According to Forbes Magazine, as many as 80 percent of all new businesses will fail within the first 18 months of their operations. When that timeframe is reduced to a year, the figures will be a little more favorable. Nonetheless, there is still a staggering number of sole proprietors who are not able to reach longevity or see their business take off.

Saying that there is a clear-cut reason why ventures crumble and fail soon after inception is an extremely far-reaching statement. After all, hundreds of entrepreneurs simply find themselves unable to keep up with the conditions in the market. Consider the recession that took place in 2008, per se. The number of companies that failed during that time was incredibly high and leads back to the downward-trending economy. Of course, there are still quite a few common denominators that can be analyzed.

Poor Management

Lacking managing experience when starting a business is one of the most common factors that will play a role in companies that succumb to the pressure. Unfortunately, there is no way to clearly define “poor management” as one specific action or lack thereof. Instead, it is a combination of bad strategies, improper employee structure, problems with timeliness, insufficient authority, and much more.

Problems with poor management often present themselves as an increase in employee turnover. The reason why is the fact that workers tend to be the first line of defense. If they become affected by the management that is not doing a good job, they are more likely to seek other opportunities and leave the company. Problems with meeting profitability goals could also insinuate a potential issue within this area. It is important to note, however, that the profitability concerns are not the greatest sign of problematic management as they can also be a byproduct of increased prices or a lagging economy.

Unprofitable Business Plan

According to a licensing and tech company that prioritizes high-quality service, Fazt Tech, a lot of organizations that purchase licensing agreements lack formidable business plans. Once again, the lack of experience is often behind this shortcoming. Generally speaking, a business plan is any set of guidelines that dictates how, when, why, and where the business will operate.

It also showcases everything from how employees will be hired and fired to advanced solutions to internal problems. Given such a wide range of content, it is more than fair to expect that entrepreneurs will spend a plethora of time on designing their plans. When they fail to do so, their venture is more likely to follow suit and fail as well.

Unnecessarily Aggressive Expansion

There is probably nothing more stereotypical than a successful start-up accumulating a bit of success, deciding to immediately scale, and completely crumbling under its weight. Unfortunately, most people who are aware of this lesson have learned it the hard way. When businessmen and women see their venture take off and witness a glimpse of the potential lucrativeness, their rationality tends to take a backseat to aggression.

Instead of analyzing what led to success in the first place, they often decide to immediately pursue a wider audience and try and increase their market share. The problem that usually follows is that competitors take notice of that rising start-up and immediately shut it down by giving better prices or expanding their offering. Any business that has been around for less than 12 months will seldom have the capacity to take on such a challenge. Consequently, they end up winding their operations down after seemingly reaching the top.

Insufficient Marketing Knowledge or Effort

Knowing how to market products or services has become one of the most important job requirements for any aspiring entrepreneur. The days of simply opening a brick-and-mortar store and relying on those who walk by to step in and make transactions are long gone. Some great examples of this are Blockbuster, Toy”R”Us, and Circuit City that went from being market leaders to not existing anymore.

Buyers are instead more focused on purchasing items that are presented directly to them via forms of both digital and print media. After all, the value of the digital marketing industry alone is projected to reach $120 billion in just two years. Start-ups that fail to account for the importance of targeting their audience and raising awareness about their product usually fall short of their revenue objectives. After a few months of such performance, it is not uncommon to see the operations come to a halt.

Lack of Customer Understanding

The final issue that plays a crucial role in early business failure is the lack of customer understanding. While it is important to spend a sufficient amount of time on building the right product or service, customer analysis should never be downplayed. If one has to choose between working on their product or getting to know the ideal buyer, they are already at risk of failing because these types of trade-offs should never take place.

Getting to know the customer means establishing an expected portfolio of an average buyer that will engage with the business. Some important factors that must be addressed include:

• Geographic location;
• Age, sex, race;
• Income and education level;
• Buying history.

This list is not exhaustive as there could be dozens of other criteria that come with unique products or specialized services. These are just some of the most basic inputs. As per Fazt Tech, entrepreneurs that do not dedicate enough attention to such demographics and fail to analyze the most optimal ways to target their consumers are less likely to convert.

As stated earlier, it is very unlikely that only one of these five problems will lead to a complete failure of any start-up. A much more common scenario relates to a combination of these factors that leads to challenging business pressures, low revenues, high employee turnovers, and similar. Hence why Fazt Tech advises anyone who wants to build a company to dedicate a plethora of time to every single category that was discussed.