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Key Factors Behind SMEs Failure

Key Factors Behind SMEs FailureKey Factors Behind SMEs Failure

According to experts more than 60% of enterprises in Iran fail within their first year, and about 20% before their third year of business. Small and medium-sized enterprises (SMEs) fall victim to such circumstances more frequently than large companies do. In addition, more than 90% of projects fail to attract enough investment to get going.

In an article published by Forsat-e Emrooz newspaper, economic expert Abbas Na’eemi Amini elucidated a number of differences between SMEs and large companies that could lead to failure or success of a newly launched business.

The first and foremost oversight in establishing a new enterprise is opting for average workforce rather than specialized staff. The fact that small enterprises often lack sufficient finances to afford a professional team of workers is the reason why so many SMEs go out of business before getting a small taste of success.

Another common mistake among entrepreneurs is neglecting the significance of local needs before taking the plunge. Regional necessities of a certain area must be recognized before putting a business idea into practice, because a successful business in one area may instantly fall short in another.

Disregarding the competition factor is the third frequent slip-up. Many businessmen are under the wrong impression that launching a company is the most important part of establishing an enterprise. Such a wrong frame of mind will give way to well-advertised firms to take the market by storm. Constructive marketing strategies must be adopted in accordance with the size of the business as small businesses typically provide for a limited region where general marketing strategies may be ineffective. Employing customer-centric marketing strategies have proven advantageous for developing SMEs bearing in mind that competition is inevitable in any given market.

Being focused on a single economic activity, particularly for those with no previous experience in the industry, is the next item to take note of. Being focused on one specific economic activity is a key principle in helping a new business to stand on its feet. There have been many successful enterprises that failed as soon as they joined new markets in the hope for more profits.

Anticipating potential threats together with ready-to-use strategies to tackle them can also be a preventive measure for a new business. How an entrepreneur handles a business crisis, though, has a good deal to do with their personal business approach. Market risks, operational risks, technological risks, management risks, and legal risks are among the threats that must be foreseen and prepared for.

One must also bear in mind that even if the planned budget is in proportion to the needs, a backup financial source is vital in launching a business of any size. In large companies financial shortage is overcome by magnetizing private or state investors. Such possibility, however, does not exist in small businesses. As the next key factor to consider, having a backup source of funding will decrease the number and likelihood of business risks.

Preparing a comprehensive schedule and setting short-term plans is the last but not least important thing to remember. In large corporations economic objectives are achieved in a longer period than in small businesses. Time management and preparing a realistic schedule will help an SME survive potential business crises.

 

Financialtribune.com