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Small Businesses Fail; Why?

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Small Businesses Fail, WhyWhen it comes to starting and building a successful business, certain patterns must be observed and done right. Regardless of how passionate or courageous small business owners may be, failure to build on a proven pattern could result to business loss. The question I am often asked is; “Why do small businesses fail?”

As you know, more than 75% of all startup businesses fail within their first three years. While there are lots of reasons to justify why small businesses fail, the common ones range from lack of finance, inexperienced leadership and management, to lack of execution. As a business coach, I believe that the more specific we are to the root cause of the collapse, the closer we will be to fixing them.

Aside from the general reasons why small businesses fail, the following two important reasons rank top on my list.

There are:

  1. Lack of customer, and
  2. Absence of Product-Market fit

Lack of customer as the no. 1 reason why small businesses fail

When it comes to business, whether a commercial venture or not-for-profit, we need to focus on the customer. As business coach, I often work with successful entrepreneurs to start, manage, and grow their businesses from scratch. From my experience, many startup founders and by extension, the established entrepreneurs start and build their businesses on wrong foundations.

Here’s what I noticed. Many people are in a hurry to launch and get their products and services into the market. In their rush, they write up business plans, create products and services that they think customers want, and off they go to sell. They seldom give any serious thought to the customers. Instead, they get too carried away with their ideas and assumptions of what they think is best for the customer. That’s a wrong premise to build on.

Today’s customer is dynamic in the choice and value he or she seeks. To succeed with them, you must slow down, think, and understand your customer archetypes. Below are three questions to put you on the path:

  • What type of jobs or tasks are my prospective customers trying to solve that give them pains?
  • What are the specific pains, risks, or negative emotions they are going through.
  • What gains or solutions are they seeking in order to resolve their pains?

The process of understanding your customer’s job is known as customer discovery. The goal is to test your idea to ensure that you have enough customers in the market having the problems you want to solve.  This is a crucial step that must be completed before you ever embark on your product development.

Until you identify the specific pains or needs that your prospective customers are going through, you will always build what you think they want. Here’s the key. Each time you build what you think they want, you end up not having anyone to buy what you built.

Absence of market fit as No. 2 reason why small busineSmall Vusinesses, Value Propositionssses fail

Similar to one above, small businesses fail when founders fail to identify product-market fit for their products. Product-Market fit is a strong relationship existing between your value propositions and your specific customer segments. While your value propositions define the gains and benefits you are bringing to the market, your customer segments clarify the people to whom you are offering your gains.

This is an important relationship, the absence of which often makes small businesses fail. Before designing a full fledged product or service, you must ensure that you have built-in sufficient features to meet the needs of your customers. You must also ensure that although a market exist, such market is big enough to sustain your small business in the longer term.

The process of validating your product and ensuring that you have enough market size for your business is called customer validation.

If you would like to learn more about why small businesses fail, and how to start, manage, and grow a successful business, order my new bestselling book, THE ENTREPRENEUR now.

In the mean time, feel free to share your thoughts in the comment box below.

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About the author

Since 2010, Nkem Mpamah has been assisting entrepreneurs and corporate leaders to improve performance, create sustainable competitiveness, and maximize profit. Nkem is the founder and Chief Executive of Cognition Global Concepts (CGC).

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