In 2006, I started 3 businesses. One was in publishing. It failed. The next one was in laundry. It failed. The third one was in household and office cleaning. It failed too. They all failed that same year. I was perplexed. I was confused. What was responsible for this business failure?
Like me, you have probably failed in business before. Or you have never really failed in one but are interested in starting. But you are concerned about avoiding the reasons and/or factors that contribute to business failure.
Based on my experience and the experience of other entrepreneurs, I have identified some of the reasons for business failure.
And of course, I have also given tips on how to avoid them!
You might wonder “can a business start for the wrong reason?” Yes it can. Your reason for starting a business will affect how you will treat the business. If you started the business so that you will have enough money to take care of your needs, the business is more likely to fail. There are many other wrong reasons.
SOLUTION: Adjust your reason. A very good reason to want to start a business should be to create and make value available to people who pay for it while building a strong organization that will be formidable enough to keep satisfying more “paying” people.
Almost every entrepreneur goes into business not ready. While this is applicable to almost everyone, it is also one of the reasons businesses fail. All those who learn “on the job” are able to weather the storms this factor leads them into. All those who feel that they already know enough are easily blown away before they even find a spot to pitch their tent.
SOLUTION: Read voraciously. Learn from other entrepreneurs who are succeeding. If you find or hear of a gathering in which entrepreneurs will be, drop in and learn. Read their books. Read what they are reading. If you encounter an entrepreneur who is successful, one of the best questions you ask them is “what is the title of the book that made all the difference in your early days as an entrepreneur?”
When I published my magazine, Triumph many years ago, I thought the market wanted success stories, inspiration and motivation on coloured glossy pages. Was I wrong? I got only 1 paid advert. But by the second edition, I tweaked the content and got over 15 paid adverts. All I did was introduce entertainment and stuffs I considered vain. That did the trick. But at the time I realised this, I have lost too much money. Like me, many entrepreneurs misjudge the market and attempt to force-feed the market. No!!! That’s not the way.
SOLUTION: Find out how your market wants your solution. An objective research will make that easy for you. When you know what the market wants and give it to them, they will keep you in business.
I have always been the guy who starts a business with the little cash he has and then start building the business with the money it makes. Believe me – it is tedious. It can make a business close down, especially if the money is not coming in fast. One of the reasons my first magazine business failed was because I did not have enough running capital. I was supposed to have enough running capital to publish enough editions till advertisers are sure that I have “come to stay”.
SOLUTION: Look for and enter into partnerships that will help you to get access to customer funds in advance as part of the required business capital. Avoid clients that take long to pay invoices because they tend to hold on to your running capital longer than necessary. Always be on the lookout for new investors.
A business that is not making money will die eventually, no matter how much capital you have. I have been invited to run that kind of business before. I was concerned but the investor told me not worry, that he was not investing for today but for the future. But I was still concerned. Well, a few months later, we could not pay salaries any more. People began to leave. For this and other reasons, the business failed.
SOLUTION: Revenue is key. Your business should have a plan for making money from day 1. No matter how little, start making money and after a while, scale up. Do not spend money and time trying to build something the market might reject. While you are still building, try to sell and the market rejects it, that’s data for you. While this is not absolutely applicable for all business types and industries, there are ways to check if you are on track.
Many entrepreneurs go into business without thinking through the pricing model that will work for their kind of business. This is key! You have to understand the market, study your peculiar offering and determine the pricing model that best suit your products or services. Facebook is free but they make money. Twitter is free but they make money. Some years ago, while almost all email services were charging for certain space, Gmail came and said it is free forever. What happened next? I am not asking you to give out your products or services for free. I am get rid of the wrong pricing model.
SOLUTION: Study all the various business pricing models and use the one that works best with your product. The video below will give you an idea.
Entrepreneurs are not robots. They have feelings too. So, they have issues like every other person around them. Wrong choice of a marriage partner can make their business fail. Being worried about a sick loved one can also affect their business. Even losing a loved one can lead to a long period of mourning that can end up affecting their business negatively.
SOLUTION: Don’t wait for something bad to happen first. Learn how to be tough in the face of tough situations. Have a plan B. Don’t allow the business to depend on you only. Bring in other stakeholders like a business partner and/or staff if you can afford them.
Since most entrepreneurs start without no “business experience”, the need for a coach is eminent. But because they do not go for one, they miss out on much needed guidance and that leads to business failure. If a footballer or athlete needs a coach, a business person sure do.
SOLUTION: Get a coach. The coach might be someone who does coaching professionally or someone who is an entrepreneur, who will not mind setting some time aside to help you craft your entreprenuerial journey and follows you up to follow through.
