- by Don
Let's talk about the Top 5 mistakes startup business owners make that lead to failure. Avoid these mistakes, and your chances for success sky rocket!
Today I want to talk about five reasons why small businesses typically fail.
You know, I talk a lot about replacing your corporate income, creating a business, doing work you love. And it all sounds great, but if you go out and you do some Googling, you find some really scary statistics. Like about two thirds of small businesses fail in the first five years. And, you know, that's kind of scary.
So what we want to do, is we want to mitigate those failures as much as we can, and the way to do that is to recognize reasons businesses fail and then don't do that. So let's look at some of the top five reasons that I found why businesses fail.
Mistake #1: Being Undercapitalized.
#1 is they are undercapitalized. By that I mean they just don't have enough money to last from when they start the business until the income starts flowing. Most businesses take a little while to get the cash flow revved up and coming in. And so you need enough funds to cover you through that period of time.
I see this failure a lot in retail and in restaurants.
There was recently a business opened up close to where I live. They spent about four months remodeling the store. They moved walls around. They painted, they put in fancy display shelves. They put in fancy lighting. They did all this stuff. They opened up and they were in business about a month and then they closed.
And I think they just spent all their money getting ready to open. And by the time they opened, they didn't have enough cash flow to last until they built a customer base and really started to make it.
So that's a sad thing, but I see it a fair amount, like I said, especially retail and in restaurants. Less so in service based businesses, because your startup costs are so much lower.
Ideally, if you can start your business as a side job and get the income flowing, then all you've got to do is turn up the faucet and, you know, really start cranking the customers in and then leave leave your corporate job.
That works great, but sometimes you don't have that choice. You know, if your corporate job has left you, then maybe this is the time you just got to jump in and do it.
But I can show you how to start a business with nothing more than a computer, a telephone and an email account. So you can, in a service based business, get started for pretty low cost. So that is definitely a possibility.
Mistake #2: Not being clear on the Big Result
Reason #2 is they're not clear on the big result.
And I see this probably more in service base than retail. But someone comes up with an idea. It's like, oh, I want to create a I'm going to make purple widgets. And they're all excited about purple widgets and they just fail to communicate to the world why it needs purple widgets.
We see this a lot on Shark Tank. People will come in convinced they have the greatest product ever. And the sharks are like, “What? I don't get it. People are going to do what? Why would they buy this?”
So that's a mistake that a lot of business owners make because they just don't get really clear about why people want the service or the product they're offering.
- What does it do for them?
- What need does it solve and why do they need it?
So get really, really clear.
I work a lot with customers on that. You know, we spend a lot of time looking at who do we serve and what do we do for them. And let's make sure that we communicate that really, really clearly so we don't have this problem.
Mistake #3: Failing to validate
#3, somewhat related to that is failing to validate. By validate, I mean, making sure there really is a demand for your product.
We're back to the "fail fast, fail cheap, fail forward" thing: Make sure that people want and need your product and they're willing to pay money to get it. And proper validation will help you do that so that when you launch, you don't have a huge amount of money invested in it and, you know, there's a demand. And so your product will be successful.
So that's something else that I work on a lot with clients.
Mistake #4: Not doing the (right) work
#4 is kind of a sad one, but it comes from not doing the work or not doing the right work.
And where I see this play out in a couple of ways
One is people who just don't have the self-discipline to sit down and do the work, so
the business fails. You know, as an entrepreneur, if you're not doing the work, you're not going to get paid. It's that simple.
And then the other thing I see is not doing the right work, like being a coach who just wants to coach. And so they don't want to spend any time doing sales and marketing.
But you have to do that in order to get the clients that you're going to coach. You either have to do it or you have to hire it done.
So that's a mistake I see is not doing the right work, not buckling down and being disciplined enough to do the things that let you do the work that you love so much.
Again, a lot of that is the techniques. The styles... I work a lot to make sure that you love your sales and marketing systems so that that stuff is easy and is not your big hangup.
And then finally,
Mistaek #5: Ignoring the facts
#5 is ignoring the facts, and this one usually happens late in the life of the business, but things aren't going well. You're not making money, and instead of addressing it head on, you keep trying to sweep it under the rug and ignore it.
And then things just get worse. You miss payments and then you have to pay late fees and just all kinds of bad things happen.
So it's really important to always be operating from a place of knowledge. Know what your income is, what your expenses are, and what your revenues and your profits have to be in order for your business to survive.
So don't ignore the facts. Stay on top of those, and things will go a lot better.
All right, that's it:
Top 5 reasons businesses fail.
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