Ferrari Energy Shares How to Prevent the 4 Most Common Reasons for Business Failure

Adam Ferrari founded Ferrari Energy in Denver, CO
Adam Ferrari CEO of Ferrari Energy. Denver, CO.

According to the Bureau of Labor Statistics, about 20% of businesses fail in their first year, and about 50% fail by their 5th year. Therefore, understanding some basic business principles is vital for success. In this article, Ferrari Energy covers the four most common reasons businesses fail and how to prevent them.

The following pitfalls are relevant to any business. Whether strictly online, full brick and mortar, or a combination of both, these fundamental business principles should guide your startup.

1. Poor Planning

Poor planning is at the top of this list because that is its rightful place. A lack of proper planning is at the core of nearly every business failure.

Proper business planning is complex because the essence of the process is to know the unknowable and predict the unpredictable. Your business plan should include a contingency for every potential hurdle and then provide for those problems you can’t yet conceive of. It can be done, however.

The most common business planning mistake people make is overestimating sales and underestimating costs. This is commonly done even knowing that the estimates are unrealistic, but the wishful numbers are the only way the business makes sense on paper. Try not to factor in luck. The more prominent role luck plays in your business plan, the smaller the chance of success.

The best advice is to use real numbers in your business plan, then use your plan to make a rational, not emotional, decision about whether to proceed with the venture. Untold thousands of would-be business owners could have saved themselves a lost fortune if they had used real numbers in their plan and then believed what the numbers told them.

2. Under Financed

When making your business plan, consider that nearly everything will cost more than you think, and it will take longer to start generating significant revenue than you imagine.

Underfinanced companies clutter the landscape of business failures. But, if your plan is built around the cost more and takes longer philosophy and things still pencil out, you may have a better chance of success than many before you.

3. Inexperienced Leadership

Another common mistake made by new business owners is they lack leadership skills when they get started. It is easy to mistake an exceptional knowledge of your product, technology, or industry as sufficient to lead a company. It’s not.

Leading a successful company is a skill all its own. If you have the financial resources and technical knowledge to start a business, take the time to learn management principles. Take some classes, read management books, and approach your task willing to change many of your notions about running a company.

4. Marketing Snafus

Marketing a product or service can be like walking a tightrope. Too large a marketing budget and your cost of sales will strangle your profits. Too little marketing and you may not generate enough sales to sustain your business.

Unlike many of the other business pitfalls, marketing can be mimicked. Using whatever legal means available, determine how other successful companies in your space market their products or services. Estimate how much they spend, then plug that into your business plan to give you a starting point.

About Ferrari Energy

Ferrari Energy is a family-owned private oil and gas company focused on mineral and leasehold acquisitions. Adam Ferrari founded Ferrari Energy in Denver, CO, and has consistently served the needs of the landowner community in the basins in which it works. Its operation covers several areas throughout Colorado, Wyoming, Utah, and ND. Ferrari Energy has provided oil and gas leases to over 850 homeowners and held multiple lease signing events to accommodate the residents of Broomfield, Colorado.