Why is it that so many businesses fail while
so few succeed ?
One of the great mysteries of
entrepreneurship is why businesses fail. Some
people start one successful business after
another while others fail to succeed.
Why some businesses fail while others
succeed?
The worst part about a failing business is that
the entrepreneur is unaware of it happening
until it is often too late. It makes sense
because if the entrepreneur really knew what
he was doing wrong, he might have been able
to save the business. Some entrepreneurs live
in a land of denial while others are unaware of
their mistakes.
One thing for sure, a business almost always
fails because of the entrepreneur.
“ It’s not the plan that is important, it’s the
planning. †Dr. Graeme Edwards
There are over 28 million small businesses in
the United States, according to the SBA.
It’s an impressive number. The sad reality is
that only about 50% of them survive. What’s
worse is that only about one-third survive 10
years or more. The life of an entrepreneur is
unforgiving. It is a constant challenge. There
are many moving parts. Any one of them
could put you out of business.
Businesses fail for many reasons. The
following list includes some of the most
common reasons:
1 – Lack of planning – Businesses fail
because of the lack of short-term and long-
term planning. Your plan should include where
your business will be in the next few months
to the next few years. Include measurable
goals and results. The right plan will include
specific to-do lists with dates and deadlines.
Failure to plan will damage your business.
2 – Leadership failure – Businesses fail
because of poor leadership. The leadership
must be able to make the right decisions most
of the time. From financial management to
employee management, leadership failures will
trickle down to every aspect of your business.
The most successful entrepreneurs learn,
study, and reach out to mentors to improve
their leadership skills.
3 – No differentiation – It is not enough to
have a great product. You also have to
develop a unique value proposition, without
you will get lost among the competition. What
sets your business apart from the
competition? What makes your business
unique? It is important that you understand
what your competitors do better than you. If
fail to differentiate, you will fail to build a
brand.
4 – Ignoring customer needs – Every business
will tell you that the customer is #1, but only
a small percentage acts that way. Businesses
that fail lose touch with their customers. Keep
an eye on the trending values of your
customers. Find out if they still love your
products. Do they want new features? What
are they saying? Are you listening? I once
talked to the CEO of a training company who
told me that they don’t respond to negative
reviews because they are unimportant. What?
Are you kidding me?
5 – Inability to learn from failure – We all
know that failure is usually bad, yet it is rare
that businesses learn from failure.
Realistically, businesses that fail, fail for
multiple reasons. Often entrepreneurs are
oblivious about their mistakes. Learning from
failures is difficult.
6 – Poor management – Examples of poor
management are an inability to listen, micro-
managing – AKA lack of trust, working without
standard or systems, poor communication, and
lack of feedback.
7 – Lack of capital – It can lead to the
inability to attract investors. Lack of capital is
an alarming sign. It shows that a business
might not be able to pay its bills, loan, and
other financial commitments. Lack of capital
makes it difficult to grow the business and it
may jeopardize day-to-day operations.
8 – Premature scaling – Scaling is a good
thing if it is done at the right time. To put it
simply, if you scale your business prematurely,
you will destroy it. For example, you could be
hiring too many people too quickly, or spend
too much on marketing. Don’t scale your
business unless you are
ready. Pets.com failed because it tried to
grow too fast. They opened nationwide
warehouses too soon, and it broke them. Even
the great brand equity that they have built
couldn’t save them. Within a few months, their
stock went from $11 to $0.19.
According to a study of about 3200 high
growth internet startups done by Startup
Genome, about 70% of the startups in their
dataset scaled prematurely.
9 – Poor location – Poor location is a
disadvantage that might be too much to
overcome. If your business relies on foot
traffic, location is a strategic necessity. A poor
location might make your customer acquisition
costs too high.
10 – Lack of profit – Revenue is not the same
as profit. As an entrepreneur, you must keep
your eyes on profitability at all times. Profit
allows for growth. According to Small
Business Trends, only 40% of small businesses
are profitable, 30% break even, and 30% are
losing money.
