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60% of new businesses fail in the first 3 years. Here’s why.

New businesses are launching at an unprecedented rate, with approximately 660,000 new start-ups registered in the UK every year according to The Telegraph.

Yet the same article exposes the sheer volume of those businesses that fail, with 20% not making it past their first year, and a staggering 60% going bust within their first three years. 

And this isn’t so surprising when you take a closer look. 

Set yourself on the right track to success with your business by understanding the reasons why most start-ups fail within their first three years.

There’s no business plan

Having a great new idea and the enthusiasm to run with it is just the start of a successful business. It’s vital to not only have a sound product or service to take to market, but to also have a thought-through business plan that maps out your company objectives, how you’ll achieve them and how long they will take. 

A business plan often contains details of goals, sales and other financials, marketing and more. Without this, most businesses flounder. 

Think of it as a literal road map – if you don’t know where you’re going, how will you ever get there?

The minimum length of a business plan should be 12 months, and it’s recommended you review yours regularly to adapt and innovate against any market changes. 

There are cash flow problems

Starting out on the entrepreneurial path is a financial risk, and we don’t just mean potentially leaving paid employment. 

You often have extensive setup costs, and cash flow – the speed that money is coming in versus how quickly it’s going out – is exceptionally tricky to get right, especially for those who don’t have a solid understanding of finance. Follow our tips on how to successfully manage this here.

Even with the best planning, you may experience regular curve balls if, say, you have late paying customers. This can not only affect the spending you had planned but even throw the future of your business into doubt.

They don’t understand business concepts

We’ve already mentioned two aspects of this – planning and financials – but there are many more areas a business leader needs to understand and juggle in order to succeed. 

We’ve already written about the six essential skills every entrepreneur needs to master. The list is long and quite often it all falls down to one person, which is an awful lot to balance at once. 

As such, many new business leaders who don’t have access to incubator programmes like our own just can’t manage it and either walk away or are forced to shut down. 

They don’t value data

Data is everywhere, and we don’t just mean numbers in a spreadsheet. A pitfall of new businesses is that they do not understand the value of data, even if it’s purely reviewing their website analytics. 

By ignoring the data relating to your business, you not only miss out on potentially increasing sales, but also realising when something isn’t working how it should be. Data should form a core part of your business plan to ensure you understand your business and how to drive it forward.

Fortunately, there’s an abundance of data-related training courses and platforms to make this aspect much less daunting than it initially seems.

They don’t understand their marketplace

Many businesses that fail young simply don’t understand their marketplace and where they fit within it. 

Marketing is a key aspect of any business plan, but leaders must not only know their own value proposition and unique selling points (USPs), but also understand and adapt to their competitors. They also need to keep their ear to the ground for changes in customer behaviour or perceptions and how the wider world economy is performing. 

Even completing a simple SWOT analysis, such as this example from The CIPD, will help leaders better understand their position in the market.

There isn’t a disaster plan 

You might think a disaster is unlikely, but in reality you have no control over many things that could impact your business. What if the market crashes and we’re plunged into another recession? 

It’s therefore absolutely essential to have a plan in place that enables you to continue trading, or at least not lose everything you’ve worked for, in the case of the worst-case scenario.

A disaster or continuity plan is a thorough document, the details of which will vary dramatically depending on the industry to which your business belongs. This diagram from Tech Target demonstrates the different layers you will need to consider when creating your own disaster plan. 

With all of this in mind, is it any wonder that most new businesses struggle? 

Fortunately, that’s where we can help. DCI is a fully-funded incubator programme for start-ups based in County Durham that’s been designed to teach you how to overcome every one of the hurdles that most new businesses fall at, giving you the best possible chances of success.  

Interested? You can apply to be part of the next DCI programme here

The next application deadline is Friday 6th May 2022

apply now