Avoid These Fatal Business Mistakes
July 18, 2019
It is important to learn why businesses succeed and then implement those ideas into one’s own business. It might be as simple as improving upon an already existing aspect of a business, or it might involve something completely new to the business such as diversifying products and targeting new markets. Understanding what drives business success is vitally important for the long-term sustainability of any business.
Equally important is understanding why businesses fail, being aware of various failure factors within one’s own business, and controlling those factors as much as possible. The company CB Insights with the backing from the National Science Foundation and venture capital investors builds technology to help businesses guess less and succeed more. They aggregate and analyze massive amounts of data gathered from sources such as patents, venture capital financings, M&A transaction, market sizings, startup and investor websites, news, and social media.
In one study, CB Insights analyzed 101 startup failure businesses in order to compile a list of the factors involved in these failures. The results indicated that there is not just one reason that contributes to business failure, but there can be a multitude of reasons contributing to such failures all within the same business.
Following is a list of the most frequent reasons for business failure as determined by CB Insights’ study:
1. No market need (42%) - Tackling problems that are interesting to solve rather serving the needs of a market.
2. Ran out of cash (29%) - Money and time are finite and need to be allocated judiciously...how should money be spent?
3. Not the right team (23%) - A diverse team with different skill sets is critical.
4. Got outcompeted (19%) - While obsessing over the competition is not healthy, ignoring competitors is a recipe for failure.
5. Pricing/cost issues (18%) - Difficulty in pricing a product high enough to eventually cover costs but low enough to bring in customers.
6. User un-friendly product (17%) - Ignoring users wants and needs, whether consciously or accidentally.
7. Product without a business model (17%) - No business model, staying wedded to a single channel, failure to scale, and unable to capitalize on any traction gained.
8. Poor marketing (14%) - Inability to market.
9. Ignore customers (14%) - Ignoring users, tunnel vision, and not gathering user feedback.
10. Product mistimed (13%) - Releasing a product too early or too late.
11. Lose focus (13%) - Getting sidetracked by distracting projects, personal issues, and/or general loss of focus.
12. Disharmony among team/investors (13%) - Discord with a cofounder and/or investor.
13. Pivot gone bad (10%) - Starting down the wrong road.
14. Lack passion (9%) - Lack of passion and knowledge.
15. Failed geographical expansion (9%) – No congruence between startup’s concept and location.
16. No financing/investor interest (8%) - Lack of investor interest either at the seed stage or follow-up stage.
17. Legal challenges (8%) - Legal complexities resulting in business shutting down.
18. Didn’t use network (8%) - Did not properly utilize their own network.
19. Burn out (8%) - Work-life balance... having a solid, diverse, and driven team so responsibilities can be shared.
20. Failure to pivot (7%) - Not pivoting away or quickly enough from a bad product, a bad hire, or a bad decision.
While many of the above reasons for business failure seem obvious, they continue to plague small businesses and SMEs. Owners must be cognizant of the reasons for business failure and take steps to counteract any potential problems that could lead to catastrophic results.