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Top 7 Reasons Why a Business Fails

It’s hard to say goodbye. That’s not just a cliché. Saying goodbye is fairly tough—to a person; to your dream; to your cute little business! It’s tough to accept the fact when your business fails.

You had a dream… you had an idea… you wanted it to work, and you took the bold step to establish a business. But somehow things got haywire. When the circumstances demand the big decision, it is often heart wrenching to curb your emotions and take that big step.

After all, you have spent your money… you have spent your time… you have shed your tears, your blood, and your sweat to build your dream. By now you have an emotional attachment to your business. You feel shattered… you feel embarrassed… you feel ashamed.

Many thoughts run through your head. You console yourself with the thoughts of closing down for a while to get your act together, and starting again when you have the conducive environment. You find yourself determined to give your idea a second shot; albeit with the lessons you have learnt until now. You think about saving your assets until you are ready for the second stint. You consider the associated cost in holding on to the assets for all that time. And when you find it even more challenging to holding on to assets, it breaks you even more.

You ask yourself questions. What if I keep going for a little bit more before calling it a day? Will I really be able to start again? However, sticking on to the business that is not working is tough. You keep injecting money. You keep struggling with your staff, your clients, your sales, and more importantly, yourself.

Closing down a business is not for the faint hearts.

Really. But the good news is: closing down a business makes you tough and wise; only if you realize, that is.

When it is clear the business is failing, it is time to retrospect

What You Need When Your Business Fails?

All it is required to stand up again is courage, will and determination. Courage to face the situation and consequences of your decision to start again. Will to succeed in the face of all adversaries. Determination to make your dream come true.

Failure is not the end of the world. Failure is neither the opposite of success. On contrary, failure is the first step towards success.

Take the heart from what Thomas Edison said after his many unsuccessful attempts in making a light bulb:

“I have learned fifty thousand ways it cannot be done and therefore I am fifty thousand times nearer the final successful experiment.”

Thomas Edison

THIS is the mindset that gets you going. THIS is the mindset you need to achieve your dream.

Stop. Relax. And retrospect on what went wrong.

Why a Business Fails?

It is always good to think twice before starting a new business. According to an article published in Forbes, about 90% of startups fail globally. As a result, only one out of ten turns out to be a prosperous and sustainable business.

There could be several reasons why a business fails.

1. Choosing a Wrong Product

The biggest reason for a failed startup is creating a solution that never really had a problem. Fortune mentioned that about 42% of the startups fail because they work on a product that lacks market need.

You may have a great idea. You may consider your idea the best, and you perceive it to be loved by your clients too. But how would you know if your customers will actually like it? In fact, most entrepreneurs are afraid of their idea being rejected. When you are in love with your idea, I know it is difficult to hear any opposite opinions. But these are the opinions that can save you from even bigger heartbreak of seeing your business shutting down.

Unfortunately, most business owners start without proper market research. They go with their instincts, and just hope everyone likes it.

Lack of market research can be catastrophic for any business.

The method of conducting market research can be different for different businesses. Identify your niche, potential customers, and then depending on your business area, conduct your market research. If you are not sure about how you should proceed, check with the experts in your field. You can always find guidance on the internet on carrying out the market research specific to your business.

Whatever you do, do not ignore going through this extremely important process. As tiring or difficult as it may sound, but this is the number one effort that can grow or fail your business. Again, whatever you have to do to get this done, you must do it. Cannot emphasize enough.

2. Lack of Clear Vision

Many entrepreneurs start with the hazy picture of where they want to be, and what exactly they want to achieve. Without a clear vision, your business will be pulled in many different directions. It will be harder to create strategies, steer your business and grow accordingly.

If your business lacks direction, there is a little or no growth, you are having a hard time taking a decision, or you are experiencing costly delays, then your business lacks a long term vision. In this case, you immediately need to take action. You must set goals for your business, create a clear plan, define path, and stick to your vision all the way.

Keep in mind that plans are basically made to give your business a clear direction. Almost no plan goes hundred percent as it was originally planned. Changes to the plans are mandatory. However, those changes should not be at the cost of your vision.

