Post: #1

Interesting statistics from http://www.statisticbrain.com/startup-fa...-industry/ breaking down the most common causes of business startup failure:

Quote:1 Incompetence 46%
Emotional Pricing
Living too high for the business
Nonpayment of taxes
No knowledge of pricing
Lack of planning
No knowledge of financing
No experience in record-keeping
2 Unbalanced Experience or Lack of Managerial Experience 30 %
Poor credit granting practices
Expansion too rapid
Inadequate borrowing practices
3 Lack of Experiences in line of goods or services 11 %
Carry inadequate inventory
No knowledge of suppliers
Wasted advertising budget
5 Neglect, fraud, disaster 1 %

Quote: Leading Management Mistakes
1 Going into business for the wrong reasons
2 Advice from family and friends
3 Being in the wrong place at the wrong time
4 Entrepreneur gets worn-out and/or underestimated the time requirements
5 Family pressure on time and money commitments
6 Pride
7 Lack of market awareness
8 The entrepreneur falls in love with the product/business
9 Lack of financial responsibility and awareness
10 Lack of a clear focus
11 Too much money
12 Optimistic/Realistic/Pessimistic

Seems worth pondering upon...

Post: #2

I would bet money the most common is cash flow problems.

Post: #3

The 18 Mistakes That Kill Startups

http://www.paulgraham.com/startupmistakes.html

Post: #4

(09-25-2013 03:10 PM)worldwidetraveler Wrote:  I would bet money the most common is cash flow problems.

people always say that but 'cash flow problems' are like 'died from fluid in the lungs' its a death rattle symptom not the initial cause

I've got 3-4 clients that didn't plan for taxes and now they are having 'cash flow problems' because they are smashed for a big tax bill + penalties and interest from last year and the clock isn't going to stop when it comes time to file and pay their 2013 taxes.

I've got 2 others that overdraw for owners compensation which of course chokes the cash flow for the business.

Post: #5

Bump.

I found a podcast with an interesting take on failure. The narrator describes how he made it big making self-sticks, but then the craze crashed and his business and his personal credit were ruined. He talks about how Buddhism helped him cope with the failure of his business. I thought it was a very interesting insight into what it's like to have your business fail.

Reasons for his failure:
- lack of diversification
- his entire business was built on a fad; once the fad ended, big retail stores sent all his products back and demanded a refund
- reliance of big store retailers to stock his product; except that they contracted the right to return his products if they didn't sale, which in the end they did
- his personal credit was heavily tied into the business, so when the business went under, so did he

I like the way he dissects the psychology of failure, and how it ate him up inside and how he finally learned how to make peace with his personal disaster.

The podcast is found here:
https://secularbuddhism.com/no-cows-no-problems/

Post: #6

I often see start ups fail that are started by money men. Meaning, wall st types that can raise cash quickly and think they can dominate a market, and fail to realize they know nothing about the industry they decided to start a business in. In my experience its been in industries light on technical expertise(media), but have not so obvious function and process expertise that these guys think they can easily fake. It usually ends up biting them in the ass, and they can not execute well, or fail to find the business model they promised their investors.. Then they can not return that money. I secretly root for these businesses to fail.

Not a start up, but the perfect example of what I am talking about; iHeartMedia. They have $20B in debt coming due this year. You will see them dissolved and the company will be history. Replace that B with an M or a K. Investor hubris happens at all levels.

My advice is dont work for money men. Work for a CEO that is a creator/inventor, who cares more about the product literally more than anyone on earth. Zuckerberg, Larry/Sergey, are obvious and huge examples. But you can find these types of people at any level of business, and those are the most successful and long lasting companies.

Post: #7

All of these issues are down stream from money. Lack of money is the killer. Records don't get kept - where does the time, energy and motivation to keep them come from when you're understaffed and overworked just doing the day to day stuff? Taxes don't get planned for - how do you plan for a tax if you don't fundamentally have the money to pay it in the first place? You don't, you just keep the faith in what you're doing and hope that by the time it falls due you will have made the sales to cover it. Expansion too rapid - also a money issue. No expansion is too rapid if you have the funds to cover it. Too much business is a way easier problem to solve than too little.

