How to Plan to Avoid Business Failure?

Business failure is a distinct possibility for many businesses, especially for start-ups during the so-called three-year "valley of death". A key to getting through these years is to avoid the obvious mistakes. Generally speaking, businesses fail for significant and substantial reasons which are often very evident to outsiders. Insiders often fail to see them because of their closeness, determination and so on. Areas where failure is most likely to occur include finance. Markets/sales, offerings, management and operations. See a detailed listing of possible reasons for business failure.

Clearly, there are very many reasons as to why businesses fail. The key point is that causes are usually very apparent (especially with hindsight) and the trick is to anticipate them by executing appropriate tactics and strategies from the outset. Three examples:

 Use market research to confirm demand and assess suitability of proposed offerings.

 Create a management team to offset any gaps in experience or expertise.

 Raise equity to reduce exposure to interest rate changes, reduce gearing etc.

Given that reasons for failure are often both simple and clear, it should (in theory) be possible to reduce the possibility of failure through prior experience, forethought and effective planning.
Sound Market Analysis is Key to a Sound Business Plan

The Market Analysis section of a business plan is very difficult to prepare especially for start-ups or established businesses diversifying in new (to them) markets. These difficulties will be compounded, due to an absence of any reliable data or evidence of likely demand, for businesses entering completely new markets or launching radically new offerings. Nonetheless, this section is critical as it underpins the business plan and demonstrates that the promoters have done their homework and know their marketplaces (at least as well as the incumbent players or other new entrants). If this section is unclear, vague or superficial, it begs the question as to whether there might be any real, sustainable demand for the proposed offerings.