Lacking of clear vision often turns the focus away from quality towards quantity. Many business owners start a business and try to take as much business as possible. In doing so, they become too diverse in their offerings, too often too quickly.

Having a clear vision will help you focus on what works in your business. It will allow you to take out anything that does not contribute towards your business goals. Having a clear vision also helps you in creating a compact marketing strategy. And, with a clear strategy, you can better define your market, your clients, and steps that you must take to achieve success.

3. Leadership’s Inability to Inspire

The leadership’s role is to create strategies, assemble teams, create work culture, provide guidance, and keep an eye on current and emerging business opportunities.

The ability for a leader to make everyone see what he or she is seeing is of vital importance. A leader must be able to transfer his or her vision to the team, so that the team works with the same energy and enthusiasm towards the goal.

Leadership should be able to demonstrate a constancy of character to attain trust, confidence and loyalty. As a business owner, you should be able to communicate your business vision to everyone that is associated with the business. Without having a strong character, it is not possible to pass on your mind and vision to the team.

4. Poor Management

It is the job of management to hire, train and mentor employees. If the employees are unable to get the work done, then the onus of failure falls on the management.

One of the common reasons why a small business fails is the owners’ inability to manage their team and business appropriately. While the owner may have the ability to create and sell a viable product or service, they often lack the qualities of a strong manager, or do not have adequate time to do so. Without a proper management team, there are high chances of mismanaging certain business aspects, such as finances, hiring, sales, marketing, and so on.

Smart business owners delegate the activities they do not perform well to someone who can. Therefore, it is important for the business owner to not only know his or her own abilities well, but also should be able to identify the abilities in his or her staff.

5. Lack of Finances

Another aspect of poor management results in the lack of finances. It is also one of the biggest reasons why a business fails. I will put the “lack of finances” again down to the management failure, because it is ultimately the management’s responsibility to appropriately manage business finances.

The business owners are usually more aware of their day to day expenses. They usually know their fixed and variable overhead expenses, such as salaries, rent, utilities, and so on. However, they are usually not totally aware of how much revenue they are generating through their sales of products or services. This disconnects leads to financial shortfall, which can quickly turn a business into a financial nightmare.

Moreover, the companies that operate in a highly saturated market, often provide their services or products at a far lower prices than their competitors. They do so with an intent to attract new customers. While this strategy is successful in some cases, keeping the prices too low for too long would ultimately result in shutting down the business. On the flip side, higher prices may result in good revenues, but should be backed with better quality, and smart sales and marketing strategies. If prices are not managed properly, the results would be unfavorable.

6. Poor Marketing

Small business owners often fail to prepare for the adequate marketing needs in their early marketing campaigns. Many business owners underestimate marketing requirements, and often miscalculate the capital required, customer reach, and customer conversion ratio projections.

Since marketing is crucial for the business, especially in the early stages, it is necessary to ensure that you have allocated sufficient budget for your marketing needs. Also, realistic projections related to customer reach, and sales conversion ratio is of critical importance for a successful campaign. Without proper consideration and planning, the marketing campaigns are more likely to fail, or eat more budget but still remain ineffective.

7. Failure to Adapt to the Changing Market

Business that do not timely adapt to the latest trends in the field are only just waiting for the failure. Most business changes occur due to increased competition, changed customer preferences or unpredictable economic environment.

As a business owner, you must keep yourself updated with the latest market trends, and how your competitors are adapting to these changes. And therefore, you should also adjust your business accordingly. In fact, more appropriately, you should be able to foresee the market changes in advance, and plan your strategy ahead of time.

The companies that deal with the continuous changes and turn the change into opportunity, will ultimately gain the competitive edge in the market. And the companies that fail to “ride the trend” often go down sooner than later.

We have seen many companies fail because they could not adapt to market change in time. For example, Nokia, who once was the biggest manufacturer of mobile devices, failed miserably because they could not keep pace with changing customer needs. They failed to catch up with Apple’s iPhone, resisted the change, and stubbornly stuck to Symbian OS, rather than adopting the Android OS like everyone else was doing. They could not improve their technology to match with that of Apple’s. So they ultimately ended up being sold to Microsoft.

