168: Why Businesses Fail
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Most neighborhoods have that one store that changes into a new business every six months. It was once a barbershop, then it was a pizza joint, then soon after it became a grocery store. These small businesses were launched and shut down almost before anyone took notice of them. And it breaks my heart. According to the Small Business Administration, 8 out of 10 new businesses fail within the first 12 months. That’s a whopping 80%. But why? What can we learn from the tremendous amount of failure in the entrepreneurship world to apply to our business ambitions? From a broad perspective, the primary reason businesses fail is they simply run out of cash. However, the cracks in the foundation start well before lights out.
Why Businesses Fail – 01:38
One of the greatest mysteries about entrepreneurship is failure. Most people struggle to understand how some people start one successful business after another while others fail at their first attempt. I know, no one ever enjoys talking about failure. But ignoring this tricky subject is a surefire way to be part of the ever-growing number of businesses that fail within the first year of opening. According to recent data from the Small Business Administration, roughly 80% percent of new businesses fail within their first year. So, in every 10 businesses launched every year, only two make it past the 12-month mark. In our previous session, I literally begged you to start your own business, yet here I am telling you that you only have a 20% chance of making it through the first year. I’m only telling you this because starting and maintaining a business is hard, and my aim is that you don’t end up on the negative side of business survival statistics.
There is no Market Need – 03:46
Everyone can come up with a brilliant idea. Unfortunately, most people only focus on implementing the idea instead of analyzing whether the market really needs the product or service. Investment experts call this creating a problem. To be a successful entrepreneur, you need to find a solution to a problem and not the other way round. No matter how brilliant your idea is, it runs the risk of not having an actual market problem that it solves. To address this, I recommend that you don’t focus too much on your idea; instead, fall more in love with solving a market need.
Competition – 09:30
Deep down, all business owners are wary of their competition. First, launching and scaling a business is a personal undertaking; thus, the very thought of someone wanting a piece of the pie can elicit feelings of anxiety and hostility. Furthermore, most people will advise against knowing what your competition is up to and preach the benefits of focusing on your business. You need to understand that knowing what your competitors are doing can potentially save your business. You need to know how they run their business, what value-added benefits they boast off, what their customer experience is like, and every bit of information you can get your hands on. Mind you; I’m not saying that you copy everything they do; all I’m saying is that to beat your competition, you must be better than them and offer superior quality products or services.
Not Enough Capital – 14:56
Every aspiring entrepreneur must know how much money they need to launch their business and how much working capital will guarantee survival through the first months of operation. If you don’t know how much money you’ll need, get input from financial advisors or mentors who are pursuing what you plan on doing. If you don’t have enough cash to go all in, start something that requires little to no capital and makes it possible to generate revenues as quickly as possible. One unique, low-cost business idea is consulting. In consulting, you get to serve the same customers that will need your services in your ultimate business idea.
Pricing – 18:01
In business, the price you set for your products or services directly impacts the success of your business. Too expensive and you can’t compete. If your product is way above market value, your competitors will lure your customers simply by lowering their prices. This goes back to the point of knowing your competition—research what other people are charging for the same product and set your pricing accordingly.
On the other hand, when you’re too cheap, you attract poor quality perceptions. Customers crave value for money, and cheap products are often perceived to be of poor quality. Moreover, when you go in cheap, your price point might guarantee phenomenal sales numbers but not enough to cover your costs or net profit.
All I know is that some customers compare prices across different sellers, but for the most part, what matters the most is how customers engage with you and what you are selling.
Your Team – 22:10
Most businesses start as side hustles, meaning the vast majority of work requires input from only one person. But as the business grows, the things that you’ll need to do also increase. Although you might want to do everything to cut costs, some aspects of your business will suffer from poor management. Then comes the hiring process. You see the need to hire people but are afraid that you won’t cover the spread or, worse, hire the wrong people. Entrepreneurship is not all about taking risks but taking calculated risks. So, as you take the plunge and build your team, make sure every team member boasts the required skill set your business craves.
Your Mindset – 29:10
The one trait all successful entrepreneurs have in common is that they all believe in themselves. They believe that they have a 100% chance of winning at anything and everything. If you plague your mind with self-doubt, those negative thoughts will give birth to failure. If you want to start winning in business, embrace confidence and positive thinking.
The skills you need to launch a thriving business are not that difficult to master if you find the correct information. Moreover, business formulas and tactics can be found from pretty much anywhere. Mindset, on the other hand, starts with you. Develop a mindset of creativity, resilience, determination, pivoting, and trust me; you won’t regret it.