11 – Inadequate inventory management – Too
little inventory will hurt your sales. Too much
inventory will hurt your profitability.
12 – Poor financial management – Use
a professional accounting software like
Freshbooks. Keep records of all financial
records and always make decisions based on
the information you get from real data. Know
where you stand all the time. If numbers are
not your thing, hire a financial professional to
explain and train you to understand, at least
the basics.
13 – Lack of focus – Without focus, your
business will lose it the competitive edge. It is
impossible to have a broad strategy on a
startup budget. What makes startups succeed
is their ability to quickly pivot, and the lack of
focus leads to the inability to make the
necessary adjustments.
14 – Personal use of business funds – Your
business is not your personal bank account.
15 – Overexpansion – It is easy to make the
mistake of expanding your business into too
many verticals. Before you enter new markets
make sure you maximize your existing market.
16 – Macroeconomic factors – Entrepreneurs
can’t control macroeconomic factors. Common
macroeconomic factors are business cycles,
recessions, wars, natural disasters,
government debt, inflation, and business
cycles. Your business can still succeed in bad
times. Hyatt, Burger King, FedEx, Microsoft,
CNN, MTV, Trader Joe’s, GE, HP are only a
few examples of wildly successful companies
started during a tough economy.
17 – No succession plan – Future leaders
should be identified in advance. Without an
effective succession plan, your business is
unprepared to fill openings in created by
retirements, unexpected departures, or death.
18 – Wrong partner – It’s no secret that it is
easier to succeed in business with the right
partners. The wrong business partner will, at
the very least hurt, or, at worst, destroy your
company.
If you are serious about making it as
entrepreneurs, focus on the following:
19 – Make a plan – It all begins with
planning. The biggest mistake many
entrepreneurs make as they start their
ventures is that they don’t sit down and write
a business plan. The goal is to keep it
concise. Don’t treat it like a business school
project. Leave writing a 50,000-word business
plan to academics. Let them waste their time.
You can do a great business plan in one or
two pages. There are some great books on
business plans such as “ The Secrets to
Writing a Successful Business Plan†and
“ Successful Business Plan“.
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Your business plan should include the
following:
20 – Core values – Your core values are
the fundamental beliefs that drive your
business . They are your guiding principles that
should remain constant. Even as your
company grows your core values should
remain the same. Core values can also serve
as a moral compass. Some of the more
common core values are integrity, trust,
excellence, respect, responsibility, and
teamwork.
Don’t allow your core values to become empty
words, make them part of your culture.
21 – Mission statement – A brief statement
that defines why your company exists . Your
corporate reason for being. It describes your
target market and the services/products you
offer. If you have done it right, your mission
statement, in just a few sentences, will
communicate the essence of your business to
your business and to the world.
22 – Who are your customers – If you
are going to succeed in business you will have
a clear definition of your customer. It is not
an abstract idea. It is something that can be
expressed in numbers. For example, if your
target customers are family law attorneys, you
have to be able to put a number on it. For
example, there are 175,000 (fictional number)
family law attorneys in the USA and they are
our customers.
23 – What is your product/service – It’s key
to have a clear definition of the services you
offer. Without a clear definition, you will be
unable to effectively develop, market, and sell
your services.
24 – Involve your customers in product
development – Most businesses that fail
create products/services without involving
their customers. If you are serious about
success, you will build your products with your
customers. Businesses that fail build products
based on assumptions.
25 – How will you sell and market your
product/service – Marketing and selling your
service could be one of your biggest business
challenges. A sales and marketing plan is a
must. Set measurable goals. Create systems
to manage the process.
Proper preparation doesn’t require a 100-page
formal business plan. The keyword is “proper,â€
not “planning.†If you do everything in your
power to properly plan your business, you
increase your chances for success. Don’t
confuse planning with avoiding action or
paralysis analysis. No amount of planning is a
substitute for action.
