commercial production is used to cater the demand. It ensures that target audience gets the product that can cater their demand and it is the outcome of the business idea.

The fourth reason is weak implementation of business model. Even if entrepreneur has everything right on paper, but not implemented properly, then business model is not successful and businesses fail. Hence, the entrepreneur should make each and every step with due care and determination to implement it properly. Besides, proper control and monitory such as regular variance analysis or redefining the goals are very important. If these actions are taken by the entrepreneurs, then business failure can be prevented.