Do you know why 20% of all businesses fail in their first year?
Well, on this week’s Podcast, I explain the five most common mistakes that kill businesses and how to prevent your business from being one of them!
According to the Small Business Administration, 20% of all businesses fail in their first year, 50% fail within 5 years, and only 33% last 10 years or more. But it’s important to know that the majority of businesses that do fail, always fail for the very same reasons, no matter how long they last.
That’s why today I’m going to go over the five most common mistakes that kill businesses…how to avoid them…and how to set yourself up for success in year one.
Now, let’s be real, starting a business is never easy.
In my case, I struggled for many years. My business went backwards and in circles, and I starved for over ten years, and I didn’t know if it would ever be successful.
And we’ve all heard discouraging statistics about how many companies fail over time. Some businesses last one year, others last five years, some prosper for ten years or more, and then they fail.
But these statistics miss the whole point…
When a business failed isn’t as important as WHY it failed!
I say this because no matter when it happens, they always fail for the very same reasons.
So, how does this relate to you?
Well, if you are a new entrepreneur, it is true that your first year is going to be the most challenging year for your business.
But that shouldn’t surprise you.
If you’ve read the first chapter of a book or watched the first episode of a TV show and thought, “This isn’t for me, I’m out.” The same thing happens in business.
A lot of people don’t commit to the process and don’t realize that it takes consistency every day. They decide early that this lifestyle isn’t for them, and they quit.
So this factor messes up the statistics during year one. But that doesn’t mean year one is easy!
Year one is still very difficult for new businesses because you have to learn everything, and you’re going to make a lot of mistakes, which is a GOOD thing.
But this all leads to my point…
There are no guarantees in business!
So the best thing you can do to minimize the risk of failure is to study, prepare and accept that you’re going to make mistakes. And if you learn the most common mistakes that cause businesses to fail, then you’ve got the greatest possible chance to succeed in year one and beyond.
Here’s what you need to remember…
There are so many reasons why businesses fail, but when you look at them closely, the main reasons can be sorted into these five categories:
Here’s why this is important…
All of these categories need your attention, and if any of them are neglected, you may be setting your business up for failure.
So let’s break them down...
Here’s what you need to know…
The first mistake that can kill a business is your PRODUCT or SERVICE!
This is probably the most obvious reason why a business might fail.
If your product or service doesn’t over-deliver value to your customer, if it isn’t high quality, or it doesn’t stand out from your competitors, and you don’t provide an amazing experience, your business may fail.
My old manager, Rick Marcelli, back when I was in show business, would always say, “Sell the sizzle – not the steak!.”
Rick was my manager for 20 years. He worked with David Copperfield, Jenny Jones, the Smothers Brothers, George Lopez, Edward James Olmos, The Beach Boys, and all kinds of stars over the years. He taught me the most important things I needed to know about business. Unfortunately, he got angry at me when I quit show business to start a software company, and we haven’t talked since, which makes me sad because he was my best friend, and I think about him every day. Because the things he taught me, they apply to everything I'm doing today!
See? Running a business is exactly the same as show business. It’s about standing out. It’s about calling attention to yourself. Sure, you have to have talent, which is the product, but you have to try to look cooler than anyone else and stand out. And that’s why Rick always said, “sell the sizzle – not the steak.” That was his mantra.
But in this case, if your steak is rotten, the best sales team in the world won’t be able to sell that sizzle.
So whatever your product or service is, ya gotta study it, perfect it, believe in it, and make sure it provides value and stands out in the marketplace.
The second mistake that can kill a business is The MARKET!
There are many reasons why small businesses fail in the marketplace, but it’s never the market’s fault.
The company either didn’t know who their target customer was, they didn’t know where to find their customers, they didn’t understand how to communicate their product or service to their customers, or the company didn’t produce a product that their customers wanted or needed.
Now, it might shock you to learn that, according to the business analytics company CBInsights, 42% of businesses fail because there was NO MARKET NEED FOR THEIR PRODUCT AT ALL.
That’s unbelievable to me.
