According to Forbes magazine, 80 percent of businesses fail within the first 18 months. Most of these failure reasons are related to poor financial, operational and market research, planning and management. Here are three potential problems that every entrepreneur can avoid by following the advice below.
All profit, non-profit and public organizations must continually keep costs under control for smooth and successful operations. Increasing revenue over costs is no easy matter because of the law of cause and effect. For example, an entrepreneur may over staff their new business to provide better customer service, but labor costs will quickly consume incoming revenue. Business expenses should be logically justifiable.
Keep in mind that there are certain business services that are recommended because they minimize and manage risks. This includes outsourcing business functions like accounting, web design, market research, and human resources. It also includes seeking advice from business consultants and commercial litigation lawyers.
When an over-enthusiastic entrepreneur launches their business before they have secured enough capital for potential setbacks, they may be setting themselves up for failure. Entrepreneurs should ideally have enough cash or liquefiable assets available to meet their financial obligations during months of low profit and business success.
Predicting and measuring profitability may sound difficult, but it is possible through accounting analytical tools such as segment profit, comparative expenses, gross profit margin, and net profit margin. Smart business owners who regularly analyze and predict their profitability will become more financially savvy and more cautious of risks.
Revalue the Value Proposition
Every business offers value to customers through their products and services. The value proposition will identify the benefits, explain the problem solving and justify the superiority over competitors. In other words, it specifies the quantified value, the relevancy and the unique differentiation.
All of this relates to price structure, internal costs, marketing message, competitor performance and customer lifetime value. The best value propositions expressed through advertising materials will be concisely understandable in a few seconds. They will clearly communicate the advantages, concrete results, and market differentiation.
In addition to these avoidable problems above, it’s highly recommended for entrepreneurs to create and stick to their exit strategies. If a business project isn’t working or if a new product or service isn’t catching on, entrepreneurs should avoid the so-called sunk cost fallacy. This occurs when people keep continuing after failure because they have already invested significant time and resources.