Page last updated at 23:19 GMT, Thursday, 11 December 2008

Why so many start-ups fail

Howard Graham
Business support consultancy Made Simple Group

Man looking through binoculars
New businesses need to keep their eyes on the bigger picture

It is an uncomfortable fact of business life that four out of five start-ups end in failure.

With the economic downturn making things even tougher for new firms, how can you avoid the pitfalls that trap so many fledgling businesses?

First of all, remember that given how many start-ups fail following the most well worn paths is not necessarily the best policy.

It is better to understand why they fail and make sure you don't make the same mistakes.

Although businesses fail for a multitude of reasons, the underlying issues are surprisingly common.

I'm going to briefly address what, in my experience, are the five deadly sins of the start-up entrepreneur:

FAILURE TO SEE THE BIGGER PICTURE

If you have your head down doing everything from sales and marketing to accounting, who has the overview required to steer the business on the right path?

It is crucial that you work on the business - stepping back from the day to day to drive it forward.

To do that, you must delegate wherever possible the tasks that can be carried out by others - if you encourage, empower and motivate them the results will astound you.

FAILURE TO PLAN

You wouldn't set out on an unfamiliar journey without a map, so it's amazing how many businesses try to muddle through without a plan.

A good business plan will set targets against which you can benchmark your business - allowing you to make informed decisions about what to do next.

If you don't have one, prepare a plan now, review it on a monthly basis against actual figures and constantly update it.

FAILURE TO MEASURE

Too many business owners have little or no idea what the key numbers in their operation are.

These may not necessarily just be financial, and can include other quantitative measures such as sales conversion rates or website traffic statistics.

Successful businesses measure everything that moves and even things that don't.

IGNORING THE CASH FLOW

Whatever happens, cash will always be king.

When money is tight and business may not be as abundant as it once was, conserving your cash resources is critical.

Keep an eye on expenditure and watch credit control carefully.

STANDING STILL

A wise man once told me that the definition of business insanity is to do the same thing this year as you did last year and expect a different result. He was right.

Successful businesses innovate and change all the time - those that don't are simply left behind.

Make no mistake, getting these basics wrong, or not doing them at all is a recipe for failure.

They are the solid foundations on which success is built and must be given the attention they deserve.


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