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Why Businesses Fail Within the First 5 Years of Startup

If you plan to start a business any time soon, or if you already have one and are trying to learn more about success in business, then this guide is for you. We will discuss some of the prevalent reasons why businesses fail within the first 5 years of startup. This knowledge will help you avert failure and show you what is most important in your business strategy. 

Research has shown that over 20% of small businesses fail in their first year, and 50% fail within the first five years of startup. These things don’t happen by accident; there are specific actions that lead to business failure. So keep reading to learn more and increase your chances of succeeding as a business owner

Why Businesses Fail Within the First 5 Years of Startup

Here are 8 possible reasons why businesses fail within the first 5 years of startup and how to avoid them as you run your business. 

Why Businesses Fail Within the First 5 Years of Startup

Leadership Failure

Management and leadership skills are essential for the survival of any business; where these two are lacking, the company will most likely fail after a few years. This can happen in many ways; if you do not have enough experience and skills to supervise your staff, make good management decisions, and maintain your company’s vision, the business will be prone to failure.

If your business has a management team, it may also be that they are not united; they always go against each other, so a decision can not stand in the company. Also, the staff will be confused about whose instructions to follow. All these can quickly bring a business down within the first 5 years.

The best thing to do in this regard is to learn, do research and find a mentor to help you develop good management and leadership skills for the sake of your business. So, even when you have a management team, you can take charge of their affairs and teach them the right way to go. 

Marketing Mishaps

One common mistake you can make as a business owner is to think customers or clients will locate your business by themselves; it doesn’t always happen like that, especially in a saturated industry. So, if you don’t prepare adequately for the marketing needs of your business in terms of prospect reach, effective marketing strategies, accurate conversion-ratio projections and marketing capital, the business will likely not survive the first 5 years. 

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Also, the marketing cost is very high in the early stages of a business. So, if you underestimate this cost, it will be almost impossible to redirect finance from other departments to make up for the shortfall in the marketing department. So, to avoid this common mistake, take marketing seriously when starting a business and prepare for it adequately; it is one of the pillars that will make your business thrive. 

Poor Financial Management

It is possible to start a business and then, after a year, realise you didn’t make any profit. You might even lose and need to reinvest new capital in the business. This results from poor financial planning and allocation; you must know exactly where money is coming from and where it is going if you want your business to succeed. 

Also, a lack of a contingency funding plan can make companies fail; you could lose everything if you don’t have any spare money to invest when the business desperately needs more funding. It is okay to start a company to make money, but you must also use the proper accounting practices, learn to manage cash flow, expenses, taxes, and other financial issues, or, better still, hire an accountant who can do these things for you. 

Why Businesses Fail Within the First 5 Years of Startup

Inability to Meet the Needs of the Customer

Another valid reason why businesses fail within the first 5 years of startup is neglecting customer feedback and not staying in touch with their needs. As you start your business, people will try your product or services; some may like it, and some may not. The only way to know this is by paying attention to their reviews and feedback.

If many people complain about the same thing, but you ignore them, they will find another business that cares about their needs. So, it is important to do market research, learn about your competitors, read reviews, and keep an eye on new market trends and interests.

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Also, ask questions like: What do people think of your products or services? Is your market declining? Are people still interested in what you are offering? What is the current market trend in your industry? These essential questions will help you know if your business offer is still up to standard or needs improvement. 

See also: How to Start A Lucrative Furniture Business In Nigeria

Rapid Growth and Overexpansion 

When you successfully start a business, and everything is going quite well with expected profits, the next thing on your mind will be an expansion. While there is nothing wrong with an expansion, this is the point where many people start creating problems for their businesses. 

A business that expands too fast without adequate preparation can sink the whole enterprise. You must treat an expansion as if you are starting a new business from scratch; make sure you can provide the resources for the expansion without making your business suffer.

If you are expanding to something different from your old business, you must learn about the new market, products and services and your intended customers; do not assume you know everything already. 

Ineffective Business Plan

A solid and realistic business plan is essential for every business; this plan will determine everything the business requires to succeed, including finance, management structure, goals, marketing strategies, etc. It will give your business direction. 

Why Businesses Fail Within the First 5 Years of Startup

However, one of the fastest ways for a business to fail is by deviating from the business plan, changing strategies whimsically and ignoring the initial goals of the business. If you have an excellent business plan, you should follow it, and if you realise your business plan is inaccurate, create a new one. Running a business without plans or direction will result in many mistakes and possible failure.

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Bad Location

A bad location for business is one of the reasons why businesses fail within the first 5 years of startup; if your business relies on foot traffic and it is located in a place that people can hardly find, of course, the business is likely to fail. So, choosing the location for your business should be done with precision and care so you don’t establish your business in a place where people do not need your services or that people can hardly locate. 

Problems with location also include your online presence; these days, the internet is just as important as a physical location for any business, so if you don’t create visibility for your business online, you will have the same negative results as a wrong physical location. 

Rigidity

Market trends tend to fluctuate in every industry, so businesses will have to improve and adjust to stay relevant, but most businesses fail because they refuse to accept any form of change in their company. They want to practice the same methods and follow the same process year in and year out, and they keep expecting better results. 

So, as a business owner, you should always find out what your customers now prefer, monitor the market, and adjust your business strategies when needed to get better results.

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The rate at which businesses fail within the first 5 years of startup is relatively high, but it doesn’t mean your business has to be one of them; fortunately, by reading this guide, you are already taking practical steps to ensure a better result. So, through proper planning, good management skills, research, flexibility, financial management, and so on, you can avoid the pitfalls that have ruined many others and run a successful business that will stand firm for many decades.

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