Small business can fail at any phase in their stages of development. Generally,

Question

Small business can fail at any phase in their stages of development. Generally, the failure rate of small businesses is much higher than that of their larger counterparts. Why? What kind of interventions can be made to reduce the rate of small businesses failure? Small business can fail at any phase in their stages of development. Generally, the failure rate of small businesses is much higher than that of their larger counterparts. Why? What kind of interventions can be made to reduce the rate of small businesses failure?

Explanation / Answer

Business Model: Business model is not viable when customer acquisition cost (CAC) is higher than the lifetime value (LTV) of the customer. Small businesses plan assumes that the CAC is less than the LTV and in reality, the CAC becomes more because of many reasons such as low volume, outdated technology, and high market spending etc. Scalability and monetization of the customers are really difficult in small business. Outsource the some of the requirements instead of making in-house investment reduces the burden on the business. Using shared cloud computing instead of investing ERP is the best solution to reduce the cost.

Product problem: Small companies unable to spend money on product development. In the dynamic scenario, the product requires changes and small companies need to accommodate these frequently. Because of resource constraints, small companies fail in introducing new products or frequent modifications on the existing products.

Working capital management: For small businesses, the big challenge is working capital management especially cash management. For big players, banks ready to lend with lower interest rates and big companies can raise money from the stock market. But for the small companies can cost of capital is very high and managing the working capital with limited revenue sources becomes very difficult. Governments need to support small businesses with low-interest loans and tax breaks and tax breaks help the small businesses to survive in competitive markets.

Management team: Many times small business run by the entrepreneurs and their focus is diverted from innovation to revenue generation. Small business can’t higher better talent from the market because of their budget constraints. Building expertise to compete in the market is a real challenge for small players. Small businesses need to built agile team to bring this gap. Engage expertise from outside through outsourcing is the best option for small players.

Market Problem: Small companies fail because of Market problems. Market size is to shirking because of your product may not be relevant in the market or your product may be ahead of the time in the market. Sometimes, big players dominate the market with better products or service. Your customer attracted by the big player’s discounts, better features and or better service. Creating niche is very important and avoids competing with big players is the best option for small businesses.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.