Analysis of the Reasons for Entrepreneurship Failure
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Source: NetEase Blog
Update Time: October 19, 2010
Entrepreneurship is not easy, and running a successful business is even harder. Why do businesses fail? Below are some common reasons for failure that entrepreneurs can learn from:
1. Lack of detailed and thorough market research beforehand. People often invest based on hearsay about which industries are profitable. In foreign countries, people usually commission specialized market research companies to conduct specific investigations. However, we often make decisions based on intuition and impulsiveness to save on these costs, but lack the ability to conduct systematic market analysis ourselves.
2. Greed for large-scale and novel ventures with big ambitions and grandeur, but often exceeding one's financial capacity. Some individuals, especially those who have been successful businessmen, are unwilling to start small and prefer to begin with large capital and scale, resulting in significant fixed costs. However, once business difficulties arise, the company easily collapses.
3. Not starting from what one knows best or has expertise in. Often, people hear about profitable ventures and jump into them without considering whether their experience, knowledge, and interpersonal relationships align with the business. This leads to losing competitiveness.
4. Price wars. Bargaining has become a habit in life, and unreasonable price competition within industries continues. The result is either cutting corners to ensure profit or maintaining quality at the expense of minimal profits or even losses. Thin-margin strategies may lead to dealing with low-quality goods.
5. Lack of legal compliance and self-discipline. It cannot be denied that some people rely on exploiting legal loopholes or operating on the edge of policies to succeed. If this mindset carries over into the early stages of entrepreneurship, it can lead to many adverse legal consequences. For example, some companies hire illegal workers, do not pay minimum wages, do not provide necessary insurance, and ignore fire safety measures. Once problems occur, the losses are unbearable.
6. Limited thinking, unable to think long-term, always seeking quick money through short-term projects. Some people are impatient and want immediate results, expecting instant profitability. However, they are unwilling to bear the typical 1-2 year loss period during the start-up phase. Many people rush into unfamiliar markets without fully understanding them, only to discover issues later when it's too late to withdraw. Given China's relatively stable economic growth, especially in traditional industries, opportunities for rapid wealth accumulation are rare, and time is needed to accumulate wealth.
7. Focus on hardware investment while neglecting software investments. Many service establishments have good equipment and decoration but lack high-quality services, personnel competence, and management levels.
8. Financial imprudence in the early stages of entrepreneurship. Due to excessive optimism about business prospects, there is often insufficient reserve funds. When business doesn't go smoothly, cash flow problems frequently arise.
9. Believing that business operations require no external help and functioning independently. Such an approach limits access to professional knowledge and experiences from accountants, lawyers, and commercial advisors. Companies operate at a low level, failing to take full advantage of government incentives for tax savings and sometimes inadvertently violating laws, leading to legal repercussions.
10. Unclear and inconsistent business philosophies. Some believe that small enterprises or restaurants don't need clear philosophies or strategies, deeming such concepts unnecessary for small businesses. They prefer following market trends rather than establishing unique characteristics. While this isn't necessarily wrong, having distinctive features makes it easier to gain customer recognition.
11. Ignoring local cultural backgrounds. China’s overall market consists of various segmented markets. Understanding these segments, catering to local demands, and managing employees across different levels are essential challenges. Limiting oneself to familiar local circles restricts business scope.
12. Founders lack necessary business experience. Many people, despite working in government research institutions, universities, or large enterprises, lack experience in running private enterprises. Even if they previously succeeded in business, modern market rules differ significantly. Therefore, modern entrepreneurs must understand local market nuances and possess relevant management experience.
If you're planning to start a business, first familiarize yourself with the business culture, environment, commercial practices, company law, employment standards, environmental regulations, and general company management methods of the region you intend to operate in. However, even with preparation, success isn't guaranteed, so be mentally and materially prepared for a second attempt if necessary.