Why SMEs fail - keep your eyes open

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Bikky Khosla | 21 May, 2013
Surveys and studies conducted across the world over different time periods provide compelling evidence that a vast number of small businesses fail in the first few years. Majority of failures occur in the first two years while only a handful succeed to complete their first five years. Expert opinions on why this happens vary, but overall most of them point out some common pitfalls into which small business start-ups easily tumble into.

First of all, lack of planning is the Achilles' heel. Recently, I talked to a struggling start-up entrepreneur who had started a small manufacturing unit a few months ago, investing whatever savings he had. Two months later when he was just getting ready to market his products, it came to his knowledge that he must acquire a specific license before that. So he approached the licensing authority, but now another bolt from the blue struck -- he found that meeting the requirements set by the license terms was not possible for him -- he had already spent all his money.

This kind of lack of planning is characteristic of our small businesses. My suggestion is that if you are considering starting up a business, do proper planning right from the beginning. Get yourself educated about every aspect of your new business, know the market and competitors involved, set goals, identify risks and prepare strategies to deal with them. Every small business must have a business plan, and it should revisit and revise the plan periodically.

Management is another area where small and medium enterprises lack. An SME owner usually has to wear so many hats -- CEO, accountant, human resources manager, purchasing manager, financial officer -- and in most of these fields he lacks adequate management skills, which in turn usually results in a number of mistakes, including poor time management, inadequate record keeping and financial controls, pricing mistakes, faulty hiring, and so on. To prevent these mistakes SME owners should put utmost effort in acquiring the basic skills in areas where they want to involve themselves, and delegate or outsource the expertise they lack.

Marketing is the heart of every business, but many small businesses don't take much care of it. This may sound a no-brainer, but you'd be surprised how often small businesses fall into this trap. Many small firms don't bother even to have a marketing plan; they don't do market research, underestimate value of existing customers, choose wrong or costly advertising mediums, put less or no emphasis on online marketing, don't follow up customers, don't track marketing return on investment, don't take customer feedback -- these are some common lapses.

I think many of the small business failures out there are preventable. Starting a business of your own requires you to prepare emotionally and financially, but this is not enough -- you also have to be extremely committed to its constant needs until it matures. Keeping an open mind and giving a close look at the common reasons of failure can help you jump the potholes. I request our readers to share their recommendations.