The lessons we can learn from failure in businesses
As an entrepreneur or business leader, you probably have seen the statistics. While exact numbers vary, around 20% of businesses fail within their first year and over 70% fail within 10 years. The odds of starting a successful business are slim but can be rewarding for those who make it. Whether you hope for a massive payday, freedom or both; you need to love the journey and be prepared for many setbacks.
This article takes a look at why most businesses fail and how you can learn from them so that history doesn’t repeat itself. It includes many actionable steps with resources you can implement for your business immediately. Our goal is to make more businesses thrive even through the tough times, so we hope you will learn valuable insights into creating a sustainable growing business.
WHY MOST BUSINESSES FAIL
No, it’s not money. In fact, many businesses can succeed with little startup capital. Spanx became a billion-dollar company starting with just USD 5,000 in 2000. Think of all the influencers today making millions starting with just a phone and a free social media platform. The game, Cards Against Humanity, made over USD 12 million in one of its prime years starting with a Kickstarter campaign that raised USD 15,700. So no, businesses don’t fail because of a lack of funding.
We specialise in helping startups and service businesses scale by analysing hundreds of companies over the years. Here are the six main reasons why most businesses fail.
Reason 1: Putting your business first
We get it - you poured your blood, sweat and tears into building your business and you might see the real value in it. But to be frank, your audience doesn’t care. Especially in today’s world, where we are bombarded with non-stop advertisements, we tend to quickly turn a blind eye when businesses market to us.
So how do we make our audience engaged? We provide a solution to a problem that they have. This will automatically put your customer at the forefront as their needs are looked after by your business’s solution. It takes on a customer perspective resulting in higher satisfaction.
Lesson 1: Instead of putting your business first, try finding what value you can deliver to people.
People spend their hard-earned money to make their life easier. This could be a faster, smarter or better approach as long as their problem is solved. The bigger the problem is in their life, the more you can charge for it. The Business Model Canvas and Value Proposition Canvas are fast ways to determine how your business will operate and what your value proposition is for which target market.
By taking on a problem-solution approach, you start to understand the real value your business can deliver by putting yourself in the shoes of a potential customer. That said, build to test and not for perfection. By creating an imperfect product, you can iterate it together with customer feedback allowing you to provide the value that is actually needed. Your growth rate will depend on several factors such as popularity, industry growth rate, urgency, price and how often the product or service will be used.
HELPFUL RESOURCES:
Business Model Canvas
Value Proposition Canvas
Reason 2: Making your audience think
We know our product inside and out, and we know what we can do, but sometimes this isn’t communicated effectively. Our attention span has significantly decreased over the years, and we now have only 8.25 seconds to catch the attention of our audience. This means, there is no time to make your audience guess what you’re all about - because, in a few seconds, you won’t be on their mind any longer.
So how do we catch the attention of our audience? We find the right branding and messaging that resonates with them. The principles of colour psychology and copywriting are the starting point as familiarity will make people comfortable. Gaining insight into how your customers think and behave is essential for this to be done well.
Lesson 2: Instead of making your audience think, make your business simple and personal.
Copywriting and branding become essential ingredients to making this work. Simple is not easy, and there are skilled professionals that can make your value proposition look appealing to your audience. Copywriters create written content that is used for marketing purposes. The way the text is written is often times more conversational allowing it to be easily understood by the reader.
Branding comes with a lot of psychological principles that companies can leverage. Colour psychology affects one’s mood and emotions for example blue stands for serenity, security, loyalty and wisdom, whereas yellow stands for cheerful, creativity, optimism and hope. Brand personality helps audiences associate you with a distinct feel. There are 5 brand personalities according to Aaker’s framework which are Sincerity, Excitement, Competence, Sophistication and Ruggedness. As an example, Red Bull could be categorised as Excitement with its sponsorship of extreme sports.
HELPFUL RESOURCES:
Colour Psychology Chart
Brand Personality
Reason 3: Trying all channels
Newsletters, Instagram, digital ads, postcards, radio, and youtube… just a few of the dozens of channels you can use for your business. But that doesn’t mean you have to use them all. Resource management is essential for any business and doing many things poorly only results in negative brand awareness.
So how do we know which channels to use? We understand where our audience spends their time. Using the Pareto principle, 80% of your customers are on 20% of the channels, so there is no need to invest your time into mastering them all. Customer analysis can help and includes understanding what a potential lead might do on a daily basis and how your company can reach out to them.
Lesson 3: Instead of trying all channels, try to find the ones your audience spends the most time on.
Marketing channels can be categorised into three parts: paid, owned and earned. Paid could include display ads, owned could include a blog and earned could include reviews. These categories are a good starting point to determine your channel strategy. If you’re on a limited budget, it wouldn’t be wise to start with the paid route.
The Bullseye Framework by Gabriel Weinberg, allows you to filter your 3 most effective marketing channels for your business. This will help you manage your resources and determine which channels you can leverage so that you don’t waste your time.