“No matter what one does, regardless of failure
or success, the experience is a form of success
in itself.†Jack Ma, billionaire founder of
Alibaba
Your first action item is to write your business
plan. Completing your business plan will give
you an opportunity to process your idea in
detail. One of the best things you can do is to
collect your thoughts before you make a real
commitment to starting your business. If you
aren’t passionate about writing your business
plan, it’s unlikely that you’ll get passionate
about your business either.
One day you might think of a product that
could revolutionize life on earth as we know it.
You might dream up something so great that
no one ever thought of before. The reality is
that most successful businesses are without
revolutionary ideas. Instead, they modify or
improve well-established products or services.
Must Have Business Plan Components
Mission Statement
Company Description
Product Description
Market
Analysis
Marketing Strategy
SWOT
Revenue Projections
If you don’t prepare a business plan, your
initial enthusiasm will fade and you will fail.
26 – In the end, enthusiasm is not enough to
succeed. It takes much more than that. You
need to research your market, your
competition, the financial feasibility of your
concept, and more. As you fight through the
battles of making your dream come true, you
need to be able to go back to read and re-read
your business plan. The concepts laid down in
your business plan will help you to convince
your bank to give you the loan you need, or to
determine the best marketing strategy for your
business. Don’t be emotional when you
prepare your business plan. Treat it as a
business process with goals and deliverables.
Once you complete it, ask yourself, “Would I
invest in this company?†Remember, you are
going to have to convince others to support
your idea. Bankers, corporate buyers,
investors, partners, and the like will look at
your business based on facts. Their decision is
not going to be based on emotion. When
creating a written business plan you give
yourself a chance to think about your idea
thoroughly. As you put your ideas in writing,
you tend to give them more thought. You
might think writing a business plan is boring,
or a waste of time. Truly, it should be one of
the most exciting projects you could ask for.
You are writing your future.
27 – You are accountable – Many businesses
fail because people treat them like hobbies.
From day one treat your business as a
business. Treat yourself as an employee. Set
measurable goals and hold yourself
accountable. If you only plan to work in your
business a couple of hours a week, you can’t
expect great results. Owning your own
business requires focus and commitment.
Educate yourself about the wide range of
options and technologies. You can’t expect to
get an ounce more out of your business than
what you’ve put into it. If you are only willing
to put in a few hours a week, expect to get a
few hours a week of income. There are no
shortcuts.
Entrepreneurs can stay accountable several
ways:
28 – Write down your goals. Keep your goals
in front of you and keep coming back to them,
at least once a month.
29 – Build an advisory board.
30 – Join a peer advisory group. You will get
feedback from fellow entrepreneurs. The best
kind of peer advisory group is where your
business is the smallest business. You
definitely don’t want to be the largest or most
successful business of your group. When you
are the smallest you will be pushed harder to
catch up to the others in your group.
31 – Find a coach. Try to work with a coach
who has already built a successful business.
32 – Find an investor, an angel or venture
capitalist .
33 – Forget the idea, take action – You
should never start a business based on a great
idea. An idea is just that: an idea. It’s
worthless. It is not going to help you succeed
in business. Ideas won’t do; you need action
to succeed. Wantrepreneurs are full of ideas
that never result in action. Entrepreneurs are
action takers.
Here are some effective ways to turn your
idea into action:
34 – Believe that you can do it. I don’t mean
fooling yourself into anything, but the only
way can you make it happen if you believe
that it will happen.
35 – Reach out to mentors. There are many
successful people within your own existing
network, and you can also make new
connections. Connecting with mentors helps
you hear what it takes to be an entrepreneur.
36 – Minimize risk, but understand that it is
unavoidable.
37 – Give it due time. Ideas are fast, but
making them happen will take time. Even if all
goes well, almost everything you do in
business will take longer than expected.
38 – Get others to believe in you. Successful
entrepreneurs are great at selling their visions.