So Why a Business Fails: Conclusion

Starting a business without a proper plan is a recipe of disaster.

If you fail to plan, you are planning to fail.”

Benjamin Franklin

To tell you the truth, businesses do not fail, but the leaders do. It basically all boils down to the leadership failure. It is ultimately the leadership’s responsibility to guide the business all along, and make the changes as necessary.

Some leaders are too tolerant or resistant to the idea of change. They are also afraid of doing experiments, and are not willing to appreciate a new idea. Then there are some leaders who are obsessed with the idea of perfection. So they press on things that are not necessarily required. Trying to achieve perfection is one of the biggest obstacles in growth.

Some leaders genuinely lack leadership or management skills that are required to run a smooth and successful business. If you happen to be such an aspiring leader, it is always a good idea to work with a business mentor that help you hone your skills to become a successful business owner.

Well, at the end of the day, as a business owner, if your business fails, you are only yourself to blame.

Check out this article to learn about the challenges for expat entrepreneurs in China.

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IP loss in China

IP (Intellectual Property) loss in China; 6 most common mistakes SMEs & entrepreneurs make.

This article is about IP loss landscape in mainland China. We did a summary analysis of the 6 more common mistakes companies make. here are the results, therefore let’s just get to it.

1. First let’s understanding the IP Legal Landscape and why IP loss happens.

IP landscape
IP landscape.

Many of the “complaints” are made by senior executives who actually do not clearly understand the complexities of IP. Aside they also do not know the mistakes their own companies may have made in protecting it. For example, filling a weak patent application or failing to register their IP at all ( an all-too-common mistake)*

We are interested IP loss because At Sesame Disk by Nihao Cloud one of our main goals is to keep the information safe at all times. Second we have had our selves living in china for many years a lot of experiences with IP protection and theft attempts. As a result we created NiHao Cloud in part because of this.

2. Not preparing the way in advance.

IP theft in action
Who are you?

Well known IPR lawyer in China, Dan Harris, in his article Protect Your IP From China: It Is Possible? He states that your IP has value, and if it can be copied with minimum effort, it will be copied. This means you must, therefore, prepare for this reality in advance.

3. Wrong assumptions about china.

Believing that since the company has done what is necessary to secure its rights in North America and Europe, there is nothing special they need to do in China. This is a BIG mistake.

Companies can win in china
Can you really win in China?

When we asked former lawyer Dan Harris, what’s the most common mistake regarding IP loss in China. Mentioning apart from legal issues, he answered that biggest and most frequent mistake lawyers see. Is on the IT side where foreign companies/start-ups hire a bunch of people in China to write code. These foreign companies do not form a company in China and do not hire coders as employees. In other words, everything these companies do is illegal. Then, years later when the software is done, Chinese partners just walk off with it. At this point there is nothing the foreign company can do about it. This is because the entire operation was illegal in the first place.

4. Not knowing how to keep your trade secrets safe.

Protect you data and intellectual property
Good business are based in secrets – Peter Thiel

A- What is a Trade SECRET?

Be non-public – it must not be known by the general public or by competitors;

B- What is a Trade SECRET?

Have actual or potential commercial value. As in it must give the owner a competitive advantage or be capable of generating economic benefit.

C- What is a Trade SECRET?

It is information that your competitors would want to know and would give them a commercial advantage.

Guarded by confidentiality measures – the owner must take reasonable measures to protect the confidentiality of the information.

Trade secrets may have many forms. include recipes or formulas, know-how, the status of products. Also services under development, valuable business information. This information or data might be in the form of:

  • customer lists
  • cost and price information
  • suppliers and contractors
  • contract terms
  • marketing strategy and plans
  • etc.