Businesses fail in 90%+ of cases, in my view, due to inadequate funding. The other 10% probably do fall under the 'inefficient use of funding' heading, but they will be the absolute minority.

Post: #8

In no particular order, I'd list these:-

1)lack of capital.
2)waste of capital.
3)fear of success (MASSIVELY UNDERESTIMATED ONE!)
4)fear of failure.
5)lack of credibility.
eg based from his bedroom.. and being open about it.
6)underestimating what is needed to sell.
7)targetting too mainstream a market.
8)too many competitors, not enough spare customers.
9)not working in your passion.
10)not offering a big reason for customers to jump ship to you.
11)shit customer service and communication
eg blaming the customer.
12)didn't get rich quick, got bored and started drifting.
13)stifled by a stiff/out of date mentor.
14)trying to reinvent the wheel - having no link/connection to the industry.

Post: #9

1. Inability to get customers and make sales.

2. Incompetence.

You can have a big pile of money but unless you can get customers and do the job right, you'll always be chasing your tail.

Post: #10

Can't a business simply because of a lack of demand?

How about the product simply wasn't good enough?

Why assume that every idea would have generated profit if mistakes hadn't been made?

Why can't it be perfectly normal for startups to fail?

Post: #11

(07-04-2017 08:40 AM)Suits Wrote:  Can't a business simply because of a lack of demand?

How about the product simply wasn't good enough?

Why assume that every idea would have generated profit if mistakes hadn't been made?

Why can't it be perfectly normal for startups to fail?

Its good to learn these examples, of why products sucks and people fail. There are plenty of examples of where no demand existed, until the product/company created demand.

New Coke is probably the best case study discussed in business schools of recent business failure.

Here is a decent link but this case study is a good place to start.

Post: #12

(09-25-2013 03:14 PM)reino341 Wrote:  The 18 Mistakes That Kill Startups

http://www.paulgraham.com/startupmistakes.html

Paul Graham fails to acknowledge to his readers his hidden bias and distaste for the business(sales & marketing) functions of a startup.
He is a great evangelist for Silicon Valley style programmers but an awful example to start a cash generating business. He actually advises startups to sell out early.

Most people love inventing. But hate selling. This is the #1 Real World reason any business fails. Lack of Sales (at Margin).

People will buy almost anything if it is sold correctly.

PS: Analytics junkies and Case Study writing University Professors are very shitty sources.

Post: #13

(07-04-2017 08:58 AM)crdr Wrote:  

(09-25-2013 03:14 PM)reino341 Wrote:  The 18 Mistakes That Kill Startups

http://www.paulgraham.com/startupmistakes.html

Paul Graham fails to acknowledge to his readers his hidden bias and distaste for the business(sales & marketing) functions of a startup.
He is a great evangelist for Silicon Valley style programmers but an awful example to start a cash generating business. He actually advises startups to sell out early.

Most people love inventing. But hate selling. This is the #1 Real World reason any business fails. Lack of Sales (at Margin).

People will buy almost anything if it is sold correctly.

PS: Analytics junkies and Case Study writing University Professors are very shitty sources.

Spoken like a true sales guy.

But its possible to be given turds to sell. And you want to base your reputation on selling turds to your clients? No thank you.

Magic products/companies will largely sell themselves. These are created by passionate and talented founders. But yes sales managers are always needed to reign in the monkeys to snag the low hanging fruit.

Post: #14

Having started and failed at several businesses myself:

I don't think there are "playbook" lessons that can be abstracted to all cases for why any business fails. There are general thoughts (Writing a little freeform here), but essentially:

1. Know who your customer is, and why they buy from you, and how often they do so
2. Know what can cause the customer to stop buying from you
3. Related to the above, if your customer is a one-and-done one, as in they only buy from you once in their lifetime, you are probably not in a good business unless your available market is infinite (which is never the case).
4. Understand where to find more of your customers (this is your sales and growth lever as described by crdr)
5. Understand clearly your financial levers in the business. Too many entrepreneurs get going from instinct, but once you hit any meaningful revenue (5 figures a month or more) you need to completely understand the modular components of your business and how to juice each part.
6. Related to the previous point, if your business cannot be organized into modular, distinct parts, you will find it hard to scale and separate yourself from the income generation. In fact, the more you grow without a proper structure, it is likely you will hit the wall at top speed since you become more vulnerable to mistakes.
7. Customer dependency: If there is a customer who if you lose would materially affect your business, then you need to build more resiliency fast. This also doesn't mean one "customer", I mean one source of income. Imagine you did work for two state schools whose construction (or whatever) budget comes from donations from one particular source. Even though you have "two customers", the actual income source is singular and thus fragile. If anything happens or changes with that donor, the knock-on effect will damage you.
8. Key employee syndrome: If one or two trusted lieutenants leave, or worse, jump ship with other parts of your team, you will scramble to plug the operational holes while dealing with any legal items.
9. Cashflow mismanagement. This is quite frankly the most common, related to the financial levers point, but many entrepreneurs get access to easy credit and start spending without a plan for recoupment, and don't set strict boundaries for whether a business is "working" or not.

The last point can be the hardest; it's hard to keep the natural instinct we have to start new businesses and try ideas out without getting stuck in analysis-paralysis. New businesses by definition involve tinkering and experimenting, but developing a strict "ROI" mentality to your expenses and how they fit into your business growth plans is important.

Post: #15

(07-04-2017 08:40 AM)Suits Wrote:  Can't a business simply because of a lack of demand?

How about the product simply wasn't good enough?

Why assume that every idea would have generated profit if mistakes hadn't been made?

Why can't it be perfectly normal for startups to fail?

Hmm, interesting.

Going through the process of steps towards growth and scale wouldn't these things need to be established for a Start-up to grow out of its shell?

A start up with no consumers/demand is just an idea, until people start paying for what you do all you have is a hobby.

Post: #16

(07-04-2017 10:01 AM)Vaun Wrote:  

(07-04-2017 08:58 AM)crdr Wrote:  

(09-25-2013 03:14 PM)reino341 Wrote:  The 18 Mistakes That Kill Startups

http://www.paulgraham.com/startupmistakes.html

Paul Graham fails to acknowledge to his readers his hidden bias and distaste for the business(sales & marketing) functions of a startup.
He is a great evangelist for Silicon Valley style programmers but an awful example to start a cash generating business. He actually advises startups to sell out early.

Most people love inventing. But hate selling. This is the #1 Real World reason any business fails. Lack of Sales (at Margin).

People will buy almost anything if it is sold correctly.

PS: Analytics junkies and Case Study writing University Professors are very shitty sources.

Magic products/companies will largely sell themselves. These are created by passionate and talented founders. But yes sales managers are always needed to reign in the monkeys to snag the low hanging fruit.

Not exactly true. There are brilliant innovations every quarter that bust. In the 80s and 90s Microsoft products were and still 2nd tier at best. But Gates just wanted it more.
They took no venture funding and just went hard. Very rare and admirable by today's standards.

Companies usually get innovations and conceptual models confused. Innovations are improvements for the better. Concepts are brand builders for the future...
Improvements are only innovations if they improve sales in the marketplace (at margin).

The Pet Rock has done more sales than many VC-Backed Technology companies in the Valley.

Post: #17

(07-04-2017 03:38 AM)H1N1 Wrote:  Businesses fail in 90%+ of cases, in my view, due to inadequate funding. The other 10% probably do fall under the 'inefficient use of funding' heading, but they will be the absolute minority.

A good friend of mine was a builder. He and another dude started a company in a pretty small community. He still ended up making about a mill or two a year with that company serving that community.

They didn't reinvest any of that money. They were buying boats, cars, partying... you get the picture.

At the end, the partnership ended up dieing because the money wasn't coming in like it used too and they had nothing to show for the good times.

He ended up starting another company in a bigger community not far from the original. Again, he did well and was pulling in roughly a mill a year. He was smarter this time and decided to reinvest some of his money. Unfortunately, he picked a side business that had nothing to do with his core and ended up failing. He also spent more than he reinvested.

