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Five Reasons Businesses Fail

Five Reasons Businesses Fail

businessfailureAccording to Bloomberg, 8 out of 10 entrepreneurs who start businesses fail within the first 18 months. That’s 80% who crash and burn.   Yet again here is that 80/20 rule.

So why? How can we learn from so that we can all apply to our own business aspirations?

In my own nearly 30 years of leading successful organizations, serving on Boards and working with entrepreneurs and business leaders via my company ASG Strategies, I have seen plenty.

Certainly at a simplistic surface level, one of the main reasons is that they run out of cash, but the truth is that this is normally the byproduct of a series of other issues that occurred well before the money ran out.

So here in my opinion are 5 reasons for failure and more importantly, what you can do to avoid it happening to you:

Reason #1: No Passion. Lack of Vision or wrong vision/focus.

OK. I’ve written about this in the past. However it continues to be the #1 item that separates success from failure. Check out Simon Sinek and how he talks about Why. Then think about passion. Or check out our blog “Passion Critical for Success” (https://asgstrategies.com/blog)

Solution: Simple really, as an entrepreneur your success will be determined by this. If you’re not passionate about what you’re doing – run away and go do what you’re truly passionate about. Otherwise it will cost you mentally, physically and financially.

Reason #2: Customers – What do they want and why?

It’s amazing; so many entrepreneurs are not really in touch with their customers and potential customers. I mean REALLY, TRULY, DEEPLY in touch through one on one dialogue with their customers. An incredible 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 one of the worst moves 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. Oh and then continue to walk with them. Your customers hold the key to your success. Without them your nothing! So often a company loses touch with their clients and before they know it they are losing market share and the rest is just a slippery slope!

Solution: Markets are conversations. Dialogue is key! And 140 character tweets 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 later and thousands of dollars down the road and still find out you were wrong?”

Reason #3: No real differentiation in the market (read: lack of unique value propositions)

In 2013 Entrepreneur.com published a story entitled “Why Everyone Will Have To Become An Entrepreneur”. If this holds true (and I believe it does), instead of your competition being 1,000 other Tom, Dick and Mary’s, it will soon be 50,000. Meaning? Plenty of noise and chaos for those without uniqueness fighting for the bottom scraps. Most times this is a slow killer of any business. 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.

Solution: This is a critical element which 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, in our organization, you’ll immediately notice we’re different. We’re hands on with our clients, working to ensure they’re successful.   Our approach is not for everyone, and we’re very choosey as to who we work with. In one sense we invest in our clients, so like any potential investment, we look for the right ones.   Our approach is unique. It sets us apart from other consultants, and organizations. It’s one of our UVPs.

Solution: Now go uncover yours. We can help you do this if you need our help.

Reason #4: Failure to communicate value propositions in clear, concise and compelling fashion.

Next up is the debilitating disease called ‘failure to communicate’. For those old enough to remember the classic 1967 Paul Newman movie ‘Cool Hand Luke’, seared on the brain is a key line spoken by the prison warden to Newman who plays the maddeningly defiant inmate named Luke. “What we have here is a failure to communicate.” A great line, form a great movie.

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.

Your Solution: It’s pretty simple. Learn how to communicate better. Again, I reference point #2 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 German, then please stop trying to speak French to them. Listen to the words they use and then use them right back at them. Do so through focus on these simple 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?)


Reason #5: Leadership failure – the top is broken, so what do you expect.

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 Lance Armstrong, Mike Tyson or Aaron Hernandez, 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 major news outlets, but their failure is too often the same. Self-sabotage through extremely poor decision making and weak leadership skills.

Solution: Wake up to realize 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.

Oh and for those who have read our article “Customer Service: Your success depends upon it” know you need to always give more than advertised.

Then here is reason number 6.: 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 five above reasons solved, but still miss the business model boat. Twitter is a perfect example of this (they’re still not profitable).

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.

A perfect example of this comes from Tony Hsieh’s book ‘Delivering Happiness’, wherein he describes the early days of Zappos. He and his co-founders weren’t even sure back in the late 90’s that people would dare order shoes over the Internet. So they ran a quick test: Up goes a website with shoe images taken from manufacturers’ websites, some buy now buttons and watch to see what happens.

Cha-ching. Order comes through, one of the guys sprints to the local shoe store, buys the requested shoes at full retail, and then scurries home to ship them out. Did they lose money on every pair of shoes shipped? Yes they did. But did they quickly ascertain whether they had a potentially viable business idea? Yes again. All with zero inventory or fulfillment capabilities.

Think and move quickly, ‘fail fast’ if you’re going to fail at all, and nail your business model.

If you’re an entrepreneur — let’s connect right here — right now.

Here’s our proven formula:

Your Passion + Our Wisdom = More Success

Give us a call.  We’d love to see how we can help.

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