Tuesday, September 27, 2011

Top 10 reasons why small businesses fail in India

Not long ago my brother-in-law started looking at various avenues to start a business in India. I started seeing in him, what I had seen in a few people before. Once the entrepreneurship bug bites you, you become less and less resilient towards your job. While it is overwhelming to see one of your closest acquaintances trying to come out of the nut shell and venturing into something new, the conservative and non-assertive person within me is keeping his fingers crossed to see this leap into a successful landing.

To give him some ideas, I have been researching the problems start-ups face in India for the past couple of weeks. Here is what I have compiled so far.

    1. NEGLECTING INFLATION: Countries like India, which do not have a controlled inflation, are not start-up friendly. Loss occurring due to the rise in inflation in one month can eat up the profit attained in four months. To cater the same, start-ups should be prepared to pump in money continuously until they are stabilized. 
    2. ALTERNATE SOURCE OF INCOME: Generally people who start businesses in India tend to keep the profit out of their businesses as their primary income even during the earlier stages. This theory has been widely questioned. Small business owners should keep an alternate source of income to keep their families running without disturbing the cash outflow from the business. Start-ups should sit on the cash pile until they are stabilized. Alternate source of income can be anything from taking up an employment until business gets stabilized, or in case of a partnership firm a couple of partners working while another one of them taking care of business or bringing in a new managing partner who would manage the business without investing any capital. 
    3. FAILURE TO UNDERSTAND STABILITY: This is again another mistake done religiously by the small business owners. Often times, they think break even as synonymous to stability. But a start-up can attain a break even during its earlier stages long before it attains stability. Stability for a business means instituting itself as a brand among consumers, competitors, vendors and employees. 
    4. EMERGENCY SOURCE OF FUND: This is again a crucial entity for start-ups and varies from business to business. Emergency source of fund is a pile of cash sitting underneath the business without yielding any returns. The threshold could be demonstrated by the span of time the cash pile can run the business if the business runs at a loss. Standard time is four months for many start-ups. Any profit the businesses make until they get stabilized should be accumulated into the emergency source of fund. 
    5. INCORRECT BUSINESS PLAN: This encapsulates everything, including vision, goals, budgeting, operations planning, revenue growth etc. Small businesses should always focus on their short term goals and take one leap at a time. If a business wants to increase its customer base, revenue or office locations it has to be done in baby steps. Over expansion will kill the business. 
    6. DISTINGUISHING BUSINESS EXPENSES & PERSONAL EXPENSES: Not only for big business players who fall under the tax department’s or share holders’ radar, but also for small businesses the expense heads are often forged or manipulated, sometimes willingly and many other times unknowingly. An evening get together among partners in a public house can very well be a business expense or a personal expense depending on how it is accounted. But it is imperative for start-ups to not get carried away by tax relaxation and to account expenses with the best of their ability and honesty. It not only keeps the balance sheet clean but also gives the business owners a clear idea on their own revenue, expense, operating margin and profit. 
    7. LACK OF BRAND BUILDING ACTIVITIES: Brand building is not something which is limited to an established business. In fact it is even more important for a start-up than for an established business. Not all brand building activities are expensive and unlike other business establishment activities, brand building can be coupled with a cause. Sponsoring a sports event for under privileged children or sponsoring a race to cure event for breast cancer can be a great brand building activity. 
    8. CUSTOMER SERVICE: Small business owners should understand that imbibing the necessity for coming to them on the minds of the customers is the key to success. Many a times customers do not wish to give a second chance to businesses if they fail in the first chance. It is imperative to try to keep them satisfied during their first visit. This could be as simple as giving them a 10% discount during their first visit or giving a discount coupon for their next visit. 
    9. DATA, DATA, DATA: Like they say “LOCATION, LOCATION, LOCATION” in the real estate world, it is “DATA, DATA, DATA” here. Collect as much data as possible. For example, if you have set up a Greeting Card & Bouquet shop, everybody knows that most business activities happen during the Valentine’s Day. However, there could be a particular period of the year in which the birth day cards sell the most, which can be found only if you have the data. 
    10. SEEK PROFESSIONAL HELP: Like you do not rely on the internet or friends to do an open heart surgery, or on your expertise in mechanics to fix a leaking gas line in your house, you should not rely on any non-professional guidance for starting a new business. Setting up a new business is no joke and it requires a professional guidance and supervision. There are many organizations which do everything right from analyzing the business worthiness of your idea, to setting up the business, speculating the risks, gaining loans, etc. It is money well spent in seeking their guidance and help.

Good luck.


isha isha said...

I was having great confusion on starting Business and its drawback ,you have given a clear picture about it.Break Free Tamil News Online Thank You.