20 Reasons Why Businesses Fail (According to Experts)
Entrepreneurs should know how to manage their time, finances and human resources well.
And that’s not all. They should make the right product, communicate the right message, offer flawless customer service and sustain a great team. Hitting home run on all these fronts is tricky.
No matter what anyone says, there is no secret recipe for success. Over half of startups out there can’t make it past their fifth year on the market. Why is that? Simply put, they make a number of mistakes which we’ll try to dissect in this post.
1. Getting distracted by different ideas
As Dan Ariely’s experiment shows, we have trouble letting go of the unknown, be it a growth tactic or a prospect that could or could not work out. These “virtual lottery tickets” distract us from what we should be really doing. In other words, when you don’t have a firm grasp over the balance sheet you end up spending money in the wrong places – even when you don’t have any.
Startups don’t have many resources (be it money, manpower, time) and the fear of prioritizing one activity over another is quite big. Here is a way to prioritize your marketing ideas, product improvements and growth tactics.
2. None or poor planning skills
Businesses have to wear many different hats at the same time. As a result, they tend to struggle when it comes to breaking activities into smaller, doable tasks.
Planning also allows you to include certain rewards during completion of each crucial step. This gives you greater energy, more predictability and determination to keep going ahead.
3. Downplaying the importance of design
First impressions are everything. An enticing storefront, a clean showroom or a well-organized and responsive website – the right language can connect you with your target customer base. Good design increases time on site, shareability, conversions – you name it.
Just like everything, good design requires time and money to get done right. It may not make sense to spend money on design at first, but cheap design shows – and makes your product appear the same way.
4. Not investing in team culture
What does your business stand for? Can you align its goals with your employees? One of the biggest mistakes startups make is putting a team in place – without a clue on how to get them to work together.
Establishing a culture helps you define how you fit in the equation, too. Everyone likes the idea of being a “nice guy” and run a successful business; however it’s a lot of work. Nobody wants an autocratic boss and not everyone can work effectively under a manager who’s too laid back, either.
5. Forgetting about due diligence
It’s easy to get caught up in the excitement of startup life. However, remember not to fall for the spoken word and get things down on paper. If it’s an employee, make sure all of their credentials and diplomas check out. If it’s a partner, use an attorney and document everything before taking action.
Don’t underestimate the power of networking. Networking may be a lot of work, but knowing the right people is priceless. The more people you can count on to give you timely advice and support the better chances of your long-term success.
6. Being too careful about taking risks
It’s normal to get cold feet before making a big decision. Sometimes you need to double, triple check – or run your decisions by multiple people. It may be tempting to backtrack, but get into the habit of sticking to your guns.
Recognize that you’re going to make mistakes, even big ones. It’s important to be able to pick yourself up, learn from what happened and move on. This is particularly important to get into the right mindset for tackling the next hurdle.
7. Dismissing business coaching
Many startups end up hiring young or non-experienced people to save on cash. What’s worse, startups also have trouble motivating, rewarding and reaching goals with their team – something that could be remedied with a good business coach.
A coach can offer new perspectives and insights for growing your business with whatever resources you already have. When you can’t figure out what’s stunting growth, it may make sense to consult a professional to help realize your vision.
8. Not knowing when/how to say no
Just as it’s important to know when to take a calculated risk, it’s also important to be risk averse. Otherwise it’s easy to fall into the trap of making everyone happy. Stress and overwhelm can lead to you astray – focusing your attention on things that are unimportant.
A “no” on the other side is never really final, either. Ideas change, interests can align, businesses pivot, and life goes on. Mistakes and obstacles can all be overcome. The most important thing is knowing when to jump the “sinking ship”.
9. Ruling out professional help
Being a one-man operation is difficult, but sometimes you simply can’t focus on one important thing without letting another (equally important) thing slip. Time and money are finite resources, and knowing how to manage the two is your biggest asset as an entrepreneur.
If you already have a full time employee (a designer or developer) working on an important new update, you can’t distract them to do menial tasks. Consider outsourcing or contracting out some type of work.
10. Spending money before you’re ready
No one wants to lose money, especially if you’re sacrificing a lot. The golden rule is two fold, then: a) Don’t quit your day job and b) Do more with less as much as possible.
When looking to invest your savings, don’t over-exert yourself. Ensure that you can pay yourself and keep a roof over your head. This will keep you above water and focus your attention on running your business.
