Jul 2, 2009

3 Reasons Why Business Startups Fail

Why do 9 out of 10 businesses fail within the first 5 years?

I believe there are 3 main reasons the typical would-be, giving-it-a-try entrepreneur all too often fail.

1) Becoming overwhelmed by the complexity of running a business

One of the things I've seen over and over again as I've consulted with new business owners is the tendency to become completely overwhelmed by the enormity of the venture.

Whenever we're in the process of learning a new set of skills, developing new habits, or building a new business, it's easy to become overwhelmed with all the processes and tasks that sometimes overload our systems and cause us - like a computer with too many things running at once - to crash.

There's a lot that goes into building a new business. Especially if it's a business that one hasn't had much experience with in the past. There's going to be new skills to learn, new habits to develop, and new successes and disappointments that will no doubt bring some of their own corresponding emotional highs and lows.

For example, a couple I met with recently to discuss their new business venture explained to me that they would start one new habit, such as cold calling, and it would be going well for about a week. But between the time they started their new habit and the time they fizzled out, they'd acquired other new yet less-productive habits such as inputting data, tinkering with their web page, and drawing up new marketing fliers. In essence, they crashed with system overload. And the one thing that matters most in their particular type of business - cold calling - got squeezed out of the picture.

2) Spending too much on unprofitable, unfocused activities

One of the other common themes I find with unsuccessful businesses, is the tendency to simply throw money at problems in an effort to make them go away. Spending money to fix a problem that could be fixed with some education, planning, and a wiliness to get in and get dirty is more common for those who have money to blow - and most startups don't.

One friend of mine bought a fairly expensive distribution franchise and ended up going bankrupt as he kept pouring more and more money into non-performing marketing. He wasn't closing the deals from the leads he was getting; he figured the more he spent on marketing the more sales he'd get. But he wasn't managing his gross margin or his closing ratios close enough to see there was no way he could break even at the rate he was going. The lesson was learned only in hindsight and was one of the more painful lessons he learned.

3) Focusing too little on the things that matter most at the expense of things that don't matter

I know for myself, I've started many would-be businesses that never went anywhere simply because I refused to focus on the most important tasks at hand. It's easier to get caught up in details that don't matter, or that do matter but that aren't the most important. Chasing the urgent, quickie things that require immediate attention, usually always cloud out the most important things when I allow them to. Focus is very important in building anything, but especially a business.

This may sound harsh, but for now you've got to forget balance and lifestyle when you're in the building stages - those things have to come second. Balance is just another word for comfortable. If you're seeking balance, security, comfort or anything of the sort when you're supposed to be in the trenches, learning, struggling, and growing an enterprise, you'll most likely fail. No man can serve two masters. If you want comfort and security, you've come to the wrong place. If you want the heartache and personal growth that comes with building a business, then be prepared for the droughts that come with the pursuit of any worthy ideal.

Regardless of whichever road you choose, you'll be paying the price. Everyone pays the price. The price of pain now to enjoy a better tomorrow. Or the price of pain in your tomorrows as you look back on what you might have done had you only tried.

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