According to research, 8 out of 10 entrepreneurs who start businesses fail within the first 18 months. A whopping 80% crash and burn.
Heartbreaking, right?
But why? What can we learn from the colossal amount of failure with small business that we can apply to our own business aspirations?
In my entire experience as a serial (yes – hate that word too) digital marketer, and through my exposure to thousands of entrepreneurs via my company Brand Sense Digital Agency, I have seen plenty.
And yes, at surface level the primary reason businesses fail is they simply run out of cash.
But trust me — the cracks in the foundation start well before the brutal day of financial collapse.
Thus, I give you 7 reasons for failure and more importantly, what you can do to avoid it happening to you:
#1: Not really in touch with customers through deep dialogue.
An amazing thing happens when an entrepreneur sees a potential opportunity in the market, or dreams up a new idea for a product/service: they retreat to a cave.
In my experience, this is the worst move an entrepreneur can make because complete understanding of your customer is imperative to your success. Listen — in my mind entrepreneurs must walk 1,000 miles in the shoes of their customers. Not 10. Not 100. One thousand.
Your customer holds the key to your success deep in their pain, behavior, dreams, values and the jobs they are trying to accomplish.
Your Solution:
Markets are conversations.
Dialogue is key. And 140-character tweets or Facebook posts don’t count. Real dialogue with real customers (via whatever channel is best for them).
Nathan Furr and Paul Ahlstrom, co-authors of the book ‘Nail It, Then Scale It’, said it best:
Which would you rather do — talk to customers now and find out you were wrong or talk to customers a year and thousands of dollars down the road and still find out you were wrong?”
#2: Unique Selling Point (Read Unique Selling Point)
Entrepreneur.com put out a story entitled “Why Everyone Will Have To Become An Entrepreneur”. If this holds true (and I think it will), instead of your competition being 5,000 other Tom, Dick and Harrys, it will soon be 50,000 of these guys.
Meaning? Plenty of noise and chaos for those without uniqueness fighting for the bottom scraps. Most times this is a slow killer of businesses. Barely hanging on, entrepreneurs with some customers and some revenue skimp along for months or even years. Every painful inch wondering to themselves if this is all there really is.
Your Solution: First, agree with me right now this is a core element that must be addressed. Entrepreneurs who take this lightly end up in trouble. Grab a tool like Alex Osterwalder’s ‘Value Proposition Canvas’, stick it on your wall, and work it. Dig in. Figure out the true value you bring to the table which is unique and different than others in the marketplace.
For example, if you follow my articles, you’ll immediately notice I have a different approach than others. It’s not the same. You may or may not like the writing style, but it is unique. It sets me apart from other digital marketers in Uganda and thus, it’s one of my personal USPs.
Now go establish yours.
#3: Failure to communicate value propositions in a clear, concise, and compelling fashion.
Next up is the debilitating disease called ‘failure to communicate’.
Many entrepreneurs work hard to discover a point of differentiation then blow it because they do not communicate their message in a clear, concise and compelling manner. I watch many entrepreneurs bleed to death through their failure to communicate.
An example is when the government of Uganda wanted to introduce the new curriculum but didn’t because they had not communicated how effective it would turn out to be hence facing resistance from all stakeholders
Your Solution: It’s pretty simple. Learn how to communicate better. Again, I reference point #1 above. If an entrepreneur is truly engaged in conversation (read: dialogue, not monologue), then you’ll learn the language of your customer. If they speak Swahili, then please stop trying to speak English to them. Listen to the words they use and then use them right back at them. Do so through a focus on these 3 points:
- Be clear (are your customers unclear about who you are and what value you bring to them?).
- Be concise (are you somewhat clear but go on and on and on in your messaging?).
- Be compelling (do the words you use persuade your customers to take the action you want them to?), identify a clear CTA (call to action)
4: Leadership breakdown at the top (yes — founder dysfunction).
You see it all the time in the media. Right off the deep end goes another athlete with unbelievable talent. Painful to watch the self-sabotage of the likes of a Dorcus Inzikuru, David Obua, or Majid Musisi, all of which fell short from truly remarkable success because of their poor decisions.
Now startup entrepreneurs who go down hard might not have their names splashed across the headlines of tomorrow’s New Vision or Daily Monitor, but I submit to you their reason for failure is sometimes the same. Self-sabotage through extremely poor decision making and weak leadership skills.
Your Solution: Wake up to realise it’s your baby. You’re the founder. Which makes you the leader. Matters not if you’re a business of one, or 1,000. Lack the ability to strongly relate with people? Gain the skills necessary to do so. Struggle with anger issues? Solve it with anger management. Entrepreneurs who succeed spend time with personal development. I have never once met an angel or venture capital investor who doesn’t investigate the character of a founder and his/her team before whipping out their checkbook. It still amazes me how many business owners who actually have good ideas with the ability to execute them — crash and burn because of their own dysfunction.
Please don’t be one of them.
#5: Inability to nail a profitable business model with proven revenue streams.
In the end, this is the sum total. Fail to accurately achieve product/market fit where money gets made, and you’re sunk. Entrepreneurs can actually have each of the four above reasons solved, but still miss the business model boat.
Your Solution: Startups need to move swiftly without spending tons of cash to figure out their secret sauce. Using tools and methodologies such as Minimum Viable Products, Lean Marketing and Experimentation is critical.
Think and move quickly, ‘fail fast’ if you’re going to fail at all, and nail your business model.
Otherwise, you’re in the 80% bracket my friend.
#6- Poor marketing strategy:
It makes no sense if you stocked your shop with merchandise worth $50,000-$100,000 and you don’t let people know that you have it.
Would you be surprised if I told you that, I have noticed through my long experience in business consulting that, there are a lot of startups don’t have a defined budget for marketing and certainly don’t have a robust marketing strategy!
Having a great product or service is not a guarantee for its acceptance by the customer or for your startup survival. If you don’t have a marketing strategy or managed your marketing strategy the wrong way, it will reflect negatively on your business and the consequences may be disastrous.
Marketing is all about selecting your target market, knowing your target audience, catching their attention and converting them into customers, achieving brand competitive edge and positioning your brand in your customer’s minds & hearts before positioning it in the market, these all with consideration of establishing the right marketing mix.
Remember! Not every single promotional activity is fitting with every customer segment. Every segment has its requirements and uniqueness.
The good news is that at Brand Sense Digital Agency we have navigated through a number of approaches of how we can help your business succeed using our experience with digital marketing tools, get in touch with us for a free quote.
#7- Poor financial management:
Run out of cash is the most common problem that faces startups even after having a successful start. Do you have a well-structured financial plan? Do you know exactly your fixed and variable expenses? Do you know where your revenues come from? Do you have a funding plan? Is there a reserve of money you can call upon in the event of a financial crisis?
If you don’t have answers for the preceding questions:
Use professional business accounting software to keep records of financial transactions and arrange financial statements if, you don’t have the minimum required skills to use and understand it, consider hiring a tax advisor and professional bookkeeper or consult a financial consultant.
