Businesses are the engine of the economy and extensive steps are taken to ensure that entrepreneurs can maximize their activity in a given context. However, the reality is that businesses continue to experience significant problems from the onset. This article highlights some of the realities, problems and challenges.
Managing Cash Flow
Once the initial investment is done, the entrepreneur must find ways and means of controlling their cash flow. That essentially means that the sales being made on a daily basis must be sufficient to cover the bills or otherwise there must be money made available to cover the shortfalls. Failure to do so could lead to expensive borrowing or bankruptcy in the worst case scenarios. You need to be wary of invoicing cycles and late payments by customers. Likewise, the payment schedules for wages, interests and profits must be designed in such a way as to minimize cash flow gaps.
Lack of Accurate, Timely and Appropriate Business Intelligence
Information is a critical asset in modern business. It drives decisions and can determine whether those decisions are timely or irrelevant. A business that is denied access to good quality business intelligence is bound to make mistakes. This does not only relate to the opportunities that are available but also the potential threats, hazards and risks. A case in point is the presence of so many sources of support for small businesses which go untapped because the intended beneficiaries are kept out of the lop during the publicity campaigns.
Human Resource Bottlenecks
The process of hiring and firing is fraught with legal and practical difficulties. New businesses lack the technical expertise or the financial clout to be able to weather the storm of industrial unrest. Some workers that start off well end up being the employees from hell. The combination of paternity, maternity and sick leave could significantly increase the costs of doing business. At the same time an inappropriate or illegal response to these challenges could also lead to expensive and damaging lawsuits. Sometimes businesses tolerate bad workers because they have no viable alternatives.
Too Much or Too Little Early Success
The new business has to walk a very thin line between getting out of the blocks and keeping its bearings. Runaway success at the beginning can create unsustainable expectations and a false belief in the invincibility of the business concept. That means that the slow, hard work of developing winning prototypes is stunted. Businesses are then encouraged to take a series of shortcuts that invariably end in misery. On the other hand, success that takes ages to come can wither the entrepreneurial spirit. Perfectly good ideas die when their originators are systematically discouraged.
Unrealistic Deliverables and Schedules
Although every business aims to be busy, there are times when the capacity of the company is overwhelmed by the demands from the customers. This typically happens when too much time is spent on marketing and customer acquisition whilst simultaneously ignoring the operations of the entity. Eventually you will find that the capacity that is set aside for business activities is not sufficient to meet client demands and needs. The failure to perform to expectations can disappoint clients to the extent that they move away. New businesses may try to overcompensate for lack of experience and end up with similar problems.
Micro Management from Government Bureaucrats
It seems that state agencies have completely failed to grasp the notion of detached supervision. They turn into helicopter parents for new businesses; to the extent of even trying to determine their planning and execution processes. This overt and excessive attention is reflected in a myriad of regulations that relate to the environment, corporate governance, taxation and even public responsibilities. Ultimately, it appears that the new businesses spend more time complying with government expectations than doing the business of making money. That is a recipe for either bankruptcy or nationalization.
Negative Family and Friendship Pressures
In the beginning the entrepreneur may want to focus his or her energies on the business. However; the social circle around them such as friends and family, will insist that they still remain as sociable as they once were. In fact, some members of the social group could demand special treatment such as discounts and jobs. All these detract from the professionalization of the business. Eventually it could mean that costs rise, inefficiency becomes the norm and the entrepreneur begins to neglect their business. Ultimately they are forced to make a choice between their social life and the business.
Lack of Planning and Foresight
When starting new businesses, the entrepreneur will be overcome with a floodgate of ideas and concepts. These are non-concrete dreams that need to be carefully turned into viable projects. Without the right planning; the new businesses will inevitably do too much, too quickly and too incorrectly. The planning goes beyond operational concerns such as finance, personnel and marketing. It includes risk management and a development program. These are complex notions that are often beyond new businesses
Extensive Product Niches and Categories
Having too much choice can be as devastating as having too little when opening up a business. The range of attractive products and services to sell may mean that the entrepreneur fails to properly investigate a single item to focus on. They then fall into the classic trap of being a jack of all trades and master of none. Added to this is the possibility that there will be very many advisers that bring new ideas without proper research or consultation. Without a clear assessment and selection criteria; it is possible that the business will eventually fail.
Inaccessible and Declining Customer Base
It is not enough for a business to have a large population within its vicinity. The business must systematically identify those members of that population that can be converted into willing and effective demand. The intelligent marketing techniques that are required to achieve this objective are often beyond the capabilities of a new business. Therefore; they end up selling by numbers without a clear strategy. In any case; an initially impressive customer base could soon deteriorate due to a number of unforeseen circumstances such as an economic downturn.
Some industries operate as virtual oligopolies or even monopolies. That means that it is very difficult for a new entrant to make headway. Indeed, existing players may collude with one another in order to make it nearly impossible for the entrepreneur to join the industry. The tricks that they use include price undercuts, direct sabotage and exclusion from strategic meetings. The market may be configured in such a way as to make it very difficult for the new business to create its own customer profile. The expense that is involved in cultivating customers may also be too prohibitive.
Excessive Regulation and Taxation
One of the most consistent complaints of new businesses has been the existence of excessive and unfair tax burdens. In an effort to control the activities of business, the government may create regulations that simply discourage entrepreneurs from starting at all. A case in point are the requirements for financial reporting and environmental sustainability. These may be noble and necessary regulations. However, if they are not implemented in a considerate way; they could persuade the entrepreneur to close down the idea in its entirety. Unfortunately, some jurisdictions insist on adding even more regulation when businesses appear to be succeeding.
Lack of Adequate Capital
Lenders are less likely to engage with people who are new to an industry. In any case the interest rates that they charge may not make them a cost-effective option for the entrepreneur. The capital that is borrowed from friends and families comes at a social cost that is sometimes unacceptable. The repayment schedules could potentially be very limiting, adding more pressure on the young business to make profits quickly in order to cover the borrowing. Where the entrepreneur has decided to use their own funds, there is a risk of losing everything.
Barriers to Advantageous Locations
Business location has been emphasized as a core determinant of success. New businesses may identify the ideal locations for their establishments but are then excluded from those location courtesy of market forces and hostile regulations. A case in point is the zoning process which may push businesses very far away from their intended customers or significantly increase the costs of production. At other times the premium locations such as urban conurbations are readily available, but the costs of accessing them are beyond the scope of the new business. Therefore, the entrepreneur reluctantly withdraws or accepts an inappropriate location.
There are many ways in which people who are working within the business can shorten its lifespan. The obvious ones include theft and fraud. However, there are some other subtle forms of sabotage including social loafing and leaking of business secrets. Competitors may plant a mole within the company who is responsible for creating a negative PR situation for the brand or alternatively sowing the seeds of internal discontent. This is a very difficult problem to overcome since the entrepreneur will only realize what is happening after the business has failed.
Wider Macroeconomic Trends
Sometimes the business is let down by the economic context within which it operates. There have been cases of businesses that have started off well then fallen on the wayside on account of an economic downturn. Many estate agencies closed down during the housing crisis of 2008-2012 and the Mad Cow Disease scare in Europe put a lot of pressure on small holder farms. These are strategic trends which the entrepreneur has very limited control over.
As you start your business, there will be many unseen and foreseen circumstances that could turn out to be problems. You can turn those problems into mere challenges by being aware of the risks and planning accordingly.
Understanding or even merely identifying these challenges is not an admission of failure for a new business. It simply means that the entrepreneur is beginning the slow process of planning which includes facing the reality of starting out amidst a series of potential challenges.