Why Do Start-ups Blowup?

As many of us remember being taught about the ancient merchants and traders way back in high school. Those were the days when everyone was a business person. It was rare to see someone working as an employee. It was either you were a merchant or a poor widowed women with 6 six bastard children; who stole bread and eventually got their figures chopped off as punishment…*ahem* – Starting a business was easy back then; all you needed was a product and a spot at the market place. Everyone’s product was different and everyone made money nothing was too difficult.

Now business has become much more difficult due to the high increase of competitors who were not necessarily there in the 1500’s. The amount of competitors they had around back then were maximum two; even then they weren’t really competitors because they were selling just the right quantity of goods. Let’s say they were selling bread, two people selling bread for an entire city’s population? They probably ran out of stock half-way through the day; and I’m talking about both bread sellers. Now-a-days, the percentages of surviving small businesses are:

 

  • 40% survive for 1 year
  • 80% fail within 5 years

Those stats are base on 1000 businesses.

In total only 4% of Canadian businesses last after 10 years which is amazingly low.

Analysis’ noticed that businesses with 1-4 employees had a teeny-tiny higher successful rate. Bizarre isn’t it?

To increase your knowledge on this subject  I’ve created a post on the top reasons businesses tend fail (which is an after post of  Mandatory Start-up Business Pointers).

Hope you enjoy!

1.Start and be business oriented

There are a percentage of people who create businesses that barely bring in a revenue. They do it due to strong passions and dedicated beliefs. Those business people have business plans that normally don’t focus on income but focuses on getting themselves out there. Without an income the business will never stay up, if your main objective isn’t to make money then you need to make a plan that will get investors or donators or even members. Great example of companies who planned for a low or no profit organization is Costco. They set a membership fee. They have a personal and business memberships for $55 and they have a premium membership for $110. This will cover any extra cost as well as possibly give a 2% ROI to the premium members. Quite intelligent isn’t it? The clients save and the company doesn’t lose any money.. both sides are happy.

2.Start it for the right reasons:

After explaining why you shouldn’t make a business without there being a point of revenuedon’t just consider the income. If you’re going to have a business – create a business revolving around the things you love. If you love fine cuisine, open a fancy restaurant, if you have a passion for investing open a stock brokers company, if you’re obsessed with art – open a gallery or run a photography business. Don’t invest your time into something you’re not interested in because you’ll most likely lose interest, inspiration, and motivation. You’ll end up wanting to something you actually want to do. Never forget that start-up years are the years you will most likely be working up to 70-80 hours a week because you’re under staffed and have piles of work to do. The first year is always a learning experience. Also, it’s when you will make loads of newbie mistakes therefore you’ll need time to fix all of them, you need to able to sacrifice your time and not feel as if it’s worth nothing.

Horrible/No Market Research:

People who don’t check out their competition end up being SQUASHED by their competition. Make sure to set two evenings a side at the end of every week to research your competition and write a full monthly report on what they’re doing. A few things to look for:

  • If they’re switching/opening new location(s)
  • New high-ranked employees
  • New products
  • New pricing
  • Newborn companies in the industry/field
  • Read their blogs
  • Find out their discounts, contests, freebies
  • Their advertising methods/strategies
  • Who their wholesalers are (could be an economically beneficial)

Anything else you need to be a top-level competitor to them – look it up. For example take Canadian Banks and their client base:

  • Toronto- Dominican = 19 million
  • RBC= 18 million
  • TD= 11 million
  • CIBC= 9 million
  • BMO= 7 million
  • Desjardins= 75 000 clients..

Let’s say you’re Desjardin, you need to figure out why you’re not as good as BMO, once you’ve figured out why start working towards it. Once that’s done, figure out why you’re not as good as CIBC… and the list goes on. Desjardins is actually the most beneficial out of them all; with low rates, flexible loans etc. They’re a non-profit organization, which explains everything. They don’t have the budget to market like the other banks have – therefore no one knows this information.. That’s why they’re at the bottom.

