Two Reasons Businesses Fail That Nobody Is Talking About

After seeing dozens of businesses fail and some succeed and then comparing those experiences to most of the research that’s out there, I concluded that businesses fail because of two reasons that few people are talking about. Businesses fail either because of the lack of leadership of the founders or because of a lack of product or service commercialization capacity. Let me explain.

According to the Small Business Administration, only half of the new businesses survive the first five years and only one-third of new businesses can survive to their ten-year anniversary. Forbes reported an even uglier statistic, according to Bloomberg research, 8 out of 10 entrepreneurs who start businesses fail within the first 18 months. That means a huge 80% crash and burn. Either way, the odds are not in favor of succeeding. Countless articles online will tell you that businesses fail because of some variation of a lack of capital but I would argue that the truth is far from that. Let’s start with the product or service:

Product or Service Commercialization Capacity

The premise is that it is the business’ responsibility is to bring products or services into the marketplace. So by bringing value to the marketplace, the business receives revenue in exchange. In order to do so effectively, it is crucial that the business get market validation before they take their product or service to the marketplace. Bringing the product, service or idea to the marketplace quickly will validate the purpose of the business and fuel all future growth. The entire foundation of being in business is based on two basic economic principles of supply and demand. The demand comes from a marketplace full of potential buyers, be it other businesses, the government, non-profit organizations or individual consumers.

The main responsibility of a business is to SUPPLY that demand or to create the demand – be it an obvious demand like the need for insurance or food or everyday essentials or through an innovative new product or service that creates demand. Either way, there has to be a demand for what the business is offering. Too often, businesses fail to validate that market demand or fail at a meeting that demand adequately. Meeting such demand effectively means that the business is generating revenue and can stay in business. If the marketplace does not respond with an exchange of value then there is no commercialization capacity and the business must adapt and pivot.

The Leadership

Now let’s talk about reason number 2, the leadership. The founder or founders of the business or their appointed executives are the LEADERS of the enterprise. It takes someone with a very unique set of skills and experience to pull off or lead a successful venture. The interesting thing is that the unique set of skills and experience is not much of a science as it is an art, but there are some fundamental skills that the business owner needs to possess. 

The Solution

Yes, there might be many reasons businesses fail but if you look deeper you will realize that it boils down to those two reasons mentioned above. As you are building your business, here are some things to remember that will help:

• Start Lean And Iterate Quickly; the first order of business should always find your customers, find out what they will buy and in the words of Amazon founder Jeff Bezos, maintain a "Customer Obsession" throughout the process. The marketplace will tell you what it likes and wants and what it doesn't.
• Be A Resourceful Problem Solver, problems will arise from day 1 and it is up to the leadership to figure things out. Keep the vision alive but stay flexible in your approach.
• Develop High Emotional Intelligence; to be able to lead and inspire others to do what is necessary within the company, you will need a high level of emotional intelligence. I cannot tell you how many times I’ve personally seen a business fail because the poor emotional intelligence or communication abilities of the leadership got in the way. By no means am I saying that leadership is all that is needed but I am using it as an overarching quality assuming that we agree that if you are an effective leader then you will have a multitude of other qualities like time management, the right mindset, the ability to communicate effectively, the resourcefulness and willingness to be a constant learner and so on.
• Take 100% Responsibility for every aspect of your business and be a constant learner. Develop the knowledge, skillsets, and mindset that you and your company needs to thrive.
• Reflect and Plan Often; get an outside perspective so you can identify any gaps, problems, or shortcomings in the business that many times eludes the leadership because they are too busy working in the business instead of on the business.

If you have any questions or comments or would like to connect with me to discuss your current business needs in relation to your team development, I’d be more than happy to provide a fresh or different perspective. You can connect with me at [email protected].