Controversial Take On Why Businesses Fail

I've heard it many times.

Oh, the market wasn't ready.

The customers were not great.

We simply ran out of capital.

Just some of the things you may have heard why people say their business failed... And I get it. There is a lot of pride dampened when businesses don't go as planned and the owner has to liquify it.

But... whilst none of these are correct.

Business is pretty straight forward. Find a demand and provide a service. The tricky part is working out where that demand is.

The truth is, many small businesses fail because they rely on outdated business models and past successes. Instead of focusing on where the market is heading, they often make decisions based on what worked before.

Why is this a problem?

Simply put, this backward-looking approach can be detrimental in a rapidly evolving marketplace.

Now, it's OK if say you want to open a small shop for example. But what about if you want to build something substantial?

Entrepreneurs must be willing to adapt and anticipate future market trends to stay relevant.

The Stubbornness Trap

One critical issue is the refusal to pivot.

I have no shame in admitting that I have hit thi a few times in business.

It's a real fucker to be honest and the longer you stay in it, the riskier shit gets.

We as entrepreneurs and founders often cling to our initial business ideas, even when market conditions change.

This stubbornness can lead to obsolescence. This is the very thing we need to avoid and the sooner we overcome this barrier, the better.

For example, a retail business might rely solely on in-store sales without investing in an online presence, despite the rise of e-commerce.

More on that in a moment...

Passion vs. Market Needs

Another way to think about this is through the lens of personal passions.

Many business owners start ventures based on what they enjoy or think would be fun, rather than conducting thorough market research.

I was on a coaching call the other day with one of my clients and they were in a rut for his new offer. Without going into too much detail, they were simply oblivious to what the market needed. So we set out a plan to look at the type of businesses he wanted to work with, then make time to speak wit these companies one-on-one and see first-hand what they needed and why.

This involved looking at current pains whilst also forecasting where they thought the future difficulties may come from. From there, a plan can be formulated based on what the market needs.

Make sense so far?

This disconnect can result in a product or service that fails to attract either sufficient customers, or the right ones. Therefore, it's crucial to let the market guide business decisions.

Data Speaks Volumes

Data backs this up, but not in the way most people say it does and this comes down the the point of this article. There is a controversial element into why businesses fail that no one really wants to cover.

What do I mean by this?

Recent studies from CB Insights show that 29% of businesses fail because they run out of cash.

But why is that?

Sure, there are elements of bad financial planning. However the majority are down to one of two reasons:

1. The leadership team simply don't have the drive to do what's necessary to save the business when a crisis occurs
2. There is a complete lack of understanding in the market and therefore no real need for what was being offered

I ave no data on point 1 but I guess it's higher than you'd have thought.

For the latter, it is a staggerin 42%... WOW!

That's almost have of businesses that fail is not understanding the market.

Of the 29% that fail due to cash restrictions, I suspect a large proportion is down to refusing to adapt to market changes and demands.

Wise Words

Seth Godin once said, "Don't find customers for your products, find products for your customers."

This quote perfectly encapsulates the necessity of understanding and forecasting market needs rather than adhering strictly to preconceived business ideas.

You are going to commit a huge chunk of your life, time and energy to running a business. So why not run the research before you do?

It's insane how many people I see not doing so then, months or a year or two later, they are onto the next thing, repeating the same process of stupidity.

To build a sustainable and potentially exit-worthy business, you must focus on future market trends and consumer behavior.

Do the initial work.

This will be the difference between shutting the doors early or exiting for life-changing sums.

Those that leverage data, analytics, stay flexible, and allowing market demand to shape their strategies, significantly enhance their chances of long-term success.

It’s not about what was working before, but about what will work tomorrow.

Common Reasons Businesses Fail

1. Lack of Market Need
2. Insufficient Capital
3. Inadequate Business Plan
4. Poor Management
5. Failure to Pivot
6. Ineffective Marketing
7. Overexpansion
8. Ignoring Customer Needs

By understanding these common reasons, entrepreneurs can better prepare and strategize to avoid these pitfalls and increase their chances of success.

Looking Ahead to Future Needs

The stories of businesses like Blockbuster, Nokia, and Forever 21 serve as potent reminders that resting on past successes and how ignoring future trends can lead to failure.

Businesses must prioritise fluidity in their planning whilst looking ahead to anticipate future needs rather than solely focusing on what seems profitable or enjoyable now.

The Imperative of a Forward-Thinking Approach

To ensure sustainability and growth, companies must embrace a forward-thinking approach.

This involves constant market analysis, staying abreast of technological advancements, and being willing to pivot when necessary.

Companies like Netflix and Tesla have thrived by anticipating consumer demands and technological trends, positioning themselves as leaders in their respective industries.

Heck, Tesla didn't even start production of the Cybertruck he knew there was a market for it and people paid a deposit upfront, completely funding the whole project...

Adapting to Digital Transformation

Digital transformation is no longer optional.

Businesses must invest in building robust platforms and leveraging data analytics to understand and predict consumer behavior.

Here are some reat of examples of those that did not run this process and ultimately paid the price:

1. Blackberry
2. Kodak
3. Forever21

As the case of Forever 21 demonstrates, neglecting e-commerce and digital presence can have dire consequences, especially when the target demographic predominantly shops online.

Innovation and Agility

Companies need to foster a culture of innovation and agility.

This means not only developing new products and services but also being prepared to abandon outdated business models.

Nokia's failure to transition from traditional mobile phones to smartphones highlights the dangers of complacency and the importance of staying ahead of technological curves.

SIDE THOUGHT: Has anyone watched the film about Blackberry on Netflix?

Consumer-Centric Approach

Understanding and adapting to consumer preferences is critical.

Businesses must continuously engage with their customers, gather feedback, and tailor their offerings to meet evolving needs.

Those tat take the time to fully understand their customers and market are the ones that go onto makin huge movements in the market.

Not only does this allow you to see what they need now, but also were they are heading in the future.

The success of companies that have managed to stay relevant often lies in their ability to listen to and predict what their customers will want next.

Strategic Planning for the Future

They often say knowledge is power.

I disagree.

It's an insight which allows you in some ways to predict the future.

But only if you embrace it into your strategy.

Businesses should engage in scenario planning and horizon scanning to prepare for different future possibilities.

This includes considering various technological, economic, and social trends that could impact their market.

By being proactive rather than reactive, companies can position themselves to take advantage of emerging opportunities and mitigate potential threats.

The Role of Luck in Business Success

While hard work, strategic planning, and adaptability are crucial for success, luck also plays a significant role.

Many successful entrepreneurs acknowledge that timing and serendipity (good choices by accident) have contributed to their achievements.

One aspect of luck is entering the market at the right time.

Being in the right place with the right product when consumer demand peaks can propel a business to success.

However we want to minimise the need for luck as much as possible.

And you can, if you are willing to put in the initial (and ongoing) work.

Conversely, entering too early or too late can lead to failure, regardless of the product's quality.

Sometimes, chance meetings or connections can lead to unexpected opportunities.

Building a strong network increases the likelihood of serendipitous encounters that can result in partnerships, investments, or customer acquisitions.

External events beyond anyone's control can impact a business. A sudden trend that boosts demand for a product, or negative, like an economic downturn or natural disaster that hampers operations.

Passion

Whilst it is essential to have a passion for what you do, aligning that passion with future market needs is crucial for long-term success.

Heck, passion comes through getting good at something. So passion can be created anywhere by simply getting good at something. This is why I don't fully agree with follow your passion as this nearly always leads to failure.

Not always, mind.

But bear that in mind before you start your next venture...

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