1. Lack of funds

Business needs money. You soon find it does little else but consume funds — lots of it.

If nothing else, the business needs to provide a source of income for the business owner, not as profits to the owner but as a wage or salary to an employee. Nearly every small business I have been in (including my own in the early days) fails to pay the business owner a market wage. Not paying these kinds of expenses hides the true cost of running a business.

While owners may forgo income in the short term to get the business rolling, most business people do this because they don’t have the funds. If they don’t have funds to pay appropriate wages to the workers (themselves), then they probably don’t have adequate funds for sales and marketing of the business. Or perhaps they don’t carry some of the insurances a business really needs to protect it from disaster.

Lack of funds, however, is a symptom, not the problem. The problem here is either poor sales, or poor expenditure control — or both.

2. Too Much Debt

To solve the funding problem many business owners borrow to get the business going. But borrowing money can lead to some unexpected results.

Borrowing large sums of money when you have not learned to manage such amounts can easily lead to disaster. One business I know exhibited this problem. The new owners obtained a $50,000 loan to get the business going, and spent a huge portion of it leasing prime office space and furnishing it to a very high standard. Rather than apply the funds to marketing and sales, they spent it on appearances. They lasted about three months before they shut the door.

3. Poor Pricing

The way many businesses get started is by pricing themselves at the lower end of the market. This pricing strategy has nothing to do with pricing for results. It is just that the business owner really does not have the courage to ask the higher prices that established businesses are charging.

The under-priced business owner soon finds that his customers really don’t appreciate him or the fact that he’s so cheap. He finds that his customers soon drift off to do business with the higher priced people in town, leaving him to find a new customer to replace the one he has lost.

It takes a year or so (sometimes a lot longer) of operating like this before the business owner decides he has little to lose if he puts up his prices. So he timidly asks the next customer to pay more, finds he gets no rejection on the basis of price, and finds now he can afford to offer a better quality service or product to the customer.

Since people do not buy on price but on value, the business owner is beginning to learn that his price is not as important as the value he brings to his customer.

4. Poor Sales and Marketing

Business takes place only when a sale has been made. Yet many attempt business without the skills of finding customers or making a sale. Somehow they believe that customers will walk in the door and all will be well. But too many startup business owners are weak in the these areas. Therefore, the business suffers.

Posted by renditz @ 5:28 pm

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