Business acquisition expert, Mike Warren, says that business failure is most often based on deficiency in four areas: Marketing, People, Systems and Money. And Eric T. Wagner gave these five reasons for failure in a Forbes article titled, Five Reasons 8 Out Of 10 Businesses Fail.
- Not really in touch with customers through deep dialogue.
- No real differentiation in the market (read: lack of unique value propositions)
- Failure to communicate value propositions in clear, concise and compelling fashion.
- Leadership breakdown at the top (yes — founder dysfunction).
- Inability to nail a profitable business model with proven revenue streams.
Warren and Wagner make some great points. And now for my list of why companies fail or underperform, followed by a few tips on how to make sure your business is one of the successful ones.
- Flawed Concept. In my day job as a marketing and revenue growth consultant – as well as my own experience as an entrepreneur and investor; I am exposed to a lot of unusual business ideas. This is doubly true when I teach or mentor would-be entrepreneurs as a SCORE volunteer. Sometimes the concept for the business is so outside the realm of viability, chances for success are slim. No doubt there are so-called flawed concepts that return millions to brave founders, but these are exceptions that are usually not worth risking time and capital on.
Antidote: Vet your idea with experienced entrepreneurs who have your best interests at heart. There is an old expression: If three people tell you that you are drunk, go lie down. Likewise, if three experts tell you that your idea has no merit, either disprove their objections or drop the idea. But don’t fret if your first idea doesn’t pan out. Heed the words of Richard Branson: “Business opportunities are like buses, there’s always another one coming.”
- Money Woes. Money problems can impact business owners in many ways. The obvious issue is when there is not enough cash flow to fund current operations and/or expansion. Nothing can keep an entrepreneur awake at night like the knowledge that expenses are running ahead of cash flow. On the other side of the coin, entrepreneurs who accept funds from outside entities (friends and family, angel investors, venture capitalists) face enormous pressure to perform and can even be ousted from their own companies. Jessica Bruder talks about the high price business owners pay, especially regarding financial issues, in her Inc.5000 article, titled The Psychological Price of Entrepreneurship.
Antidote: Cash flow is lifeblood to every business. Build your venture with the concept of minimum viable product (MVP) or service (MVS). Hold cash tightly and scale only after you have proven your business/revenue model at low cost. Above all, do not take investment capital until you have to. If you have a proven scalable model, your valuation and control over the future of your company, will be greatly enhanced.
- Founder Weakness. Eric Wagner referred to this issue as “leadership breakdown” and “founder dysfunction”. Whatever terms you use, if the founder(s) has shortcomings they are unwilling to address, the company may be doomed to mediocrity or worse. A founder who has great product development skills will have a hard time succeeding without experts in marketing, sales, finance, etc. I wrote about this in a post titled, How to “Engineer” a Marketing Fiasco.
Antidote: Decide whether it is more important for you to be right, or to be successful. If, as I hope, you decide the latter, you need to do a thorough and frank appraisal of your strengths and weaknesses, as well as the rest of your management team. Ignoring your weaknesses will not work. You need to fill in the gaps with internal or external resources but gaps must be filled!
- Failure to Differentiate. It’s a highly competitive world and unless you can clearly articulate why your product or service is different and preferable to the many other options businesses have to spend their money – you will be considered a commodity. Generally, commodities have to compete on pricing, and this is not usually a position you want to occupy.
Antidote: The brand promise is what you assure people they will receive when they do business with you. To be effective, your brand promise should be differentiated (preferably unique), compelling and specific. Make sure you complete work on your brand promise before you take your products or services to market.
- Lack of Systems. This is a factor mentioned by Mike Warren and a big hindrance to the ability to scale or sell your business. Common areas where systems can help include marketing, sales, finance, product development and customer service.
Antidote: Read (devour) two books on business systems: The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It by Michael Gerber; and Work the System by Sam Carpenter. The strategies and tactics in these two books can change your business and your life. And when it comes to building your marketing and sales systems to prevent business failure, read my own The Expert’s B2B Revenue Growth Playbook. To be effective, you need to document your systems and follow them consistently.