The Biggest Financial Fails Made by Creative Businesses

The Biggest Financial Fails Made by Creative Businesses

Xcela Wealth

Creative businesses are often seen as a ‘bold’ move by aspiring entrepreneurs. Most of the time, pursuing a creative business does not necessarily mean filling a present need. These companies start by ‘creating’ a need that people didn’t realize before.

A strong example of this is the rise of Apple. Before the launch of iPhone, people were contented with their Blackberrys and other handheld devices. The idea of Steve Jobs created a need for individuals to make their phone something that integrates entertainment, accessibility, and communication. The need was ‘created’ and therefore there was a demand for the product that’s unprecedented. According to financial company Xcela Wealth, all creative businesses have a high risk of failing because they’re purely based on innovation. Incidentally, these types of businesses can also experience the highest amount of success given the right conditions.

In this post, we will be looking into some creative business financial fails and how your future company can avoid them.

The Biggest Financial Fails Made by Creative Businesses

1. Having low sale margins

An example of this company who experiences this problem is Quirky. Initially, the startup company had a brilliant idea. People can choose inventions they wanted to be made and the company will finance the production and distributions of this product. Think similar to Shark Tank, only that the inventors were dealing with is the company itself. The problem that Quirky encountered in the sale of their products is having zero to thin margins. In some instances, they have developed products that cost over $400,000 but only sold 28 units. There were no profits as there were no demands for the product, and the product margins were very small. As a result, they had to close the company down.

2. Underestimating liability costs

Another possible problem that creative business may experience is failing to see the all the different upsides and downsides of running the company. A good example of this was Secret, a creative app which was originally intended for anonymous expression and sending messages more openly in a public space. The goal of the company was simple and good-natured, however, it turned ugly when a lot of people complained about experiences harassment and cyber-bullying. The company faced a lot of financial liabilities due to these complaints as they weren’t able to see the double-edged sword of how their app might run. Before starting a creative business, it is important to attack all possible outcomes and find a plan on how to recuperate in case things don’t turn out very well.

3. Avoiding to invest in technological advances

Another financial goal of a creative business is investing in technological adaptations. With the current pace of digital development, a company should have extra funds to spend on machines, web developers, and other professionals to keep their products and services up-to=date. An example of this is Blockbuster. Blockbuster used to be the leading movie rental provider in the US. They adapted fine during the transition from VHS to CDs and DVDs. However, they were not able to compete when Netflix started to offer movie choices through e-mail and internet. Learning to keep up with trends and investing in them is one crucial step to keep your creative business going.

4. Overstaffing and underpromoting

According to Xcela Wealth, it is very helpful for a business to seek advice from a financial company to help them target where they should allocate their startup budget. Another reason why some creative businesses fail is when they spend money on recruiting staff members, but failing to promote their businesses to actually find a demand. When this happens, there are more expenses than actual income. A good review of the business needs for growth is essential to avoid these financial failures at the beginning. An example of this is Zirtual. Zirtual was a strong startup company that became overconfident with recruiting virtual agents in the hopes that the demand will come. Eventually, the demand waned and the owner needed to remove some workers to regenerate its profits.

5. Refusing to prioritize passion over profit

Passion is important to keep a business going, however, it’s not the only thing that can make it thrive. In fact, it can almost be a death sentence if a creative business runs purely on passion without profit. A picture of this can be seen in the failure of Fashion Cafe, a high-end restaurant there offered novel items from the menu. Some of the food choices were overpriced and too artsy to create an appeal. This left the restaurant going bankrupt in early 2000. Before concretizing any idea, there must be a balance between the creator’s passion on the niche and the profit it can create made by the demand. When this is not prioritized, creative businesses fail.

Building a creative business is an exciting time for any entrepreneur. Although there is always a financial risk involved, you can always minimize this by doing proper research and asking help from certified specialists such as Xcela Wealth.

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