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Thursday, November 24, 2005

Why some start-ups finish badly

The Financial Times in the UK has some sobering thoughts on business failure, particularly start-ups.

The UK government is saying that there has been a massive increase in companies.

So that means the economy is doing brilliantly doesn't it?

Well, actually no...

When you consider quite a number of people have been going through Jobcentre supported business start-up schemes and that companies have been making redundancies and people invest their money in starting businesses.

According to Barclays, nearly half of all start-ups during a 12-month period between 2001 and 2002 have gone.

An interesting example is Hoxton productions, a corporate video producer who found that he relied on too few clients. So that when one closed 40% of company revenue dropped. The CEO and owner now says that he would 'commit to "a serious amount of money" for a marketing campaign."

A pity that people wait too long before really seeing the importance of getting new sales as well as servicing the old and loyal clients.

The key points brought out by the article for failure are:

  • Poor credit management practice

  • No funds to expand

  • No cushion for unforseen risks

  • Over-reliance on a single supplier or customer.

  • No focus on selling a product or service.

  • Failing to use the right people early on: experts in finance, sales, operations and technical innovation.

The article also notes "A good mentor can often make the difference between success and failure."

I also think that business failures arise due to the following:

  • No understanding of what product/service the market wants
  • company fraud (easy with start-ups, as less controls in place)
  • investment in poor marketing materials
  • Stubborn determination to continue with marketing that doesn't work
  • Lack of clear leadership and direction for the company
  • Nobody really responsible for getting sales

Can you think of any that should be added to the list

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