Lack of Planning:

Many businesses fail to create a business plan and financial report. These reports will help you plan for future advancement. Once you’re company begins to roll – things will become hectic and you won’t have time for them. Not only that but because a system wasn’t created or planned for every level of growth things will be unorganized and become a mess. It usually makes it very hard to fix and/or organize. When these become hectic and all over the place, the things you did want to monitor during the project will be forgotten; which can result in everything messing up – permanently. A good example is the bridge photo. It shows bad planning and for a million dollars project – they were most likely sued.If you want to see really funny photos of companies terrible planning click the link:

Epic Planning Fails (click link)

Insufficient Capital:

So many people have made this mistake; including myself. If your company is small it still needs a small company loan. If you have the money already – fine, if not, do yourself a favor and take a loan out. You don’t need a massive amount just enough to cover your expenses until it makes its point of profit or revenue. For small businesses it’s usually in the first  3 months – year. I run a small business in which I didn’t think needed any kind of investment but soon after found out I did. When you run out of funds and rely on the company’s revenue. Since the business is new the revenue is relatively  low, therefore you’ll begin to be  desperate for sales that way you can cover your expenses. You’ll become a pushy salesperson, you don’t have enough money to spend on mandatory  equipment, material,  marketing nor advertise; which will make obtaining in clients much harder. Take a loan it’ll be worth it. Just make sure your company is incorporated.

If your company is incorporated it will allow you to take as many loans as you like and not be personally responsible for it. Which means if your company ends up failing and going into bankruptcy you’re personal credit will not be held accountable. Where as a sole proprietorship (normally small restaurants, corners stores, etc) those companies usually aren’t incorporated and end up being held accountable of the losses and go through a personal bankruptcy.

Location:

______________________________

Ever seen an abandoned restaurantor gas station in the middle of nowhere? It’s called location. Just because the property is cheap doesn’t mean it’s a good spot for your target. Don’t make it too far from you target. Figure out where your target is and set up there!

                                    NO WEBSITE?!

Every business should have a website without it you don’t exist on the internet. Even if you do have a review on a blog or on search page without a website your clients will prefer your competitor due to the fact their website actually elaborates on their services, rates and display photos etc… To the client – they’re more developed than you are therefore they are the better choice.

The owner is ‘difficult’:

Last but not least, many people who have this problem don’t notice it and it yet it’s obvious to the people around them.  When starting a business keep in mind that, just because you’ve become a business owner it doesn’t mean you’re all of a sudden a worshiped figure whom everyone loves and admires no matter what you do or say. You won’t earn a great respect nor will you earn fans instantly.. Especially if you’re not a big buyer or spender . If you can afford to lay down 6.6 million for a purchase order then perhaps you’ll begin noticing sales people lining up excitingly waiting to give you exactly what you want – all for just a bit of your attention or opportunity. If you’re a spender and can afford to give out 6.6 million of freebies to your clients; It’ll definitely make them happy. In fact, they will be so happy you’ll have clients spreading the word about how great you are and selling your company/product for you! They’ll do all of this while you have the great privilege of being a jerk, why? Because money helps by allowing you to:

  1. Hire a customer service team who will deal with your clients in a pleasant manner which helps hide you’re rude and intolerable personality and attitude  from your client base..
  2. The sales people want a cut of that 6.6 million purchase, they’ll do anything for that commission. As well as any other order you request in the future.

Even if you do have money don’t be a jerk because no one will want to work with you, no one will want to pay you for a service considering your negative attitude not only that but no one will out of their way for a jerk… would you? Make sure you’re clients and employees/suppliers are taking care, even if you have money; you’ll earn more success and respect this way.

To end this post, I’m sure there are many other points on why or how businesses fail but in my opinion these are by far the major issues.

Let me know how this post helped you and looking forward to hearing from you all!

Katie

Sponsored by: Kontego Networks Inc  The coolest internet provider in Montreal :)

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9 thoughts on “Why Do Start-ups Blowup?”

  1. Hiya, I’m really glad I’ve found this info. Today bloggers publish just about gossips and internet and this is really frustrating. A good site with interesting content, that’s what I need. Thank you for keeping this website, I will be visiting it. Do you do newsletters? Can’t find it.

  2. This was very interesting. I’ve never wanted to sell anything more than creativity and ideas but never really understood why everyone (including myself) found it so difficult to get off the ground– or why we saw a lot of friends start a business only to see it fail so soon afterward.

  3. Hi Posky,
    I thought the same way until I began my own business. It’s something we can never fully understand even after school, until we experience it ourselves. We learn from our mistakes and even other people’s mistakes. But some mistakes aren’t seen and are extremely hard to comprend like the ”jerk” category, not everyone knows they’re being a jerk; do you agree?

    What is your business about?

    Thanks for reading!
    Katie

  4. Very nice post… although most of what you have said is intuitive and seems common sense, each one of those points are very easy to forget. I liked your 2nd point best – Start it for the right reason… I feel most people go wrong there.

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