He ended up losing that business but that was due to personal reasons.

While he started to understand that cash flow would ebb and flow, he didn't quite know what to do with the cash to whether the storms.

The guy was great in sales. He could restart again and again and do well. I think he gave up because of past failures.

Post: #18

(07-04-2017 11:32 AM)crdr Wrote:  Not exactly true. There are brilliant innovations every quarter that bust. In the 80s and 90s Microsoft products were and still 2nd tier at best. But Gates just wanted it more.
They took no venture funding and just went hard. Very rare and admirable by today's standards.

Companies usually get innovations and conceptual models confused. Innovations are improvements for the better. Concepts are brand builders for the future...
Improvements are only innovations if they improve sales in the marketplace (at margin).

The Pet Rock has done more sales than many VC-Backed Technology companies in the Valley.

I have found there is usually a small (sometimes very small) percentage of your audience that will just get your product right off the bat. They just see it and understand the why and how it will help them.

The larger percentage of your customers will require education as to why they should purchase. They won't sell themselves on the product. These are the people that will require marketing and salesmanship.

Post: #19

(07-04-2017 12:12 PM)worldwidetraveler Wrote:  

(07-04-2017 11:32 AM)crdr Wrote:  Not exactly true. There are brilliant innovations every quarter that bust. In the 80s and 90s Microsoft products were and still 2nd tier at best. But Gates just wanted it more.
They took no venture funding and just went hard. Very rare and admirable by today's standards.

Companies usually get innovations and conceptual models confused. Innovations are improvements for the better. Concepts are brand builders for the future...
Improvements are only innovations if they improve sales in the marketplace (at margin).

The Pet Rock has done more sales than many VC-Backed Technology companies in the Valley.

I have found there is usually a small (sometimes very small) percentage of your audience that will just get your product right off the bat. They just see it and understand the why and how it will help them.

The larger percentage of your customers will require education as to why they should purchase. They won't sell themselves on the product. These are the people that will require marketing and salesmanship.

More often than not, they need to see another firm or friend do it first and have it work for them... This is why Testimonials are beyond crucial. That small 5-7%(Early Adopters) likes to be the guinea pig.

Post: #20

Great thread. I will briefly add that I find Simon Sinek's "Start with Why" a compelling overview of why some companies succeed or fail. The TED talk 'How great leaders inspire action' has inspired me. He also relates to the Law of Diffusion of Innovation or the product / idea acceptance cycle which begins with innovators, then early adopters, late adopters, early majority, late majority, and finally laggards. Each group of person required a different trigger to accept or buy what you're selling. "Crossing the Chasm" is a great book that goes into detail on this and a multi-millionaire (possibly billionare) customer / mentor recommended it to me.

The 80/20 rule, Pareto's principle, applies to all aspects of life and business definitely. Identifying your key value proposition, finding and retaining customers, getting testimonials and referrals to build up your brand, and telling a story that draws people in to you. You need to observe what you do that gets results (and what doesn't) and adjust course as needed while staying true to your key purpose and core values.

I have given my business a public face via YouTube videos and a blog plus live events (less now but a lot in the early years). Like it or not, you need to connect with people emotionally and authentically along with having a solid technical / rational reasons to buy your product or service instead of going somewhere else.

I have recommended the book "Is Your Genius at Work?" in other threads. It ties to the idea of why you are doing this business. If it's not an extension of your values, something you can relate to passionately, then you won't be drawing support to you - whether customers, money, or mentors. I don't think enough founders really understand the philosophy of what drives them and how their business is / needs to be a natural extension of that.

I read most of 'The E-Myth' which points out every success business needs a visionary, a manager, and a technician. I think many failures are from inadequate degrees of one or more roles, or people who didn't accurately estimate their ability or willingness to act in those functions.

Successful businesses are rare likely for a similar reason not everyone climbs an 8,000 meter peak. It's a demanding expedition with no guarantee of success but for business there is actually no clear road map. But I don't think most climbs at altitude go off according to plan either! You need to adapt, be flexible, be willing to gamble sometimes and play it safe at others. You have to make bad decisions and live with them, plus celebrate your successes but not too much - there's always another challenge to overcome. I think you have to like chaos at least a bit to succeed in business, so you learn patterns and can weather storms. You develop patience and wisdom which aren't skills taught in school nor eally encouraged in present - but that pendulum is swinging back as this 4th Turning progresses.

