subject: Reasons for venture failure [print this page] Reasons for venture failure Reasons for venture failure
Reasons for venture failure
Introduction
Entrepreneurial success is not the result of a single person's effort. There is a team always involved. The team is made up of other investors, working partners, employees, vendors and clients. All play an important part in the success of the enterprise. Although other people are involved, there is a tendency to believe that they play far less important roles and are easily replaced. At the end of the day, success or failure of the enterprise will be largely attributed to the entrepreneur.
There are a number of reasons for failure of a new venture; usually there is a combination of reason rather than one single reason.
Lack of experienced management
One of the main problems faced by new enterprises in that the management team is usually very new to this role. The entrepreneur and his/her top management usually have no prior record of being in charge of the fortunes of a whole company. Even in some rare cases when the management has some individuals who have led a company in the past, they are now faced with a new situation where the company itself has no previous track record. It is a very different kind of situation.
Few trained man power
Shortage of skilled and experienced manpower is faced by new ventures, which represent a riskier job opportunity. Most people prefer to work with a well- established organization employing hundreds of employees and having a stable track record. Lack of experienced and skilled manpower can lead to a general drop in productivity and quality of output. The absence of quality manpower is particularly felt during a crisis.
Poor financial management
Operational issues keep an entrepreneur busy and as a result, financial management is likely to get neglected. Often, the entrepreneur may find the technicalities of accounting and finance intimating and avoid looking deep into it. Common errors in financial management can be bad receivables management, unproductive investments and poor budgeting decisions.
Another common reason for small business failure is a lack of adequate funding, especially during the critical start up period. Inadequate funding severely limits your capacity and threatens your ability to grow beyond the initial stage of life. If you have done your home work properly, you should know how much money it will take to launch your business. Resist the urge to start until you have obtained all of the funding you know you need to do it right.
Rapid growth
Sudden unplanned growth is not always a desirable situation. Higher growth will mean greater stress on production facilities, manpower and marketing channels. Sometimes, these will not be designed to cater to the rise in volumes and might need further capital investments. It will lead to a stage of continuous fire fighting and ultimately, many things may not keep pace with the growth. Most commonly, the organization may run out of money.
Lack of business linkages
Existing working relationships with vendors, customers, and others is huge advantage to established businesses. A new venture will have to forge new relationships and work hard at strengthening them before coming to an equal footing with the entrenched players. Such business linkages help in smooth conduct of business and are invaluable at times of distress.
Weak marketing efforts
Entrepreneurial firms are very reluctant to spend on marketing efforts. Investing in a marketing campaign is not going to give you assured returns and the link between the marketing expenditure and the sales is not very easy to establish.
It is possible to create a business that sells the best product at the best price and still fail because no one knows it exists. Getting the word out about your product is critical if your business is going to have any chance of becoming the thriving venture you think it can be. If you don't know anything about marketing, get help from someone who does. If all else fails, cruise the local bookstore and pick up a few resources that will help you get started.
Lack of information
Even in this era of free flowing information, the quality of information available to large corporations is far superior to that available to new small entrepreneurial ventures. There is a cost to information and small ventures may not be able to invest so much in getting the high quality information.
Incorrect pricing
An entrepreneur does not pull the pricing out of thin air, but it may not be very rigorously throughout either. The price is most likely close to that of the competition and takes care of cost leaving a modest or seemingly generous margin. There are many sophisticated pricing policies a new venture can adopt, taking in to account its cost structure, nature of demand, and extent of competition. The entrepreneur can introduce new innovative pricing system too.
Improper inventory control
Improper inventory control can lead to myriad problems. Production can be halted due to insufficient inventory; where as excess inventory can lead to wastage and damages. In case of perishable goods, high inventory can lead to wastages and damages; it leads to expiration of stock.
Lack of planning
Many entrepreneurs are so eager to get started that they neglect business planning and jump in head first with little more dream and an idea. That might cut it in some arenas, but not in small business. If you have started already your business and don't have a business plan, your first priority should be to get one fast.
Unreliable suppliers
You can't sell what you don't have. Your ability to maintain proper levels of inventory is directly proportional to the quality of your relationships with reliable suppliers.
Staffing imbalances
Labor is the biggest expense for most small businesses. Therefore, it only makes sense that it's worth your time to make sure that your company employs the right amount of people. Too many employees and you will be forced to carry around dead weight. Too few employees and performance will suffer.
Ineffective sales performance
Sales are a key element in the success of any business. Poor sales, on the other hand, are an indication that your business might be in jeopardy. Maintain a close eye on sales patterns and trends, and hire the best sales staff you can afford to keep the money rolling in and your company rolling on to the next level.
Conclusion
To avoid entrepreneur going failure they have to look into all steps and reason given above. This helps them in overcoming problems and led their organization in better way. They can avoid entrepreneurial failures.
