The majority of new businesses do not see their first birthday. It is the lucky few that stay open longer than five years. 90% of new businesses fail and it’s not that difficult to understand why. Of course, any company that turns a profit is a success, but owners will typically move on to something else if they aren’t making the green. Running a business is not just understanding how to succeed but understanding why start ups fail and how to avoid making the same mistakes.

Reason # 1: Offering An Irrelevant Product or Service

Just because something is different does not mean it will sell. It is the basic principle, understand the market and taking advantage of supply and demand. Only a small amount of people want their toenails painted. Even a manicure / pedicure business might fail if it does not offer other goods and services to get customers to open their wallets. Sometimes a good product or service simply does not have enough demand. It makes little sense to open a boat engine repair shop in a town that doesn’t have any major bodies of water in the immediate area. Understand your area and what it is that people are looking for.

Reason # 2: Underestimating Overhead

Many people jump into leasing a space for their business out of the enthusiasm for what they want to sell. Understanding the area and that commercial space, especially in a highly trafficked area could be cost prohibitive. The cost of goods sold or COGS is something that needs to be carefully understood. This means not only knowing what it costs (physical cost) to not only sell your product or service but the overall cost when labor, rent, insurance, marketing and profit are considered.

Reason # 3: Not Being Able With the Public

A person who understands and can communicate with the average person and who is very polite and helpful will likely get more initial and especially repeat business. Personal reputation crosses over into the professional world. Someone who is unpleasant or poorly groomed in his private life might create prejudices that limit a customer base. Charisma is not necessary so much as a will to be honest and professional.

Reason # 4: Not Examining the Competition

Competition is not a major problem if the business has the ability to bring a better product or service or overall experience to the marketplace. It’s not always about aving the very best product at the lowest price point, it’s very much about the bigger picture. Also, if a business is in a convenient location, the public will be inclined to give it a shot simply to  avoid a longer trip and or waiting in long lines. The average person will even pay a slightly higher price if the convenience is worth it. This holds true if the customer service is superior and or the product.

Reason # 5: Not Creating Visibility

For a brick and mortar (physical business) establishment, this can be as simple as a great sign outside of the business and or displays that very clearly illustrate what is being offered. For businesses in the service sector, it pays to invest wisely in online advertising and a great website. Having a website that makes consumers comfortable and exudes a professional and secure look is incredibly important.

Not creating as many opportunities as possible offline and online for individuals  to find out about your business is a sure fire way to fail. Many business owners have a wildly unrealistic expectation that as soon as they build their business and people will come. Well that’s a receipe for disaster. Considering that more new businesses open during bad economic times and often sell their wares at drastically reduced prices, it’s even more imperitive that you do as much as possible to find ways to create brand awareness for your business.

In summary, if you avoid some of these pitfalls and do as much as possible to interpret the information specifically as to how it applies to your business you should find a lot of value in it.