You need to learn to read people quickly and empathize with wherever there are in their journey. This is where an introvert can actually do well but being outgoing is an asset for a founder so it has to be a combination. I've seen a few business people who were just ego-driven fail and partly because they couldn't STFU and listen to their customers - or just get back to work.

I will invoke evolutionary psychology here (my limited understanding of it) and say you need a K-type and r-type in some balance within yourself, or in key leadership positions. These would be people who feed off each other in a way that brings together innovation, excitement, and dependability.

I've likened having a business to being pregnant and raising a child. As a man this is the only kind of birth (other than books or ideas) I can give from my own creative potential. It's helped me as I've come to anthromorphize my business. I see my limitations and capabilities, strengths and weaknesses. If someone starts a business without realizing they must grow as their business does, they will resist or even unconsciously allow it to fail (as was sagely pointed out above).

Having a business is entering directly in life and commerce without the safety net of being an employee. It seems exciting and is, but is also dangerous and promotes stress. Having a system well-adapted to constant stress and learning to manage and feed off it will give you infinite fuel/motivation. Not many people are wired this way. Good intentions, a college degree, deep pockets, or a brilliant idea do not a successful business make. You've got to know yourself, be intrigued with others, or at least passionately commit to creating what you know is good, true, beautiful, necessary to move the world forward.

Obviously I'm sharing from my perspective and other businesses owners I've known and worked with. 11+ years in I am a far different person and certainly a better business owner than when I began as an inexperienced, wide-eyed dreamer. I have also noticed that my scope and market has narrowed and focused every few years, as I've also developed royalty / residuals from licensing my products to other companies for retail / wholesale. I prefer to focus on R&D and let others handle basic logistics like volume web sales, customer support, etc. While not an easy decision but I knew I was getting tired of me day to day grind (technician / manager roles) without being my real visionary self. There are fairly long cycles at work in any business (say 2-4 years). I believe working with those cycles is crucial to stay inspired / interested and also to move your company / vision forward.

P.S. I think over investing in space, personnel, product (volume purchases for best discount), or capacity is a key reason businesses fail. Being too optimistic, especially when you have deep pockets or are connected to lots of funding, will make you feel you're going to change the world overnight. You might get some small market share but you could also set yourself up for big problems in terms of staffing, regulations, supply chain, customer support, fulfillment. If you run a business with the idea that sales can increase or decrease 25-50% from month to month, or year to year, how would you manage that? Not an easy point to ponder but worth considering from my experience.

Post: #21

(07-04-2017 01:50 PM)crdr Wrote:  More often than not, they need to see another firm or friend do it first and have it work for them... This is why Testimonials are beyond crucial. That small 5-7%(Early Adopters) likes to be the guinea pig.

Testimonials do help with credibility.

They help once your customer gets to a certain point. Meaning they understand the product and how it can help them. They are close to buying but want to check out if it helped other people like them. They need that final push to purchase.

If your customers are not at the stage where they are considering purchasing, the testimonials won't help.

Post: #22

(07-04-2017 01:59 PM)worldwidetraveler Wrote:  

(07-04-2017 01:50 PM)crdr Wrote:  More often than not, they need to see another firm or friend do it first and have it work for them... This is why Testimonials are beyond crucial. That small 5-7%(Early Adopters) likes to be the guinea pig.

Testimonials do help with credibility.

They help once your customer gets to a certain point. Meaning they understand the product and how it can help them. They are close to buying but want to check out if it helped other people like them. They need that final push to purchase.

If your customers are not at the stage where they are considering purchasing, the testimonials won't help.

No amount of salesmanship or marketing can force a customer to buy when they are not ready or don't want to buy. Don't tell that to any Public-traded corporation though. They are playing with Monopoly Money. Arrogant Small/Mid Size Businesses waste way too much time and resources persuading a donkey to walk when it doesn't want to.

