4 Reasons Why Your Home-Based Business Will Fail

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why home based business

Whether your venture has a conventional setup or a modern one, hardships spare no business. This is primarily because running a business is synonymous with risk-taking. Sometimes these risks yield profitable results, and at other times, they don’t.

In fact, in FY 2016, businesses generating less than USD 5 million annually saw a growth in average annual sales of only 7.8%. This reflects how difficult it is for small businesses to stay profitable.

More often than not, business communities assume the wrong reasons for the failure of home-based businesses. They believe it is because the entrepreneur (who is often the only showrunner) doesn’t have enough money to keep the business running.

On the contrary, it is when the owner cannot generate enough money from the business that it fails. Making informed decisions right from the inception of your business idea can help you establish a stable venture.

Here are four causes of failed businesses along with tips on preventing such situations from arising:

1.Inability to Cope up with Growth and Expansion

Growth and ExpansionFor small businesses, it is common to grow faster than the speed they can keep up with. Knowing when to scale the home-based business can be tough. You need to make sure that there are enough resources to grow business operations.

This is when the situation may get tricky as you’ll have to determine which business functions require these resources. For instance, it may not be a wise decision to expand the marketing and sales teams when your product needs to be enhanced to meet market needs.

Once your business model is set in place, you need to focus on reducing the cost of acquiring new customers. Start approaching investors and financial institutions who may be willing to provide additional funding to accelerate your expansion. Chalk out a sustainable expansion plan that reflects the allocation of funds and provides a clear roadmap of how the working capital will be used to grow the business.

One of the talked-about startups, Cha Cha had to shut shop because the mobile answering service provider was unable to handle its debts and could not allocate sufficient funds for R&D. As a result, Cha Cha’s services were not on par with its competitors and lacked new technology that was needed to stay competitive.

Business expansion requires more of strategic planning as compared to managing day-to-day business operations. Make sure the initial business is stable before planning any new moves. One way to determine future development plans is to conduct thorough market research and analyze the current performance to ensure the time is right for expansion.

2.Lack of Leadership

LeadershipTo lead a business, you need to have extensive industry knowledge and management skills to work according to the vision of the business. Dysfunctional leadership will set the wrong example for the other stakeholders of your business.

Enroll yourself in business management programs, get in touch with a startup incubator or join entrepreneurial training programs to improve your management abilities.

You will struggle as a leader if you are unfamiliar with making management decisions, supervising external consultants, managing client expectations, retaining employees and working in tandem with the market needs.

Employees of virtual assistant company, Zirtual faced this situation when the CEO of the company sent an email saying it was “pausing operations” and subsequently laid off about 400 employees.

Maren Kate Donovan, CEO of Zirtual, admitted that the company needed the expertise of a full-time CFO and a proper management board. The indecisiveness of the top management caused the company to miss out on receiving the next round of funding, and it eventually shut down.

Ineffective business leadership can adversely affect your business functions, including financial management, quality of product/service, and employee engagement. You need to exhibit inspiring leadership skills to ensure that productivity is not hindered.

3.Not Acting on Business Leads

Business LeadsThe majority (86.4%) of small businesses in the United States operate without paid employees and are sole proprietorships. This implies that business owners need to generate their own sales leads and engage with them, making this a common struggle for most home-based businesses.

To achieve the initial sales targets, you may convince your family, friends and connections to try your product/service. This approach can help you get the ball rolling and reach more people through word of mouth. But, even before this list of social affiliations exhausts, you need to identify a reliable target audience that will be genuinely interested in purchasing from you.

Not all entrepreneurs have sufficient funds to invest in advertising, at least not in the initial stages. As a result, they are unable to promote their brand for traction. Many of them end up marketing their brand and trying to drive sales on their own. Subsequently, these business ventures run out of money before breaking even, as they are not able to achieve the sales figures required to survive.

This happened with Homejoy, an on-demand home cleaning services company that had to close down because of poor customer retention and subsequent losses that led to its downfall.

When it comes to generating massive amounts of leads, identify methods that give you the desired amount of leads without having to invest heavily. For instance, you can enter into a joint venture partnership with a trusted brand to avail its customer base.

4.Not Highlighting Unique Value Proposition

USPYour business is only as good as your unique value proposition. Your unique selling proposition (USP) sets you apart from your competitors and determines your unique position within the marketplace.

As the owner of a home-based business, you must identify a value proposition for your product/service that is attractive and effective in getting your target audience’s attention. When determining the unique selling proposition for your business, you must keep the following points in mind:

  • Include all features and benefits offered by your product/service
  • Identify your ideal customer and his/her behavioral trends
  • Strike an emotional chord with your target audience
  • Compare with your closest competitor and list your points of parity and differences
  • Form concise answers to predictable questions like, “What is in it for me?” or “How is it different from XYZ brand?” and “How is it value for money?”

An appealing value proposition will help you market your business and establish yourself as a unique brand.

In Conclusion

With customer choices changing at an accelerated pace, it is difficult for small businesses to stay relevant and operational for a long time. Multitudes of home-based businesses fail as they are unable to cope with market changes.

Getting the fundamentals of managing business operations right can help entrepreneurs avoid the predictable challenges and enjoy steady success.

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