Yes, every entrepreneur as I have stated above does not have any business experience. The best many have is employee experience. As a result of that, they make a lot of mistakes that are unnecessary. The business environment is so tough and sometimes cruel to the point that people take advantage of their mistakes and that sends them out business.
SOLUTION: Learn from the experience of other entrepreneurs through networking and reading. Do not take a sensitive business decision without first speaking with someone you know is ahead of you.
When I set out to start my first business in 2002, I did not know that there was such thing as a business model. Entrepreneurs who do not carry out a thorough analysis of the elements of the business model canvas are the ones who will most likely fail. No been thoroughly abreast of your realities in business is fatal.
SOLUTION: Extensively study all the elements of the business model canvas. Design or adjust your business accordingly. The video below will help you as it has helped me.
In every project, assumptions need to be made. As a result of the progressive elaborative nature of businesses like projects, one will need to make certain assumptions. But many entrepreneurs keep making decisions based on those assumptions without questioning them. Consequently, the business ends up failing. This is because a wrong assumption is like quicksand. It will sink a business.
SOLUTION: You need to always carry out thorough assumption analysis. If at the time of starting the business, you assumed that a dollar will equal NGN150 and a dollar is now NGN300, you must adjust immediately. Now thats obvious. But there are other assumptions that are not as obvious as that, that can have the same fatal effect on the business.
Entrepreneurs must keep looking for ways to make their business run better. Technology is what makes that pretty easy. Entrepreneurs who are not keeping tabs on and learning to take advantage of new technology will lose out to a competitor who is always reinventing their processes. For example, not taking advantage of email marketing on time made one of my businesses to “go under” for a while until we consciously brought it back to its feet.
SOLUTION: Be on the look out for new technology. Then, try it out! For example, learn all you can about digital marketing. Migrate your website to WordPress so that you can make use of all the beautiful tools that can make business communication seamless.
Laziness is terrible. And entrepreneurs fall into its trap too. At those times when the entrepreneur does not feel like doing anything, their business might be taking a downward turn. Every entrepreneur experiences this every now and then. It is that period when they do not want to leave the couch and TV alone. There is another kind of laziness where the entrepreneur is unable to summon the will power to give the business what it needs to get to the next level. Instead, they prefer to give excuses and run things the way they are. This can cost a person a business they have built for many months.
SOLUTION: When you find yourself in this state, leave whatever you are doing and engage yourself in a physically demanding exercise before you “rest”. It will be nice to actually sleep. When you wake up, you will be invigorated to get to the next level. If you are having problems with laziness, read a complete guide I did on it. Laziness: Defeat it! Hit Your Targets
Who is your friend? Who is helping you? The tendency to be alone is one thing that is common with us entrepreneurs. It is also one of the reasons businesses fail at an alarming rate. Just one piece of advice can help you make all the difference in your business. Unfortunately, entrepreneurs have replaced networking with sending out marketers/sales people.
SOLUTION: Find people of likeminds – entrepreneurs who are the same level or a high level with you. Read this: Collaborators: 6 Steps to Attract Them to Your Life & Business . When you finsh that, read this too How Networking Can Help You Grow a Business
Very smart entrepreneurs have this problem. The fact that they can generate ideas and develop businesses out of them can make them to be pushing 10 business endeavours at the same time. At the end of the day, none of them succeeds. This is one of the reasons businesses fail. I have a friend who had a thriving business. Then all of a sudden a particular multi-level marketing firm came into Nigeria and they ended up succeeding in wooing her. She invested her money, time and energy in it. As I write this, the MLM is not giving her the kind of returns she anticipated. Her business is down.
SOLUTION: Avoid the temptation of trying to do many things at the same time. Face one business, succeed in it, then move to another as well.
Mentoring is so important. Many entrepreneurs who make a mistake in this area end up crashing out of business. No having a mentor is fatal. Having a wrong mentor is also bad for you. Not having a mentor means that you need to figure things out on your own and make mistakes and hopefully learn from them. Having a wrong mentor means that you will likely find yourself on the wrong path and still crash out of business.
SOLUTION: Get a mentor. It is not that difficult anymore. Someone can mentor you via social media, telephone, skype and so on. The person does not need to be in the same city as you are. But you need to prepare yourself to be attractive enough to get them to notice you. This article will help – Courting: 6 Expert Approaches to Attracting Collaborators. And the fact that a person is rich does not make them qualified to mentor you. I will do an exclusive post on this soon. Watch out for it or subscribe for my newsletters to get it in your inbox.
There are more! But this is where I want to stop because of time and space. I have had my fair shares of business failures. If you’d like me to help you, send me a mail. Kindly leave a comment below.