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Sadly, 20% of start-up businesses fail within the first year operation and 60% fail within the first 3 years. This is average across all industries. We’ve done our best to provide a comprehensive list of things to consider when planning your next diversification, to ensure you don’t fall foul of this statistic!
So why exactly do so many start-up businesses fail you ask? According to the latest data provided by CBInsights, the reasons for failure were the following:
- 42% of start-up businesses fail because there’s no market need for their services or products.
- 29% failed because they ran out of cash.
- 23% failed because they didn’t have the right team running the business.
- 19% were outcompeted.
- 18% failed due to pricing and cost issues.
- 17% failed due to a poor product offering.
- 17% failed because they lacked a business model.
- 14% failed due to poor marketing.
- 14% failed because they ignored their customers.
Many start-up businesses will fall into more than one of these categories. Don’t fall into the same trap with your new diversification venture, remember we are here to help!
Some Common Assumptions to Consider
The Harvard Business Reviews report on innovative business has highlighted the following assumptions to be the most fatal to start-up businesses. We think they’re just as applicable to rural business as any other business!
“Customers will buy our product because we think it’s a good product”
Remember the reason for 42% of all start-up failures?
- How will you identify market demand?
“Customers will buy our product because it’s technically superior”
Often we see businesses and enterprises that offer no additional value than their competition.
- How does your diversification compare to the competition?
- How can you better place your product to penetrate the market?
“Customers will agree with our perception that the product is “great””
Unfortunately, farmers have historically been inherent price takers, emphasised by the perceived value of food commodities decreasing in the western world.
- How can you ensure a high perceived quality for your product or service?
- How can you be sure your diversification offers what the consumers actually want?
“Customers run no risk in buying from us instead of continuing to buy from their past suppliers”
- How can you be sure consumers will make the switch from current products and services to yours?
- Is your branding and marketing good enough to cause the initial consumer preference change?
“The product will sell itself”
- Sales strategy and solutions should be at the forefront of your business plan. It sounds counterintuitive, but reverse budgeting is key to innovation in business.
- How will you sell your product or service?
“Distributors are desperate to stock and service the product”
Similar to the above statement, its easy to assume that your product will sell through other vendors.
- How can you make sure you have sales outputs for your products and services?
- Do you need other distributors?
- Would using other distributors increase your sales?
- What margin will distributors charge?
- Can you produce the product cheaply enough to warrant distributors?
“We can develop the product on time and on budget”
The importance of an accurate business plan is often overlooked, especially when the venture is being privately funded.
- Who will hold you accountable for meeting targets?
- How can you tell your budget is realistic?
- Is your business plan thorough enough?
“We will have no trouble attracting the right staff”
Finding staff to run a venture can be a huge limiting factor for rural businesses, not to mention the time input required if running the enterprise by yourself as well as farming.
- Does your enterprise require staff?
- How will you source staff?
- How will you determine who is the right candidate?
“Competitors will respond rationally”
- Can the local competition act to position themselves ahead of you?
- Have you considered how the local competition respond to your entry into their market?
“We can insulate our product from competition”
- How will you ensure your product or service remains ahead of the competition?
“The rest of our company will gladly support our strategy and provide help as needed”
Particularly within agricultural businesses, synergy between enterprises and minimal interference is vital, due to existing time constraints.
- How will you ensure the enterprise doesn’t impede on the day to day farming operation?
- Can the existing business support the new venture in its infancy?
Every successful business venture starts with an accurate and well thought out business plan. This takes time, discipline and often, a wide range of skillsets. If you have a burning business idea but aren’t sure where to start, or would like assistance from business planning through to enterprise implementation, give us a call today for a free initial consultation.
Remember to use our free diversification discovery assistant. Simply fill out the questionnaire to receive a free report detailing advice on the best diversification for you and your farm.