You might have to convince vendors, partners,
landlords, investors, employees, or a list of
more people.
39 – Prepare to fail – Do not fear failure.
There is one thing for sure, you will fail before
you succeed. Expect failure but don’t fear it.
Think of it as a normal part of your business.
It is necessary. It is good for your business. It
teaches you. It helps you make the right
decision the next time. It is super important
that you don’t associate failure with quitting.
Only those that take action fail and only those
that take action succeed.
40 – Pivot, rinse and repeat – Successful
entrepreneurs are always adjusting. There are
many reasons to adjust. Your customers might
ask for a new software feature. Or, the
recession might have put your best customers
out of business. The price of raw materials
might rise one day. Your business and its
environment are dynamic. If you are good, you
develop a keen eye for changes and make
quick adjustments. Most businesses that fail
do so because they ignore the world changing
around them.
41 – Focus on your customer – You customer
keeps you in business and puts you out of
business too. If you listen to them, you can
improve your products or services. If you
ignore they fire you. Customers don’t
disappear, they go to your competitors. Reach
out to your customers. Ask them questions.
Ask what they like or dislike. Welcome
negative feedback. Don’t be defensive about
it. Negative feedback gives you a chance to
improve.
42 – Stay profitable – Staying profitable will
solve many problems. The lack of profit could
put you out of business even if you have
record sales. Forget sales. Forget your
revenue. Forget the total number of
customers. Always be mindful of profitability.
43 – Manage cash – Entrepreneurs that fail
often confuse cash flow with profit. The two
are not synonymous. It is possible for you to
go bankrupt with record cash flowing into your
business. To succeed in business you don’t
just need cash flow, you need positive cash
flow. With positive cash flow happens when
the cash funneling into your business is more
than the amount of cash leaving your
business. It is simple yet often ignored. The
companies that ignore this end up with
negative cash flow. This happens when the
outflow of cash is more than your incoming
cash. You should never allow negative cash
flow.
Here are 10 of the most profitable
companies in the world:
Apple
Exxon Mobil
Wells Fargo
Microsoft
J.P. Morgan Chase
Berkshire Hathaway
Chevron
Walmart
Johnson & Johnson
General Electric (GE)
Here are a few ways to improve your cash
flow:
44 – Get paid in advance, ask for deposits or
full payment in advance.
45 – Be very selective in offering credit to
customers, avoid it if possible.
46 – Increase your sales.
47 – Offer incentives for early payment.
48 – Secure loans for emergencies.
49 – Disasters do happen – Even though
Warren Buffet has a hands-off approach to
managing his portfolio of companies. He does
require the CEOs of each of his companies to
have a one sheet in case of an emergency.
The sheet of paper contains information on
key aspects of the company. While the one
sheet of paper might be overly simplified the
point is that you have to be prepared for the
worst.
50 – If you will succeed in business, you must
figure out how to deal with the unexpected.
It’s not that “what if it happens“, but “when it
happens“. What if your best salesperson quits
tomorrow? How long before you will replace
her? Do you have a system in place, so when
you hire a replacement she can sell?
Systems are crucial to recovering from a
disaster. Formal procedures are key. Identify
the key parts of your business and think about
what it would take to recover losing any of
them. For example, if your company relies on
your e-commerce website, develop a system
to recover your site even if your current site
crashes and your hosting company goes out
of business within the same day. You don’t
have to be paranoid about it, but create
systems of key parts of your company.
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In Conclusion
Few places are less forgiving than the
business world. Eventually, everything adds
up. If your customers prefer your competitors,
your employees would rather work for
someone else, your partners no longer believe
in each other or the business, and the many
mistakes you can make along the way. And
that is why businesses fail.
Yes, it is true that most businesses fail. It is
also true that many of them succeed. Those
that succeed are not the result of miracles.
Entrepreneurs who lead businesses to success
understand that it takes a carefully planned
and executed strategy. A little luck also helps.