I don't talk to suspects who are not in purchase mode. A sign of a good marketer is one who knows when a suspect is warming up to prospect. This is the same ethos as getting laid if you really think about it. This is why you can go to Harry Winston and walk out without any sales rep acknowledging you exist.

Cold approach/Cold calling is so archaic.

Post: #23

(07-04-2017 02:06 PM)crdr Wrote:  No amount of salesmanship or marketing can force a customer to buy when they don't want to buy. Don't tell that to any Public-traded corporation though. They are playing with Monopoly Money. Small-Mid Size Businesses waste way too much time and resources persuading a donkey to walk when it doesn't want to.

That isn't what I was saying.

Your customers have a set of beliefs that need to be addressed before they will purchase. As I said before, a small percentage of your customer's beliefs will coincide with your product perfectly and there will be no need for them to be educated.

I use the term educated for a reason. That is really what you are doing with your marketing/sales.

Do they even know they have a problem? Do they feel they are capable of fixing the problem? Do they think the problem is big enough to put in the time to fix.

I am not saying to educate everyone with a heart beat. I am saying that even for a specfic audience you will have to deal with their belief systems and market accordingly to those beliefs. Knock out one after another until they come to the conclusion that your product can help them.

You really should be educating your prospects before they even get to the sales page.

If you are just sending potential customers to a sales page with 4 pages of testimonials then you are losing a lot of customers.

Post: #24

wwt, very good points. Sounds like you understand the dance well. Education before offer.

Gary Vaynerchuck describes 'jab jab jab, right hook' to provide several instances of value (via educating and informing prospects, free tools, etc.) before making a sales pitch or offer. It's certainly worked for me and I have more pre-qualified leads show up. I also created a two FAQs specifically to address people who are 1) ready to order and 2) who may need more convincing. If someone contacts me with a question already answered in those I simply thank them for their interest, direct them toward those links and add a couple testimonial links relevant to their needs / application. I prefer they express interest in my products / services instead of me fishing for a sale. I used to do that (and maybe as a very early-stage startup you have to) but am happier now to update my educational resources / blog / create for customers already in the queue.

Post: #25

(07-04-2017 02:17 PM)worldwidetraveler Wrote:  

(07-04-2017 02:06 PM)crdr Wrote:  No amount of salesmanship or marketing can force a customer to buy when they don't want to buy. Don't tell that to any Public-traded corporation though. They are playing with Monopoly Money. Small-Mid Size Businesses waste way too much time and resources persuading a donkey to walk when it doesn't want to.

That isn't what I was saying.

Your customers have a set of beliefs that need to be addressed before they will purchase. As I said before, a small percentage of your customer's beliefs will coincide with your product perfectly and there will be no need for them to be educated.

I use the term educated for a reason. That is really what you are doing with your marketing/sales.

Do they even know they have a problem? Do they feel they are capable of fixing the problem? Do they think the problem is big enough to put in the time to fix.

I am not saying to educate everyone with a heart beat. I am saying that even for a specfic audience you will have to deal with their belief systems and market accordingly to those beliefs. Knock out one after another until they come to the conclusion that your product can help them.

You really should be educating your prospects before they even get to the sales page.

If you are just sending potential customers to a sales page with 4 pages of testimonials then you are losing a lot of customers.

Hmm...
You should be harnessing the suspect's legitimate desire to inquire to buy your products. Full stop.
If that's through VALUABLE education so be it. But if it's through a stunning offer and a sales letter. Whatever works as long as it harnesses the buyer's desire...

I don't know how many times I've been educated OUT of BUYING something. The salesman wouldn't shut the fuck up.
Education without harnessing the desire a buyer to send you money for a product is a great way to go broke.

This is a highly ignored tenet of Direct Response Marketing.

PS: Jordan Belfort's Straight Line Persuasion is a course every salesman should take. It's too bad JB continually uses his methods for evil. But his persuasion techniques is rock solid.

PPS: This is why a lot of guys talk themselves out of sex. Whenever you educate too much or too little you create more risk for your prospect to reject you