A company that’s not growing is dying. This is an unpleasant reality
that comes with the capitalist system, and it’s especially harsh for
smaller or newer companies. Between concerns over debt, resource
acquisition and client maintenance, plenty can go horrifically wrong.
It’s no wonder that 80% of small businesses fail.
The prudent investor must watch must watch for these five warning signs.
1. Lackluster products.
A common challenge for any
new business is separating themselves from the crowd. A company unable
to provide a quality or niche product will likely get steam rolled by
others already established in their field.
Look through their product catalog to determine if the company has
carved out a spot in their niche. If nothing stands out as unique to
either the area or the market in general, rest assured someone else is
already providing it. You should avoid investing in companies like that
because, more often than not, you are disappointed in the end.
2. Lack of vision.
To survive, a company needs a
solid business plan stating the targeted markets, as well as a vision
statement stating how the market will be penetrated.
One of the major issues small companies encounter is their inability
to reach out, grasp the public’s attention and convince them to utilize
their services or products. Ask to see the company’s planning documents.
If they don’t have a one, that is your sign to pass.
3. Lack of growth.
A young company needs rapid, yet
scalable growth to survive. The reason is simple. There is no guarantee
their faithful customers will be there tomorrow. It’s vital to find new
ones as often as possible.
Ask to see the company’s purchasing history and compare it with their
list of clients. The company probably doesn’t have a very bright future
if they only have one or two major clients and no active plans for
expansion. Save your money for a brand that understands the importance
of a diverse client base.
4. Crowded marketplace.
A market with dozens, if not
hundreds, of competitors will prove much more difficult for a new
company with limited resources for marketing itself and its services.
Look for companies that start in smaller areas, or have a niche
product patented or trademarked. If in doubt, check to see if the
company has spread. A startup is much more likely to succeed if it
exists in more than one market, especially when competition already
exists.
5. No research and development budget.
Markets
change frequently, thanks to the changes in public demand and the pace
of technological innovation. To succeed, a company will need to nimbly
recognize changes as they come, adapt and take advantage ahead of their
competition.
Check the company’s financial report. Back away from any firm that
does not dedicate a decent chunk of their profits towards preparing for
the future. A hefty research and development budget is vital.
VC investing offers no guarantee you’ll make a profit or even get
your money back, so pay attention to the warning signs of predictable
startup failure. Obtain the necessary documents and consult with a
financial analyst if you have the time. Otherwise, stick with more
established companies and avoid the 80% failure rate.
Source:http://www.entrepreneur.com/article/235659