You’re about to start your own business. It’s an exciting time. You could make a fortune. You could retire in a few years and travel the world. However, there’s also a possibility that your business will fail. Let’s look at the facts and then we’ll see what you can do to avoid disaster.
Starting a Business
The US Bureau of Labour Statistics reports that 51% of start-ups fail within 5 years. The Office of National Statistics put the UK figure at 58%. However, these figures understate the true failure rate because they only include tax-registered businesses. Many start-ups fail before they even register.
It’s hard to be sure about the real figures. The Wall Street Journal reports that 3 out of 4 start-ups fail – quoting a Harvard study. Not to be outdone, Fortune Magazine claims that 9 out of 10 starts-ups fail (but doesn’t provide any evidence). Whichever you believe – you have to ask: what’s the reason for that astonishing level of failure?
Many owners have a strong technical understanding about the business they’re going to start. For example, Adam is opening a cake shop because he’s an expert baker, Betty is opening a software company because she’s an expert coder, Carl is going to consult on purchasing systems because he has extensive experience in that industry. Without that level of knowledge, it would be difficult to provide the product or service in the first place. However, that knowledge can also trap the owner.
Let’s take our software developer. She believes that she’ll have no problem selling her services. She has lots of friends on developer forums and there’s an entire world of potential clients out there. Unfortunately, there’s also an entire world of competitors and many of them are offering rock bottom prices. She has no history with her prospects so the fees she can charge are much lower than she expected. So what happens next?
Soon she’s coding for 60 hours a week just to make a bare living and spending another five hours every month on hated administration tasks. She doesn’t have the time or the energy to search for sales or develop the business. And that’s the problem – it’s a vicious circle. It’s why many business go under very quickly and why the strong struggle for years until they’re just too tired to continue. But is there a key mistake that leads business owners into this situation?
The key mistake is that – at the start – many potential business owners have unrealistic expectations about the ease of gaining customers. For example, do you secretly believe any of the following:
- I’ll put up a website and customers will flock to buy from me.
- I’ll be able to get all my customers by word of mouth
- I have friends in the industry – they’ll persuade people to buy
- I’ll put some ads in the paper and get a flood of customers
Some of these things could actually happen – but you could also win the lottery. Depending on either eventuality is not recommended – particularly when your family’s livelihood is at risk. So let’s look at the two business “secrets” that can help
The First “Secret”
The first secret is that when you start a new business your primary focus must be on creating sales. That’s going to take time and hard work but if there are no customers then the technical execution of the product or service is irrelevant. It doesn’t matter how elegant your code, how tasty your cakes or how good your advice if no one knows about them – or is willing to pay for them.
The Second “Secret”
The second secret is that locating customers is not a once-off effort. You need a constant stream of new customers for your business. If you stop working on sales to concentrate on the technical side of your business the supply of customers will dry up and you’ll have to start a mad scramble to get more – losing income along the way.
How to Avoid Failure
You can take several steps to avoid the traps that cause first-time owners to fail. The key solution is learn as much as you can about business before you start. Have a look at lesson 1 and lesson 2 to identity the areas of knowledge you need to be successful.