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Entrepreneurship is the backbone behind which all economies thrive. It leads to the formation of businesses which generate capital which keeps the economy running. Of all the businesses that contribute to the growth of the economy, small businesses occupy the largest part and are so many. They also contribute towards a large part of employment of people in the country and are thus critical. Their success is thus very crucial not just to the economy, but also to people who rely on them. The reason of this paper is to research on entrepreneurship failure. A small business that started and then failed will be discussed. The first section entail describing the business including who the customers and competitors are, and the products they produced. The second part will concentrate on the reasons for the failure of the business. The final part will focus on the recommendations. It will indicate what the business would have done differently to ensure it succeeded other failed. Reading this paper will give people an idea of why businesses fail. It will also equip them with knowledge on how to ensure their businesses do not fail. The will thus have all the tools they need to start a successful business.
Travel Carrot is the name of a small business that started and failed within the first year of its operation. It was a new business venture which two partners decided to undertake together. According to them, there was a business opportunity in the travel agency for medium-sized and small companies. The business idea came about from one of their friend who traveled a lot for business. Their mutual friend was in the IT industry and thus travelled to different places a lot for business. However, their friend always had complains regarding the service they obtained. Their friend said that whenever he travelled, he ended up staying in very expensive hotels. It was not their wish as they would like to have stayed in a cheaper hotel but he ended up inexpensive ones as he did not have time for prior booking. Most of the time, he ended up staying in a hotel they found first, or the most famous in the place where he stayed as he had no option.
The same was common with most of other people as the two partners found. Most people also booked their tickets at the particular time when they were traveling. They did not have time to book their tickets earlier. Thus, they ended up spending a lot of money on their tickets than they would had they booked their flights earlier. From these constant complaints from most people and their mutual friend, the two partners identified a business opportunity. They established a company that dealt with travel booking for medium-sized and small companies and their employees. They made a prior booking for their tickets and their hotels where they would stay while away on businesses. It reduced their expenses by quite a large amount as they booked cheaper flights as well as more affordable hotels which had all they needed. The company helped companies and employees save a lot of money, and they benefitted in the processes.
They did not have many competitors. Other than their company, the only other way medium-sized and small companies and their employees could get their tickets and hotel rooms booked was by visiting large travel agencies in the country. However, they would end up paying an enormous amount for the service which was almost similar to the amount they would pay while they did their booking without involving the travel agency. It is what discouraged them from doing so. Travel Carrot made things simpler and was cheaper and thus was an excellent business opportunity.
The mission of the company was to facilitate earlier flight travel bookings as well as hotel booking. The target customers were medium-sized and small companies as well as their employees. The two partners had decided to contribute capital for the business on equal portions. They also decided that they would obtain a loan from the bank to finance the remaining part of the capital they needed from the business. It is exactly what they did. They began with a contribution of one hundred U.S. dollars ($ 1000) each. They later obtained a bank loan to finance their business. However, their business did not prosper as they had anticipated. Rather, it failed before the end of the year, and they had to declare bankruptcy and close up shop.
Not all businesses that start have an opportunity to be successful and excel. Others like Travel Carrot fail while some others succeed. It is important to note why some businesses fail while others succeed. Let’s first focus on the reasons for the failure of businesses. Poor business planning is the leading factor that causes business failure. Most businesses that fail within the first year or the second year manly have a problem with business planning. Most entrepreneurs fail to not that the famous saying of if you don’t plan then you plan to fail is true. Other than putting their time and energy into developing a good business plan, most just go into business blindly. Having a good business idea that is unique does not guarantee success (Khan, 2012).
An idea may be so good but fail due to lack of proper planning. Every entrepreneur has to realize to a great opportunity to invest is not a guarantee that the business will succeed. A lot of effort and money had to be used for making the plan for the business. The business plan must be in such a way that all angle are covered. A business plan is what helps an entrepreneur to decide if the business is worth venturing and how to make it through. It contains the mission and vision of the company. It also indicates the sources of finance which will ensure the business idea is well implemented. Moreover, a business plan indicates the competitors of the business, and what the business will do to keep up with competition. All this are the key issues that every business need to deal with before they enter into business. A good business plan determined the success or failure of business to a large extent.
The other factor than influences the failure of small businesses is poor management of the business. Every entrepreneur needs to realize that there is a difference between a person and the business. A line needs to be drawn on how much an entrepreneur can engage in the business. There should be a clear line that differentiates the business and the entrepreneur. The entrepreneur should be an employee of the business. They thus need to obtain a salary or compensation for the services they render to the business. It helps in the management of the business. As is the requirement of every employee of a company, they must have the needed knowledge to run the business. An entrepreneur is no different. As they are employees of the company, they should have the necessary skills to run the business. If not, they should acknowledge the fact that they need help and seek the necessary help. If they do not have experience in management, they can even employ a business manager to help them in the running of the business other than watching their business fail (Arasti, 2011).
