Some small and medium sized enterprises fail soon after being
started. Others hold on a bit longer. But all Startup failure can be attributed to factors such as character of the entrepreneur,
external business environment, internal processes and the
relevance of the business itself.These factors can be referred to as the 'constraints to small business development' because they characterize challenges that most newly established businesses fail to surmount.
For a detailed look into factors that lead to small business failure we need to also understand how these challenges can frustrate
growth and development of small businesses.
Lack of access to capital
A vague or inadequate source of capital will set a business up for failure. People go into
business without a clear source of capital hoping that they can keep
their heads above the turbulent waters of competitive business. This is
a big mistake. They soon realize that they need more than they
budgeted for. When there is no available means of bolstering working
capital, the business finds it impossible to continue
operating.
Entrepreneurial Skills
Book knowledge is necessary but experience
(which can only be gained on the job) gives life to a business. Many
managers find it hard to lead their entrepreneurial inventions into
success simply because they don’t have the required experience. A business can stay afloat with the services of a manager who knows how to negotiate challenges simply because he has been there before.
Competition from Already Established Businesses
New businesses are unable to compete with those that enjoy greater economies of scale.
Economies
of scale are developed over time. Indeed businesses that are well
established can fight-off competition in a hostile fashion by simply
using their size to counter new entrants. Similarly, already
establishes business have a valuable intangible asset called goodwill.
This can not be bought with money it can only be accumulated overtime.
Lack of Government Support
Although
small and medium sized businesses have a big impact on every
country’s per capital income, some governments might find it
irresponsible to promote specific types of business probably because
they pose threats to other businesses that contribute generously to the
government’s kitty in terms of taxes. Similarly, some small business
activities are very hard to monitor. These factors might lead
governments to reserve its support for such a businesses. Eventually, it
becomes hard for a business continue operating.
Laws and Regulations
Related to poor government support is inhibitory and unfavorable legislation. Bureaucratic laws are demoralizing. Entrepreneurs are unable to run their businesses under laws that discourage innovation and freedom to operate. Governments that have a milliard of initial legal requirements that must be met are a disservice to the development of new businesses.