Ways to avoid start-up failure

Setting up a business requires a lot of sweat and blood. Nonetheless, everyone who begins a business believes they can outperform the odds. Early enthusiasm may be deceiving, and naivety can be wonderful, but is it possible to foresee if a firm will be a rousing success or a dud?

Here are some warning signals to check if your business is in jeopardy and strategies to help it rebound.

Being directionless

Not knowing where you are heading is a critical problem many companies face. Too many companies move without having a long-term vision, strategy, or business plan. When the business conditions get tough, most of these companies start failing. Companies that do not know why they are doing good also do not know why they are failing, when they are on a downward slide.

Solution

Have a strategy and business plan in place and relook at it every quarter and then annually. Create your annual operating plans for direction. Evaluate what has worked and what has not. Plan critical expenses and investments at the beginning of the year. Budget for your growth and have an alternative strategy if the business does not go the way you want it to.

Losing market relevancy

Maintaining market relevancy and competitiveness is critical to maintaining a profitable, long-term business. This entails keeping a careful watch on industry trends and reviewing and learning from your rivals and consumers regularly. If your company does not regularly monitor its market and competitors and is not upgrading itself as per the market needs, it is setting itself up for a fall.

Solution

Discovering how the ecosystem is evolving and knowing what your rivals are doing can help you steer your company to success. Examine competitor's services and goods - what additional benefits do they provide?

What do you do best, and what do they do best? Continue to innovate. You don't have to be the first to implement new advancements to thrive, but you do have to stay relevant. Speak with your clients; understand their evolving needs. They are the most essential source of information available. To keep ahead of the competition, get constant feedback and modify your operation. Make certain that your value offer is simple, succinct, persuasive, and differentiated from competitors.

Low customer retention/ Repeat customer rate

Do you have a problem with repeat customers? Very few businesses can be built only based on new customer acquisitions. Existing customers leave for a multitude of reasons and if you are not able to retain customers, you will soon be out of the market.

Solution

Continuously monitor your repeat customer rate, repeat frequency, average order value growth, etc. Interact with your existing customers and try finding out the reason. This may help you fix up many problems. Everything emanates from your company's alignment with client demands. If your clients aren't convinced, it's time to reconsider your product and how you portray it.

Low employee retention

Employee turnover rate or attrition is a strong indicator of discontent with the company's culture and mission. If your company has a high staff turnover rate, it's vital to do a deep dive and understand the reasons for the same. There is a time, cost, and effort involved in training, and the same is wasted if the attrition rate is high. Only when the employees are settled in the organisation will they be able to service the clients in the best possible way.

Solution

Rethink how you recruit candidates and how you interact with your personnel's needs. If your company isn't doing as well as it should, don't immediately blame your staff blindly. If people are not able to do what they are expected to, analyse whether it is a skill issue, attitude issue, market condition, or something else. Address the root cause. Employee turnover amid other challenges might spell disaster.

Ineffective management

Management practices and tactics determine a company's destiny from the start. If your company's management team lacks expertise or effectiveness in implementing long-term goals, it might stifle growth. Have targets that are accepted and agreed upon by the team. Have systems and processes to measure progress on each objective, realign and steer after short periods (say monthly or quarterly), and do not wait to see what happens at the end year.

Solution

Re-evaluate and focus. Individual managers should be evaluated based on their team's performance. Reaffirm your organisation's values and make certain that all efforts are directed toward attaining them. Engage with employees to learn how your leadership team motivates them.

Recognise and concentrate on process inefficiencies. It is always helpful to prioritise what you want to implement. Undertake a few initiatives at a time, implement them and then undertake new initiatives. Break big targets into smaller targets and achieve them.

Profitability and cash flow issues

If your profitability or margins are continuously diminishing, it is something to worry about. Cash flow is another important metric that you should continuously keep an eye on. Cash flows keep your business running and demonstrate that you can generate and invest money. Profits, revenue, and cash "in-hand" are important, but cash flow is what keeps your business afloat. In the absence of enough money to keep a business running, it will surely fail.

Solution

If reducing margins is a planned move, which it can be to gain market share or to adapt to market conditions, you will need to see how you will fund the operations. If it is the result of market conditions or competition, please re-evaluate your offering and pricing and create a path to profitability. Further, to grow your business, you need to bring in more cash and let it out slowly.

That means optimising your cash flow cycle to your business's advantage. Re-evaluate your invoicing practices and debt/outstanding collection methods. Issue invoices immediately after orders are completed. Remind customers and have a clear, focused collection process.

Try getting advances, even if they are a small percentage of the order value. Look for ways to extend credit terms that you get from your suppliers. Also, you should ask about alternative financing options.

Unsustainable growth

Rapid growth, if not handled properly, can be more devastating to a business than no progress at all. Extremely quick growth is challenging to handle, manage, and retain. Cash flow, working capital, human resources, production capacity, and pressure on other resources can be disastrous if left unchecked. Customer service and order processing may degrade, as may margins.

Solution

Keep an eye on your operational costs and working capital. Plan your financials meticulously, determining when funds will be available to finance development and growth. If the cash cycle is sluggish but has significant growth potential, contemplate a line of credit or look for an investor.

- Baqar Iftikhar Naqvi