This year’s economic report released by the US Commerce Department showed that the number of small businesses filing for bankruptcy has reached a ten-year high. While many people attribute this increase in business to the current state of the economy, it is also possible that businesses were simply unable to sustain their operations in the past. Businesses will typically go bust during two primary reasons: their products aren’t selling and their business model doesn’t make enough money to cover overhead costs.
Many businesses start out by building too much, too fast. They often fail to realize that they have to compete with a saturated market that includes hundreds of competitors before they begin to see any profits. In the past, people have relied on “catch-up” marketing techniques to sell their products to a market that may not have had the technology or access to the media that is available today. But because businesses can no longer count on customers keeping pace with technological advances, they are forced to find creative new ways to get their message to consumers. And sometimes that means shutting down their operations temporarily as they react to changing consumer demands.
Another reason why some companies go bust rapidly is because their products or services are simply too complicated for a mainstream market. Companies often try to sell their products or services to consumers who may be unable or unwilling to deal with technology or the sophisticated language of modern businesses. Even when a product or service is popular or has a wide appeal, savvy consumers can often detect advertising or other promotional tactics that will make their lives easier and may cause them to do business with a company over competitors. For example, while consumers in many markets enjoy ordering food online or using automated teller machines (ATMs) more than ever, there are still some markets where it may be more convenient or profitable to buy the things that businesses produce rather than having to order them from a distance.
As competition among business companies grows, companies can also face serious financial challenges, especially if they sell expensive products or services to markets that aren’t familiar with their offerings. In this scenario, business owners may need to cut back or even close operations to prevent their businesses from going under. In these cases, businesses that have already gone bust are commonly “merged” into new, healthier companies that continue to operate even though they have lost most of their early customers.
Even if markets aren’t ready for a specific type of business, many companies go bust because of unproven innovations or products that haven’t commanded enough interest from consumers. Other times, the products or services offered by a business may be too specialized for the general market. A final reason why businesses go bust in their efforts is poor market penetration. Market penetration refers to the percentage of the population that can purchase a product or service based on research and a need. While markets can change dramatically over time, if the products or services being offered by a business are not familiar to that market, it’s difficult for consumers to imagine buying them or at least turning to them for advice.
While many businesses go bust each year due to poor market penetration, it’s also true that many are born with unique challenges that make it difficult for them to compete with larger, better-known competitors. Some businesses go bust due to a short amount of time in business, while others may struggle for years before closing their doors. In order to survive, these businesses need to work with their resources and find creative solutions to some of their problems. Even when markets are stagnant or declining, there are millions of potential consumers out there waiting for products or services that may make their lives easier. Businesses can take advantage of this demand and find success in their industry.