7 Reasons Startups Fail Within The First Year

7 Reasons Startups Fail Within The First Year

ENTERPRISE54 – We hear many statistics about small businesses often, especially about their failure rate within the first three years. Those statistics have become very personal to me due to the fact that my small business struggled a lot last year and almost closed. I have also encountered at least three young entrepreneurs that I

ENTERPRISE54 – We hear many statistics about small businesses often, especially about their failure rate within the first three years. Those statistics have become very personal to me due to the fact that my small business struggled a lot last year and almost closed. I have also encountered at least three young entrepreneurs that I know, who have closed their businesses over the last year – and their businesses were less than a year old. Through personal experience and the experience of those around me; that statistic becomes very personal. Today I want to focus on seven main reasons why small businesses fail within the first year. I believe that knowing the reason why, will help small business owners avoid most of these pitfalls and keep their small businesses going, and it time, successful.Business closed sign

1.Underestimating capital requirements

A lot of small business start-ups don’t think that having a business plan is necessary, however; it’s imperative to write one, especially when starting your small business. A business plan not only helps you put down your business idea on paper and how it will be executed; it also helps you know the capital requirements required to start and run your business for at least six months. Some start-up owners get so excited about starting their small business that they don’t sit down to write the actual required cost of starting their business. They tend to find out when it’s too late and the business is failing already. Make sure you have a business plan for your small business if you don’t already have one or if you want to start your business.

Budget for your start-up accurately

2. Poor business store location

This is one reason I can testify to personally; especially when it comes to researching whether a specific location will match the products or services that you offer. It can be a great high traffic area, but your business may not do well because you do not offer what the customers in that area want or require. It’s necessary to always do product and market research in the area you want to start your business to see if your business has a fighting chance. If it does not, don’t start your business in that location; no matter how good the shop or area looks. Just be patient and keep looking for a better location for your business.

3. Poor Management of Business

This is a major cause of small business closure in Kenya; a small business owner may be very motivated and have qualities of an entrepreneur; however, you also need to have management skills to run your business as well. The day to day operations of a small business require knowledge on how to manage different aspects of your business e.g. cash flow management, how to hire employees, how to choose vendors, etc. It’s necessary for small business owners to either acquire basic management skills or to either partner or hire a  person who has the management skills required. This might not seem necessary to a start-up owner at the beginning; but trust me, it’s very necessary for your business to stay open in the long run. A great website for resources on running your small business is Kuza Biashara, they have blog posts and ‘How-To’ videos that assist small business owners in Kenya.

4. Lack of Creativity and Innovation

Whatever product or service your business offers, make sure you’re always innovating it. Every successful company has gotten there because they are constantly being creative and innovating in their business. A great example of innovation and creativity is a Kenyan company that manufactures energy saving jikos – Cookswell. They originally just sold jikos and charcoal ovens; but in time, they added barbeques to their product list. They then started creating barbeques in animal shapes such as boars or ostriches. This kind of creativity and innovation keeps your customers coming back and loyal to your brand since they’re curious as to what you will do next.

The Cookswell Animal BBQs - Great creativity & innovation!

5. Poor Control of Expenditure

This is another major reason for small business closure, especially in Kenya. A small business could be bringing in revenue but if the owner does not have control over the expenditure of the business cash; the business could close in time. A major problem for the small businesses is also the mixing up of personal and business finances. It’s good to ensure that as a small business owner you separate your personal finances from your business finances. It’s also necessary for a small business owner to ensure that they are tracking all their business expenditures by keeping all the necessary accounting records necessary.

6. Theft, Fraud, Fire and Natural Disasters

Unfortunately for a small business other factors that may be beyond your control can lead to the closure of your business. The best way to avoid such factors or at least to survive them is by getting small business insurance. Insurance can cover you when either theft, fraud, fire and natural disaster strikes. Make sure you understand your small business insurance policy very well, get the insurance agent to explain to you what it really covers and what it doesn’t to avoid any misunderstanding. Small business owners tend to think that they don’t need insurance since they have small business; however, since there are things you cannot have control over; it’s better to be prepared instead.

Theft can occur in your small busines (Image: uca.org)

7. Poor or no marketing plan

This may seem obvious but I have noticed some small business owners seem to ignore this aspect of their business. Marketing is an activity that never stops as long as your business is open – I mean, look at Coca Cola, they have never stopped marketing and they are such a large international company. Marketing is what brings in sales into your small business; therefore, you should always ensure you have a marketing plan in place. Other small businesses also have a marketing plan, but it’s either very weak or not effective. In this day and age of social media and online search; you need to make sure that your business’ presence is felt. It is a very competitive business market out there in any industry and your competitor is probably still marketing to your target market whether you are or not.

Baking Class Poster - Never stop marketing your biz

I hope this seven points have helped you, as a small business owner, realize where your problem points could be and avoid business closure or failure in the future. If you have any other points you would like to share that can also cause business failure; please feel free to comment below.

Editor’s Note: This post was contributed by Kenyan Trep Lady

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