Why your first business may fail

Why your first business may fail

Why your first business may fail AND How to avoid failure

How many of you have heard of Oprah Winfrey, most would have.

If you check you would discover that it took Oprah Winfrey almost 3 years to bring her OWN TV channel to a level of basic momentum mode [this is when she had huge global fan base, almost all types of business-political and other connections, monetary resources etc etc – meaning you name it(what any business would need) AND she had it]

If it took Oprah few of years to get her businesses running - you certainly would take that long AT LEAST – is you have followed all the basics.

In-spite of having most of the essentials right – the business may still fail.

Why your first business is likely to fail – 48 reasons

  • 1.Your idea of the product/service is actually not a niche which you assumed. Many times we are blinded by our idea so much that we believe that we are more likely to succeed than others - But the statistics suggest this isn't really the case, as a mere 2-4% survive for more than 5 years.
  • 2.You're inexperienced - If this is your first time starting a business, you won't have any prior experiences to draw upon when making decisions, establishing a direction or facing harsh challenges
  • 3.You don't know what being an entrepreneur entails
  • 4.You don't bring a significant skill or USP to the table AND You depend too much on others for some of the CEO responsibilities
  • 5.Being a First-time entrepreneur, your risk appetite as well as perseverance level would be low meaning you can be capable of tolerating financial instability and other forms of insecurities
  • 6.Having limited professional network – as through our connections, we get in touch with potential VCs, clients, partnerships, suppliers and even employees, investors as well as mentors
  • 7.Because of your undying belief in your ideas, you are too excited and want to accomplish too much too soon. You would be chasing many different ideas concurrently thereby diluting your efforts as well as the outcomes. AND you may miss some critical fault that can create the downfall
  • 8.You may also go for very big expansion and growth too early
  • 9.Overspending resources in wrong channels or ideas, too early in the stage
  • 10.You may take few initial failures as final doomsday message. But the truth is that Your business's failure isn't the end. Most entrepreneurs end up starting and running multiple businesses, so if your first one fails, that just means your second one will be more likely to succeed.
  • 11.You Started the business for the Wrong Reasons
  • 12.You launched the business before right-skilling yourself and your are under-prepared
  • 13.You have judged the market size and its reaction to your offer
  • 14.Mis-managed & mis-understood or wrong financial perception and assumptions
  • 15.Unable to generate revenue in-spite of attracting enough capital
  • 16.Wrong Pricing Model –keeping too thin margins
  • 17.Personal misfortunes impact your businesses
  • 18.Opening a business in an industry that isn't profitable, sometimes even a great idea won't work
  • 19.Failure to understand and communicate what you are selling
  • 20. Not market and customer testing to verify - Is it even needed – what you are offering
  • 21.Not-being pro-actively innovative to respond to the market/product/technological and others changes – Being Reactive
  • 22. Overdependence on a single customer
  • 23. Leadership failure No succession plan
  • 24. No differentiation – Ignoring customer needs
  • 25. Choosing Partners with Contradicting Agendas
  • 26. Less or no market-research
  • 27.Becoming indispensable to your organization and making organization depends on you too much, centralized decision-making powers Taking the customers for granted - In entrepreneurship– Nothing fails like success. If as an entrepreneur you succeed and get some great customers in the beginning, then taking them for granted
  • 28. Micromanaging & too much interference
  • 29. Holding resources in reserve
  • 30. Refusing to hire people who are smarter than you
  • 31.Being cheap about the wrong things
  • 32. Treating technology as a magic bullet
  • 33. Believing that if nothing is broken, it doesn't need fixing
  • 34. Confusing "invention" with "innovation - Invention involves creating something totally new from scratch. Meanwhile, innovation takes preexisting products, processes, services, technologies, and ideas and makes them better
  • 35. Letting politics supersede business
  • 36. Not trusting your team
  • 37.Mishandling disagreement and conflicts
  • 38. Insignificant Social Media Presence
  • 39. Lack of organizational skills
  • 40. Poor execution
  • 41.Lack of core entrepreneurial competencies
  • 42. Being too stringent (or too generous) with your budget
  • 43. Setting impossible goals
  • 44. Not outsourcing some of your responsibilities
  • 45. Focusing more on sales than you do on building relationships
  • 46. Being too afraid of the unknown to take a risk
  • 47.An inexperienced team
  • 48. Underestimating resource requirements

Business fails due to many reasons but broadly they fall under the following 3 categories

  • 1.Avoidable and preventable causes [most of the business failures would come under this]
  • 2.Causes beyond the scope of your current horizon[although some part of it would come under preventable causes – which is like identifying the emerging and developing trends and moving in that segment] -e.g., technological changes in the mobile-sets have shrunk the market-size of still-cameras and video-cameras – to a very very niche and small consumer base
  • 3.Economic factors like business cycles, recessions, wars, natural disasters, government policies, inflation etc

How to ensure that you have done everything that is possible under your current span of influence and control.

Because most of the situations do not fix themselves and if you ignore taking the decision and action at the right time – you may take your business to a point of no return, where it must close.