11. Settling on a wrong form of investment
An investor is not just a bank account – it’s also a mentor and someone who shares your vision. By focusing on making money early on you can gain more leverage and bargaining power with investors later on.
Trying to get money from others will always require more effort and sacrifices than what’s apparent at first. Make sure you do your homework and understand the conditions carefully before settling on any form of investment.
12. Failing to establish a competitive advantage
Establishing a unique value proposition and marketing it properly everything. Focusing on one core idea and executing it well (as opposed to trying to execute all ideas at once) is usually the best course of action.
Never assume customers will start pouring in even if your product is considerably better than the competition. More often than not, it takes triple or quadruple the time to gain traction startup founders originally aim for.
13. Ignoring the onboarding process
While good design keeps visitors engaged, good onboarding keeps them around. We can’t keep up with the constant bombardment of information. We need predictable, bite-sized instructions accompanied with intuitive imagery.
The work with onboarding – like design – is never done. It’s ergonomics for the brain: something that can always be worked on and improved upon. And time spent on getting paying customers never wasted but well-spent.
14. Inability to disassociate yourself when needed
Life demands a lot from us and the pressures of entrepreneurial life certainly don’t help. It’s important not to get your emotions in the way – whether it’s in the way of asking finances, believing you can survive on “x” or putting blind faith in one thing or another.
The good news, disassociating yourself is not difficult. When things get too heavy, take it as a sign to recharge. Develop routines – daily, healthy habits. Perform exercises, eat a balanced breakfast, read or mediate.
15. Failing to leverage existing strengths
Everyone has strengths. A weaknesses can also be a competitive advantage, thus a source of strength. However unearthing your strengths is not always an easy task: it requires creativity and vision.
A company with a smaller customer base is able to talk to customers one-on-one. After getting that crucial information, it’s easy to pivot the right way and focus on things that will increase conversions. Another advantage of small companies is that they can dominate niche markets that large companies simply can’t pour resources in without hurting other areas of their business.
16. Rejecting experiment-based approaches
Businesses fail due to poor execution, timing or market fit. Most of these can be traced back to flaws in getting the equation just right – sometimes only with enough trial and error.
Any improvement must start with a goal, no matter how broad. If you’re trying to increase sales, you’ll have to go down all avenues. It could involve sprucing up your email list or improving your landing pages. Perform a hypothesis, analysis and experiment before moving ahead.
17. Not learning from past mistakes
Starting and growing a business is a learned skill, so the more you do it, the better you get at it. Common wisdom would suggest that if you started five businesses before, you won’t make the same mistakes when starting a sixth.
Sometimes you need to make a number of mistakes or missteps before succeeding at something. Once you hang on to a sinking ship on the way down, you’ll learn to identify when to abandon it next time around.
18. Focusing on wrong marketing channels
It’s nearly impossible to create a business selling to “the individual and the enterprise”. There are very few mature companies that serve all markets – something that likely wasn’t the case when they were small or struggling to get by.
When a marketing channel doesn’t work, don’t hold on to it, especially when that time could be used on doing something else. Get into the habit of only doing things that bring in tangible benefit.
19. Not managing time effectively
When running a business, it’s too easy to get bogged down and try to get everything 100% right. Whether you’re thinking about perfecting your product, SEO, or tweaking your site design, it should all take second stage to the customer. Spend the majority of your time on what brings in money.
As you grow, it becomes more important to optimize everything. In order not to get carried away, prioritize all of the little things and ideas that come up. This way, you’ll have real, tangible reasons to implement or dismiss these ideas.
20. Ignoring signs of burnout
Burnout is difficult to anticipate and even more difficult to bounce back from. It’s something that creeps up on you and doesn’t seem apparent until you’re exhausted. What gives?
Remember to work smart, not hard. It’s okay to demand a lot from yourself, but don’t skimp out on taking regular breaks or going home at a given time. When things get too overwhelming, it’s a sign to drop everything, go for a walk, go for lunch, or even take a small vacation.
We all make mistakes
Be aware of these pitfalls, learn from past experiences and keep up to date with the latest trends. Surround yourself with ambitious, experienced people and have a solid support network of family and friends.
You’ll never fully shield yourself from making mistakes, but at least you’ll be resilient in the face of danger and better equipped to reach your goals.