Western Cape Business News

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BUSINESS: Recipes for Disaster – the Top 5 Reasons Why Small Businesses Fail


Recent Western Cape Business News

STATISTICS show that a significant proportion of new businesses in South Africa fail in the first two years. There are many pitfalls on the path to success for small businesses, some of which, small business can avoid with good plans and foresight.

Business experts say that there is a common thread that runs through the mistakes that small business owners make. Before committing time and money into an enterprise, it is important to understand these pitfalls and how to avoid them. What are they and how can a small business owner avoid them?

1. Running out of cash too soon
A study by research firm World Wide Worx and Xero on South African small businesses show that a significant number of these businesses have challenges in accessing adequate funding. 63% of small businesses have started using personal savings. 27% of these business owners say that they have problems accessing funding from financial institutions, angel investors and venture capitalists.Cash flow problems might not entirely be attributed to lack of funding. It also points out to poorly done cash flow plans in business plans.

2. Poor allocation of resources and money
Many small business owners do not have sound human resource and budget plans. They will rely on their causal knowledge of the market to allocate resources to bring the wrong products to the market. They will hire the wrong people mostly from a pool of friends and relatives. Poor budgeting does not prioritise essentials that enable a small business to break into the market including polishing the product/service offered marketing to the right audience.

3. Mistimed product launches
In a bid to look trendy and capitalise on short-lived market trends, small business owners make rushed decisions to launch products without doing the required market research. This means they do not have fully formed ideas on what needs their products are meeting, and which markets need these products. This especially seen for online small businesses where online entrepreneurs are influenced by market trends in Europe and North America, but where these products are not yet ripe for South Africa.

4. Disharmony within investor teams
Many startup teams do not differentiate owning the enterprise and managing the enterprise. This means different people in the investor team take on management tasks that they are not suited for. Different management ideas and philosophies that cannot accommodate each other eventually lead to break-ups and business failure.

5. Poor marketing
Some small business owners mistakenly think that their product is very exciting in the market such that it will market itself, or stick to marketing using channels that don’t work to the wrong audiences.

Jean-Pierre Pharo, co-founder of BizList says that for a small business start-up to have chances at sustainable growth, the owner must be aware of these pitfalls and have a plan to sidestep them when they occur.

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