Why Entrepreneurs Fail
Entrepreneurs are vital to a successful, growing economy. Profitable businesses offer a high percentage of income, employment and wealth for a country. Despite this, a number of barriers still exist that ultimately discourage many would-be-entrepreneurs from becoming their own boss. According to The Telegraph, 60 per cent of new businesses will go-under within three years, and 20 per cent will close their doors within just 12 months.
Below are seven problems entrepreneurs face when starting a business that ultimately cause them to give up.
1. Lack Of Finance
Some people with realistic business ideas do ever get started because they cannot attract the necessary finance. The main problem that individuals face when they have an idea is that the providers of capital and loans may be reluctant to lend money to entrepreneurs. This is due to the long history of the high failure rate of start-ups. Failure is likely for new businesses and financial providers cannot afford to lose money. If a person manages to get credit for his/her business then it is likely to be at a high interest rate with the common request of added collateral.
2. Lack Of Entrepreneurial Capacity
To be successful in business people have to be equipped with the necessary entrepreneurial skills and characteristics. Running a business requires a multitude of talents and skills that some people simply do not have. The demanding life of a start-up requires the entrepreneur to have considerable energy and commitment, whilst in some cases this can be trained, it is easier for those that this comes naturally.
Many people lack the entrepreneurial capacity needed and therefore fewer businesses are set up. However, this may not prevent some people trying. Although some make a success of it, perhaps from learning from their mistakes, they may only be a small minority.
3. Becoming An Employer
Employing a person for the first time is quite a big step in the development of a business. Employers have responsibilities to their employees. For example:
- Employees have to be paid a regular wage
- Health and safety requirements have to be considered
- Employers will have to contribute to national insurance
- New employees may have to be trained which is a huge outlay to smaller businesses
These responsibilities often discourage employment and therefore prevent business from expanding. There is also a chance that the Employee is actually a hindrance to the company by being unreliable and possibly damaging the reputation of the business. Becoming an employer may be an unattractive proposition for some entrepreneurs and is a key reason why entrepreneurs fail in the end.
4. Legal Barriers (Red Tape)
Bureaucratic ‘red tape’ can discourage potential entrepreneurs. Legislation and other regulations can be demanding – complying with legislation relating to employment, the environment, consumers, corporate governance, health and safety, taxation, property rights and competition costs money and diverts an entrepreneur’s focus away from what is really important – i.e. ‘generating income’.
5. Lack Of Ideas
I think at one point in most people’s lives they have been fascinated by the thought of being their own boss. The reason they fail to make the jump is because they fail to think of any original ideas. A lot of markets are saturated or so competitive that the potential for profit is limited (e.g designer trainers). It is possible to take out a franchise or reflect the ideas of others. However, for many people this does not reflect the spirit of enterprise and can be a reason why entrepreneurs fail so quickly.
6. Fear Of Failure
The failure rate for start-up businesses can be high. Many new entrepreneurs that start may not realise that statistically their chances of success may be quite low. However, many do recognise that failure is a possibility and the fear of failure stops them from starting an enterprise.
7. Aversion To Risk
Entrepreneurs have to take risks. But many people are risk averse and are not inclined to undertake activities where the outcome is uncertain. This is a psychological barrier to enterprise and one that is difficult to overcome. It is hard to encourage a person to ‘take a gamble’ if they are not that way inclined. This barrier is covered time and time again by motivational speakers with the aim of persuading people to try something new.
Thank you for reading ‘problems entrepreneurs face when starting a business’. If you have any videos to place in the article, comment the link below and I will add what I feel is relevant.