What you need to know about Trade Secrets in Mainland China:

Find it in China
The Asian Red GIANT

China, like most other countries, provides a legal framework for the protection of trade secrets. As such the law provides for remedies in the case that your trade secrets are unlawfully disclosed. This being said you might know some other forms of IP rights such as patents and copyrights that have a finite term. Otherwise trade secrets can theoretically enjoy an infinite term of protection as long as the trade secret remains just that – a secret. However, once the information becomes public information, it no longer enjoys any legal protection. Therefore prevention is the golden rule when it comes to protecting your trade secrets. This is because once the secret is out, there is usually very little that can be done. In addition keeping trade secrets safe involves using a combination of physical, technical and contractual barriers.

Furthermore “Many firms choose to keep their competitive edge by opting not to patent their inventions and trying instead to keep them as trade secrets”

5. Not adopting preventive measures to protect IP loss.

Ip preventive measures
IP Secrets Security

6. Underestimating the importance of proper IT systems to protect IP loss in China.

Bigger companies have their own established IT teams overseas that might be or may not familiar with IT challenges in China. As a matter of fact and especially with the GFW (the Great Firewall of China). Moreover your company should also choose a right IT company in China for services you might need. For example setting up new IT infrastructure in China tends to be complicated as compared to many other places.

According to Niels-Uwe Behrens, an IT expert long established in the Chinese IT sector; underestimating the importance of the role of IT in IP protection is a very common mistake:

“ I have been working in IT in China for more than 20 years. For instance it never stops surprising me how many companies have completely unsecured and open IT systems.”

Also we asked Niels about the current state of IT security awareness in China.

In my experience, I would say that roughly 80% of SMEs in China have at least one or more serious security issues. What’s more in many cases this breaches could be exploited by amateur opportunistic hackers. Not to mention in most cases it is not the hackers to be worried about. Even when 50-80% of the world’s IP hacks are traced back to China.

Mr. Niels

SMEs in China

In my experience, there are 2 types of SMEs in China: The first type take security seriously. This means their IT infrastructure is set up properly and in a secure way. Additionally their corporate culture prevents any IP leaks.

The second type of organization is less concerned and chooses not to pay much attention to a proper IT set-up since it works as it is. These companies usually adopt the attitude of; “real hackers go after big corporations, not small SMEs like us”, or “we don’t have any data of such importance. Therefore there is no need to encrypt and be overly concerned about security”.

When we think of IP theft we all tend to imagine that there must be some secret hacker organizations that go inside servers rooms and steals secret data in an action movie like fashion. But in reality, everything is much more simple than that. In most cases, especially in China, most trade secrets are stolen by the employees, former or current, who have access to corporate emails or even data server on their personal laptops. In most cases these laptops are not encrypted and can be easily stolen or hacked. Once someone has access to your corporate email or access to the main server, all your important data are at risk of getting out in the open.

This kind of data leaks can be used and will be used to publish your trade secrets or even out-compete your business. Eventually, this event will be registered as one of IP theft cases that are growing ever since 2005.

Stats on IP cases
Civil courts IP cases US vs China

Some additional facts of crucial importance about China

In China employee fluctuation can sometimes reach up to 75% annually, therefore, tendency of data leakage is very high. In Chinese mentality, it is very common that once employees get fired, they feel some sort of ownership of the work they have been doing for the company, and sometimes even devices like laptops or computers have been taken from the workspace. It’s is also very common that entire databases are copied to USB flash drives and later on used to start new businesses and compete with a former employer.

For security reasons bigger foreign companies tend not to use Chinese social media, such as Wechat, Baidu Cloud or QQ, for file sharing or chatting, since these are constantly monitored by the Chinese government. It is better to keep your most important IP and communications isolated securely in your own private server, maintained by yourself or a trusted third party.

Take a look
Insider IP theft

To maintain safe and reliable IT systems many SMEs are turning to managed service arrangements. From HR point of view, it is much cheaper and more effective to outsource most of the technology hassles to dedicated foreign IT experts, rather than looking for own IT specialists. For an economical monthly fee, these SMEs get a whole IT team responsible for maintaining and updating their systems with the latest security patches.

Finally

Regardless of your approach to IT security, keep in mind that organizations are increasingly dependent on technology, and it is, therefore, important to be as proactive as possible to keep technologies up to date and secure important data from both external and internal threats that tend to increase every year.

Do you have a story about China IP loss? Please share your experience in the comments below.

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