Following are few areas, you need to evaluate and work-on – 39 Immutable Laws

  • 1.Many times businesses lose money in-spite of having an increasing customer base because of negative contribution OR prices which doesn't cover the total cost of delivering that product or service. Ensure that you have a positive variable contribution - When you find situations with a negative variable contribution, increase the price, reduce the cost of providing the incremental unit or stop offering that product or service. There may be rare exceptions to this rule, but in general, you have got to ensure that you are making money to cover your overhead on each sale
  • 2.In cases you cannot charge more from the customers you need to optimize costs[using the principal of 8 wastages as per lean manufacturing]. This can be done by eliminating all the unrestricted and very less value adding non-people costs [or non-value adding] along with right-sizing the human-power – which may involve taking tough decisions to ask people to go or reduce their compensations. Austerity measures are never easy, but if the alternative is closing your business, it will be better to keep some people employed than for everyone to lose their jobs when the company shuts the doors.
  • 3.Pay as per the criticality of must have services/materials from vendors [ prioritize on the basis of those first to pay, which can make the business close the shop if don't get] – in order of the essential employees, essential outsourced services/cost of raw materials and essential taxes or interests etc which can get you into deeper financial mess through penalties etc
  • 4.Ensure that you receive more inflow of revenue from those you owe you vis-à-vis paying those you owe. Plan your cash flow carefully
  • 5.Proactively communicate with your creditors and lenders – seek and solicit their cooperation by feasible-transparent communication BY sharing your current handicaps and your payment plans
  • 6.Know what is going wrong create a system to collect negative feedback from your competitors, vendors, customers, employees AND act on it immediately
  • 7.Be a responsible owner, ensure that yours as well as your employees have a viable salary structure during tough economic phase. Don't siphon all the profit to choke your business
  • 8.If you can't understand the reason for failing and figure out how to be successful again - engage a professional business consultant. Be open to different and disruptive ideas. Your may have wonderful ideas, but if they are not working then it needs to be modified to incorporate what can make it functional by infusing the outside perspective
  • 9.During toughest of times Invest in Yourself and your team to transform them into an asset, it may seem to like a cost [AND few on these employees you have Invested in developing – may leave your organization]
  • 10.Create a transparent meritocratic reward based on the type of contribution
  • 11.Redesign what you sell to the customer - Engage your customers to discover what they truly want from your business. Then align your product model and marketing plan to suit their demands
  • 12.Use social media and internet for Creating awareness as well as word of mouth publicity for your product/services by investing in low-cost advertising methods – to increase your customer base
  • 13. Redefine and Redesign your maximum value proposition
  • 14.Instead of focusing your resources on how you can be different, try to stick to the basics which your profitable competitors and organizations are doing
  • 15.Brain-storm the ways and implement the ways to bring in cash through increasing sales as quickly as possible
  • 16.Ensure your assets would yield maximum in case you have to fall back on them in case of dire circumstances forcing you to close
  • 17.Identify, Anticipate for as many ways you are likely to fail – then prepare how can you avoid them
  • 18.Tone-up yourself and your organization to handle worst-case scenarios
  • 19.Always make tough decisions, with focus on the bottom line
  • 20. Become a hawk as far as your cash-flow management bis concerned as this the most important of three CEO function. The other being marketing and sales along with nurturing talent
  • 21.Learn to read the financial numbers and know your numbers as happening in market and within your organization
  • 22. Ensure that you adapt to the market changes as quickly as possible – if pro-active making your product/services obsolete is not possible
  • 23. Take informed risks – as those who are not taking risks are the biggest gamblers who are eventually going to fail
  • 24. Create a culture of learning, innovating and changing in your organization. Like a statement attributed to Bill Gates ""A company's ability to respond to an unplanned event, good or bad is a prime indicator of its ability to compete."
  • 25. During tough market scenario – never cut on the marketing budget, instead focus on making bets on the marketing channels that may eventually give you maximum boost in long run. If you should cut, then eliminate, those marketing cost – like say running full page news-paper advertisements or TV advt[unless you are AMAZON]
  • 26. Engage with your customer in such meaningful and customer-value-addition ways to create unapparelled power of Advertising through the mouth of your business customers
  • 27.Get the top talent and engage them and give them a career path based on their performance which is within their control
  • 28. Hire employees slowly after through due-diligence but fire them fast in case they come up short on values, passion and attitude + Never hire cheap employees in the name of cutting cost – cheap employees will cot you much more
  • 29. Stop selling to bad and un-profitable customers fast
  • 30. Treat your customers royally – as it has been proven in numerous studies that it costs more effort and resources to find new customers than to retain existing ones – besides if your existing customers are dazzled by your treatment, they would bring more customers to you as well
  • 31.Understand and know what your competitors are doing AND through ethical means be one-up - your competitors are always looking for an opportunity to poach your customers so we be on guard
  • 32. Ensure that your quality of services as well as product is impeccable yet not costing you a fortune
  • 33. Become great at selling your visions to your vendors, partners, investors, employees, customers
  • 34. Adjust, improvise, pivot as soon as you sense changes happening
  • 35. Ensuring to Stay profitable by ensuring that your Cost of Acquiring a Customer
    is always more than
    the cost of Lifetime Value of your Customers
  • 36. Improve your cash flow through - Get paid in advance, ask for deposits or full payment in advance + Be very selective in offering credit to customers, avoid it if possible + Increase your sales through utilizing newer channels of sales + Offer incentives for early payment + Insure for contingencies
  • 37.Know who to surround yourself with, professionally, socially and personally
  • 38.Only build & sell what is needed, no additional frills
  • 39. Sell before you launch fully - The idea doesn't pay you money, flawless execution of the idea does. Before testing any idea don't think the idea will work.

Why Too much growth too soon – is a dangerous thing

Growth is not the problem in entrepreneurship, but too much growth too soon is.

When people start something on their own - They work day and night and focus, think breath only

  • 1.Big, big, bigger
  • 2.Hire too many employees too soon
  • 3.Start too many projects in few months and fall into traps
  • 4.Invest too much of money which they don't have
  • 5.Starting too many projects/ventures

If your concern too much about growth, you will have the bigger organization, but lesser profit.

The solutions is Instead of going for growth, go for profits.

Choose between having a small organization with huge profits AND Big Organization with very low profit.

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