Why new business startups fail

People do think a lot of business and while kickstarting, it is often found that many businesses in startups failed due to many reasons. 

It can be due to external reasons like:

• Political
•  Economic
• Social 
• Technological

On the other hand internal factors such as:

• Poor understanding of the business
• No proper customer relationship
• No proper customer satisfaction
• No proper marketing strategies

According to research on small businesses, failure can be divided into studies solely focusing on external factors and studies focusing on internal factors influencing business failure or survival. 

In an organizational ecology, internal and external factors are playing an important role and therefore it can be argued that internal and external factors would influence the new business startups. Further to this, SWOT analysis of an organization would certainly help to understand the startup fails of a business. A general SWOT analysis is given below.

                                                                                                                                                    The main reason for any business failure: 

• The reformers proceeded without an underlying theory i.e., internal
• The want of an underlying theory led reformers to engage in non-purposeful grafting and reshaping in their experiments i.e., internal
• There has been no justifiable social exchange in the process i.e., external

Even it can be seen in the above case, there are three reasons found, out of those two internal reasons and one external reason. On the other hand, there are some previous studies have found that the role of founders' collective experiences is paramount in resolving problems inherent in startups, others have failed to substantiate this.

The importance of a sound business model

To start any business the primary element is planning, therefore developing the right strategies to build the right business model would help to reduce the level of bankruptcy in any business. A sound business plan may make the difference between a business that succeeds and a business that fails. 

As per the statistics, 95% of small businesses fail due to poor business planning, and even after that, there are no guarantees for organization profit. It is stated that creating a business plan may appear to be a difficult process, but in practice, it will help to clarify and focus one’s business idea, while going a long way to securing the finance and support one needs. It is important to get it right and so by concentrating the efforts on setting out goals, showing how will measure the progress, identifying potential issues and covering strategies, sales, marketing and financial forecasts. 

The importance of a sound business model should be: 

A sound business model increases the customer satisfaction

The strategic relationship between brand extension and Customer Satisfaction goes further to enhance the organizational efficiency and productivity of a business.  The importance of customer satisfaction in today’s dynamic corporate environment is obvious as it greatly influences the business profit/loss and also prevents shutdowns of the businesses. 

In today’s highly competitive and dynamic corporate environment to survive and compete with other market players successfully it is imperative to have satisfied customers and also to retain them so that they come again. 

A sound business model would help to maintain good integrated marketing communication (IMC) strategies

A sound business model would certainly help to communicate the right brand message to the target audience. This will help to meet the targeted objectives of the brand of any business. Therefore, to reduce the shutdowns of the business, it is important that a right brand message should be developed and communicated across all the media including the IMC channels. 

Further, a sound business model would help the business to penetrate an international market. The key difference between domestic marketing and marketing on an international scale is the multidimensionality and complexity of the many foreign country markets a company may operate in. Thus, we should know internationally and be aware of these complexities, the implications they have for international marketing management so that to access and compete on an international level. 

A sound business model would help to produce quality brands to the market

The brand reputation, customer innovativeness, products segment, durable products and services have a substantial level of impact and above all, it reflects a sound business model for the organization. However, they do not draw a line of demarcation between the limitations of each category of products and brands. As such the overlap between two categories could be substantial enough to obliterate the distinction between them, this would help to prevent business shutdowns. 

In a sound business model, there has been a spate of research papers in recent times on the relevance and significance of this context. It has been argued that while the context plays a very pivotal role in a sound business model, but we have to keep the essence of consumer’s continuous evaluation of fit and quality depending on the extent of visual information and the relative ease with which comparable brands could be purchased due to the internal business model. 

A sound business model helps to build good trust with stakeholders

The importance of trust of stakeholders are played an important role and the degree of emotional energy in each business depends on the impact it makes on potential customers and stakeholders. Now, we should understand that this impact in turn depends on the degree of trust with stakeholders, the more trust would reduce the risk of bankruptcy and vice versa. 

Thus, relevance trust must be sustained through the right business model. In other words, the trust must be made relevant through an internal sound business model, or they must appeal to potential customers, discuss the concept of a sound business model and the power of the trusting mind which lead to Customer Satisfactions. 

According to researchers’ arguments, the existence of a link between a sound business model and the stakeholder’s trust creates powerful Customer Satisfaction that would help a business to grow faster in the market without bankruptcy. 

A sound business model would help to find franchising opportunities for new business

While talking about the business model, the best solution would be franchising with some other companies for entrepreneurs to start a business or establish first. It will be less investment for the organization. Even some companies waited over 10 years to begin franchising with some business partners. 

Franchising is a good idea and understanding the concept is quite beneficial. In general, we choose franchising as the vehicle for expansion because we wanted an operating system that would allow ownership under an existing business model and trademark. 

When people have a vested interest in their work, they enjoy it more, bring more to the table and are more successful overall. Franchising is a perfect system to accomplish the goals. This would help any new business to streamline its internal systems and marketing strategies to expand the business via franchising. 

Before starting up any business, one should keep in mind the internal and external factors and how it influences the business.  We cannot ignore the SWOT analysis.  A sound business model is a key factor to strive in business, encompasses planning, customer satisfaction, marketing strategies, quality brands, stakeholders trust and franchising.