It’s like trying to compete with M&Ms by making chocolate that melts in your hand. Of course, it’s gonna fail. It’s a bad product, and nobody asked for it!
In my own experience, I started CRC out of necessity because I had a credit issue of my own that nearly destroyed my life. I was too broke to hire a credit repair company. I fixed my own credit, and I started helping other people, and I realized that the credit system is designed to hurt people, and there were a lot of hurting people. And there was so much need but no product to make Credit Repair easier.
And when I did my research, I learned that 8 out of 10 people in America have errors on their credit reports and need Credit Repair, and 10 out of 10 need Credit Monitoring.
So I knew there was a fit.
The point is, if you understand who your customers are, where to find them, how to communicate with them (like on SOCIAL MEDIA), and you have a valuable product that your customers want or need, then you have a good chance of being successful in year one and beyond.
The third mistake that can kill a business is The BUSINESS PLAN!
The great basketball coach John Wooden once said, “Failing to prepare is preparing to fail.”
When a business fails, there’s a good chance the seed of that failure was planted somewhere in the initial plan.
A business plan is all about answering questions. And if those questions aren’t answered realistically and unemotionally, mistakes are going to happen.
You need to be able to answer questions like:
The more questions you can ask yourself BEFORE you start your business, the more problems you can avoid when it’s up and running.
A realistic and well-thought-out business plan will help to guide you from where you are to where you want to be. And it will help you avoid so many other mistakes from happening.
The fourth mistake that can kill a business is The MONEY!
According to that same study by CBInsights, 29% of businesses fail because they lack funds and go bankrupt.
All businesses cost money. But if your costs are more than your revenue, eventually, your business will fail.
So you want to make it part of your business plan to keep expenses low and stay as efficient as possible during your first years of business.
Now, if your sales go beyond your expectations, congratulations. But be cautious. Make sure you didn’t just have one great month. But when you have sustained sales, month after month, that’s when you want to prepare to take your business to the next level and start to get some help. Get an assistant, or hire a VA, so you’re not doing everything.
Now, if your sales drop below expectations, that’s concerning, but if you have a quality product or service, you over-deliver value, you believe in your business plan, and you think it’s just a matter of time before the market responds, then don’t panic.
Hang in there and try everything you can.
This leads us to the fifth mistake that can kill a business LEADERSHIP!
Mike Tyson once said, “Everyone has a plan until they get punched in the mouth.”
When it comes to business, I’ve been punched in the mouth and kicked in the groin again and again. And that’s how business is. You might have a perfect plan, but sometimes life happens, and then everything can change overnight.
And that’s when leadership either hits a home run or strikes out.
Why did the Pandemic destroy some businesses but others within the same industry survived and thrived? Why is that? Both groups had the same limited information, and neither was prepared for what happened. So, what separated them?
The answer is leadership.
You have to be an amazing leader who takes action.
Taking action is the foundation of entrepreneurship. You see a need, and you work to fill it. Or you see a problem, and you work to solve it.
But if a leader just sits there and takes no action, or they overreact, if they try to do everything themselves, or if they don’t learn from their mistakes, or they refuse to change and pivot in the face of data, the business will fail.
Entrepreneurs tend to be confident and stubborn people, but if mistakes are made, especially during your first year, you need to be able to admit them and move fast before it’s too late.
My business failed for the first ten years because I was arrogant. I didn’t learn from my mistakes. I wouldn’t ask for help. I thought everyone else was wrong.
But when I started learning from my mistakes and started making tiny little changes, that’s when my business started to grow.
The mark of a great entrepreneur and a great leader is when you can learn from your mistakes and from the mistakes of others. And that’s how you can put yourself into the best possible position to succeed.
Entrepreneurship is not easy, but it can be the most rewarding experience of your life. But don’t take my word for it; the accounting software company FreshBooks found that 97% of people who own their own business said they would never go back to traditional employment.
And neither would I.
Entrepreneurship is awesome. It’s not for everyone. But it’s the most fulfilling thing I’ve ever done.
I’ll end by saying…
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Until then, remember, keep the facts on your side…
And keep changing lives!