Poor financial planning is another factor that causes many small businesses to fail. Before one goes into business, there is a need to understand the cash flow requirements of the kind of business that one seeks to engage in. It helps to plan ahead of time the estimate of the money that the company will require so as to conduct its daily operations without failure. Learning the cash flow requirements of the business in advance also helps the entrepreneur to budget ahead of a tie, and know where the money the business needs to run will come from, and to get it ready as the time approaches. It helps to ensure that there is no single time when business cash flow will be lower than expected. It helps the business to run smoothly with no problems relating to capital (Goltz, 2011).
Moreover, poor marketing also leads to business failure of small businesses. It is a key contributor to the failure of most businesses. A business may have a good product but fail to have the correct marketing strategy to help it make it succeed. A good example is this business known as Travel Carrot. They had a good idea which was meant to help so many medium-sized and small companies, and their employees save a lot of money. However, they did not have a good marketing strategy. They did not make their services known to most of their target customers. Nothings harm a business faster than the inability to explain the business within a short while. Good marketing ensures that the targeted market can understand the business idea within a short while. Good marketing also ensures that the potential customer are aware of the existence of the business. Customers are the reason why businesses progress. Without them, businesses do not have any future. Entrepreneurs should thus equip themselves with proper marketing to ensure their businesses succeed (Mbonyane, 2013).
Of the main cause of business failure discussed, Travel Carrot was affected by most of them. It explains why the company failed within such a short while after establishment. The first factor is poor business planning. The two partners relied on the information they received from their friend. They did not take the time to conduct a full business scan so as to realize what the industry was like. They did not take the time to talk to their target customers to realize if they would accept the idea and embrace it or not. Rather, they ventured into the business blindly which lead to the disappointment of the business.
Moreover, they did not market their business properly. They used word of mouth to pass information to their customers. Even if it was starting small and advancing later, they should have used cheap platforms such as social media to advertise and market their business. They should not have relied on word of mouth alone. They should also have enlarged the amount of target customers they reached. Even if they relied on word of mouth to inform their customers of their business, they should have visited more medium-sized and small business informing them of their services. Having so many people aware of their services would ensure that they had more customers, and thus, the business would not fail.
There are several things that every small business can do to ensure that their business does not fail but rather succeed. The first is having a proper business plan before venturing into the business. As discussed earlier, a business plan is the most important document for every business. It provides a layout of the whole business. It indicates what the business is all about. It also indicates the sources of capital, target customer, and the marketing strategy. It also indicates who the competitors are and how the business plans to outshine their competition. It also contains the budget or financial plan which include where the capital to begin and run the business will come from. Proper planning in advance helps the entrepreneur identify what is needed for the business and thus acquire it all in advance. It helps the business run smoothly and according to plan thus its assured success. One of the reasons that drove Travel Carrot to fail is the lack of a business plan drawn before the business started. The founder just ventured blindly without first gathering the necessary information first. Planning gin advance would have ensured that the business would have succeeded as their idea was unique and excellent (European Federation of Accountants, 2012).
Proper business management is another way of ensuring business success. Entrepreneurs require the necessary skills to run a business. If they do not have them, they should first acquire the skills then begin the business. They can also employ a manager to run the business on their behalf. Travel Carrot was a business based on the travel agency industry. For a person to run a successful business in that industry, there are certain skills and experience one must possess in advance. For instance, one should have learnt how the booking is made, how to acquire bonuses and cheaper tickets, as well as the rules business in that industry. Experience is also crucial as the more the experience, the more the knowledge of the company and thus easier it is to run the company. Both partners did not have any expertise in that field. They also neither had much information regarding the industry nor did they know the rules of the industry.
Despite this, they did not take the time to learn or even employ a person with the necessary experience. They dived into the business immediately and thus failed. Other than what they did, they should have first gathered all the information they required. They should have taken the time to learn how the industry operated. Another option was employing someone who had experience in the industry. They could then learn from the person they had employed as the business progressed in they wanted to start the business immediately. Doing so would have increased the chances of the business to succeed other than fail.
Proper financial planning also helps to increase the chances of business success. To ensure proper financial planning, external advice from professional and qualified financial accountants is necessary. It helps as they provide the guidelines the entrepreneurs ought to follow to ensure their business succeed. Financial accountants’ advice should be sought right from the beginning of business. After making the business plan, a financial accountant should be contacted to help entrepreneurs learn fi their forecast are correct. They may also help with making the budget and economic forecasts. If Travel Carrot founders have sought professional advice, they would have the opportunity to learn the odds of their business success. They would have learnt what they needed to do for their business to succeed and it would thus have not failed. It applies not to just finances but also the general business (Forsberg & Mattsson, 2011).
References
Arasti, Z. (2011). An empirical study on the causes of business failure in Iranian context. Tehran, Iran: University of Tehran, Faculty of Entrepreneurship.
European Federation of Accountants. (2012). Avoiding Business Failure : A Guide for SMEs . European Federation ofAccountants (FEE).
Forsberg, M., & Mattsson, N. (2011). From Business Failure to Success. Goteborg University.
Goltz, J. (2011, April 20). What causes some small businesses to fail? New York Times.
Khan, S. (2012). The Chief Cause of Business Failure & Success. Minneapolis: Synergetic Resources.
Mbonyane, B. L. (2013). An Exploration of Factors that Lead to Failure of Small Businesses in the Kagiso Township. University of South Africa.