HELPFUL RESOURCES:
Marketing Channels
Bullseye Framework
Reason 4: Offering many solutions
Over promise, and under deliver. It’s a risky strategy that might gain you many new leads, but definitely no-repeating business. Similarly, offering a multitude of solutions might sound enticing because it might increase your reach. However, just like trying all channels, if you focus on too many customer needs, you will end up not even being able to solve one well.
So how do we refine our solution? We simplify our product or service to the needs of our buyers. Contrary to popular belief, it takes hard work to make things simple and consistent. Consumers can be faced with the paradox of choice. Therefore, solving only the biggest pain points and delivering this consistently will gain more traction.
Lesson 4: Instead of offering many solutions, try to make keep it to the essentials and deliver.
Product-market fit is finding the right features for your product or service in order to satisfy the market. It is where the market’s underserved needs are aligned with your value proposition so that leads will come naturally and growth occurs simultaneously. It is to understand that you can’t serve the whole market but to know that you can serve a specific market.
As mentioned in lesson 1, it is better to build for iteration than to build for perfection. This is where the Minimum Viable Product worksheet comes into play. This allows you to experiment with what essential features your organisation needs to start off. Deliver those well and you’re more than halfway to achieving your product-market fit.
HELPFUL RESOURCE:
Minimum Viable Product Worksheet
Reason 5: Focusing on sales
You might have heard of the popular quote “Always Be Closing”, a sales strategy emphasising that the sales team should do everything in their power to close the deal. This often leads to hard selling, whereby the seller puts pressure on the buyers by asking them directly to purchase their goods or services. This might make revenues go up in the short term, but it will leave a negative impression on your customers.
So how do we meet revenue targets without making sales a priority? We focus on the success of the customer. This will include the entire journey from them realising they have a problem to your business solving this problem. But it doesn’t stop there, good customer success stories will include after-sales, that is ensuring their problem has been solved after a sale has been made. With a higher satisfaction rate, your success will come naturally.
Lesson 5: Instead of focusing on sales, try focusing on customer success.
Taking on a customer approach requires you to go through each phase of their buying journey, from becoming aware your company exist to hopefully becoming a loyal customer. You can take this a step further and map out your organisation's key activities and goals which will help with tracking your most important metrics. By measuring this, you know which activities contribute to your growth and which should be optimised.
HELPFUL RESOURCE:
Buyer Journey
Reason 6: Being Productive
Cambridge Dictionary defines productivity as "the rate at which a company or country makes goods”. Sounds like a solid metric to define your success, but have you stopped to wonder how an increase in productivity will impact your business operations? Scaling up is no easy task and requires proper maintenance activities in order to do so at a rate which your resources can handle.
So how do I know how fast I can grow with my resources? We track, measure and balance administration with productivity. Administrative tasks such as finance, human resources and data analysis are the behind-the-scenes heroes of your operations. If this is not done consistently, your operations will soon run into a backlog that you might not be able to handle.
Lesson 6: Instead of being too busy, try to keep your company lean.
Stay organised with your tracking and administration activities, whether these are on a daily or weekly basis at a specific time. This will allow you to stay consistent and not fall behind when your growth is picking up. It becomes a tedious task to backtrack and measure your growth afterwards. It helps to keep a tool stack in place, which is an inventory list of all the tools being used. It also ensures you know how your processes are being monitored and analysed in each department.
HELPFUL RESOURCE:
Tool stack
The foundation for sustainable growth
Sustainable growth refers to the maximum rate at which a company can grow without having to increase its financing. This means that you grow with your current resources and you can sustain the business on your own. This type of growth might not be attractive to investors, but it will help your odds of survival.
We have seen the downfalls of rapid expansion plans in recent times. WeWork opened too many locations at once and burned when the revenues did not justify their growth. Theranos partnered with Walgreens too soon and burned when a medical device did not function as promised, endangering the lives of many.
At Tashi Hati, we take a different approach to growth. We believe it should happen organically by building the right foundations over time. This causes momentum whereby growth is inevitable. Think of the snowball effect, where small actions cause larger ones resulting in a bigger dramatic impact.
Similarly, the flywheel effect, a concept coined by Jim Collins in his book “Good to Great”. He explains that satisfied customers will be your best promoters and in turn, refer your business to others. The flywheel model is illustrated below and shows how growth can happen naturally without the need for funding in a lean and systematic way.
The foundation for sustainable growth
Problem: Identify a problem in the market
Solution: Find a solution to the problem
Target Market: Identify which of your audience needs the problem solved urgently
Messaging: Communicates the value of the solution effectively
Channels: Identify the channels your audience spends the most time on
Operations: Deliver what is being promised
Customer Success: Care about clients’ needs being solved
Administrative Analysis: Maintenance activities such as data tracking, finance and human resources.
How we can help
At Tashi Hati, we offer growth consultations to help you speed up your growth process. We teach accelerator knowledge in interactive workshops over 1 to 3 months to your team so that you can kickstart your growth.
Interested to find out more? Schedule a call today.