In Entrepreneurship, Failure is not only an option, its almost expected

Depending on what you read, you will see statistics that say nearly 80% of all new business starts fail within two years. Sad to say, the majority of young businesses do fail.  But you can avoid failure if you focus your efforts and avoid the most common pitfalls.

Learn from others, prepare for the worst, hope for the best and understand that failure is just another learning phase. As long as the failure doesn’t mentally defeat you or cause dire financial stress, you will live to fight another day and you will be smarter the next round.  It has been  said, an entrepreneur really doesn’t get things right until their third attempt. So, obviously, failure is an option.

Here are a few common causes of failure to watch out for in your small business:

Failure to plan out your business idea…

Business plans aren’t what they once were. No more, do we write volumes about every possible scenario and marketing angle we can take with a business. Now we focus on the minimum viable product (MVP) and put all efforts toward launching and re-launching in ever expanding steps. If you have not gotten familiar with the Lean Business Model Canvas, you need to take a few minutes and do some research.  In one page, you can determine if your business idea is viable and worthy of further resources. Take the time, do the planning and don’t waste valuable time and money figuring out things as you go.  The more planning you do, the less expensive the learning process will be.

Lack of business contingencies…

Nothing ever works out quite the way we thought it would.  While the first reason listed for failure was the lack of planning, one must be able to change direction and modify plans as surroundings change. If you make a plan, that is great but, if your idea of execution of that plan is to simply follow each step without regard to the changing atmosphere, well, you just planned to fail. Look over your plan, focus on the assumptions you are making and run a few “what-if” scenarios.  What if, it costs more to deliver our service than expected? What if there is a longer lead time to break-even than expected? What if, the location we have selected is no longer available?  The list could be endless but pick a few of the more likely what-if scenarios and make contingencies.  Otherwise, you will find yourself stumbling and making rash decisions at a time of desperation.

Running out of business start-up money…

You thought it would take $20K to run your business for the first year.  Unfortunately, start-up costs blew through that before the doors were open, now what?  If you run out of cash that fast, you definitely did not do the planning as stated earlier.  However, long-term unforeseen issues can be costly.  Don’t assume running out of money means you spent it too fast.  It is more likely that you didn’t generate revenues fast enough. Cash flow is a huge part of running a successful business.  If you have trouble making ends meet at home, your business is about to eat you alive! Part of your planning should include a detailed cash flow projection that budgets what you think is going to happen over the next 18 months of your business.  You should be checking what actually happened against that projection every month to see if you are on track or need to make adjustments.  Remember, when you run out of cash, game over.

Location, Location, Location…

No matter what type of business, online, store-front or home office, location has an impact on the success or failure of your business.  An online business must consider time-zones, distribution networks and customer service management based on where it’s clients are located compared to where it’s infrastructure will be established.  In this global economy, resources can be aligned to overcome nearly any location obstacle but one must think through the impact each potential location will have on their ongoing business success.  How long can you continue to operate from your home? Does your store front offer easy access? Will you be able to take customer calls from across the world at 3 a.m.? Your chosen location should address the issues of customer service and sales as much as logistics. Don’t let the idea of doing work in your bath robe win out over a sensible business location.

People problems…

Before you point a finger at your employees as a cause of failure, remember you are people too! Entrepreneurs tend to be very controlling and have difficulty distributing the workload. You might say entrepreneurs have problems getting out of their own way.  You need to recognize your weaknesses and fill these gaps with qualified individuals.  Then, allow these qualified individuals to do their job! Many entrepreneurs meet their demise because they assemble a great team and then try to micro-manage everything the team does.  If you are going to do this, just continue to do everything yourself. It will be less costly than hiring great talent and you will only have yourself to blame as the company slowly sinks into oblivion.

In closing, it is not our hope that your business fails but you must understand that it is part of the entrepreneurial process. Most businesses will fail within the first few years due to the problems outlined above.  Learn which of these areas will most likely be your Achilles heal and address them early. The faster you learn what is most likely to kill your business, the more time you should have to avoid it.  As the saying goes, “If you are going to fail, fail fast, fail cheap.”

Taken, in part from a blog post by ebiznut.

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