I recently saw a statement on a question/answer board from a consultant outlining why so many start-up businesses fail and have to admit I was not surprised by what was said. An example given was an internet business that failed because they did not have the funding to support the pull marketing that is required for the business. What was listed was the symptom of why the business failed, but not the reason of actually why. Another example was a technology company that the “reason” for failure was attributed to not being able to afford the development for all the features that their customers wanted. Having come from the high-tech industry – that excuse just does not hold water – as that is development/product management 101. Unfortunately this is not unusual as many entrepreneurs try to analyze and figure out why their business failed and not the business down the street and do not want to admit that the failure was due to improper business planning and financing on their part.
The real reason the most businesses fail usually has nothing to do with the excuse that is decided after they go out of business. They are documenting the “excuse” for the failure in most cases to justify why they were not successful when there are businesses offering similar products and services that are flourishing.
If we step back, the main reason that start-ups and small businesses fail is lack of a well thought out business plan that takes into account all of the parts of the business along with what is required from a financial point of view to grow and sustain a working business. The great thing about entrepreneurs is that they are fearless and willing to take risk, but why take on risk when you do not have to. I am not saying that every business that has a sound business plan and proper financing will not fail. There are always factors that business owners cannot foresee like a downturn in the economy where their products and services may be the first ones that people put on hold to buy, or a particular market can take a dive like the telecom market did a few years back. It is hard for anyone to foresee or survive this type of occurrence. But the businesses who say they failed because they had bad sales reps, lack of funding for marketing, the right management team, or many of the other reasons that could be avoided by proper business planning and financing are just creating excuses. These situations would have been accounted for in a business plan and in risk management.
Early on, business owners who have an idea and do not have a background in running a business or have self-financing may have to give up a portion of their business to get the right financing and management support for their business. An idea is only as good as the plan and the ability of the people around you to execute on your plan. It is also important to know that anyone providing financing whether a bank, government grant, private investor, or other financial options such as angels and venture capital will expect to see that you have invested in your business yourself and have a stake in the success. Unless you have experience in Finance, Human Resources, Sales, Marketing, Operations and in many cases Development, you are going to need others to help you make your business successful. If there are those that are willing to provide sweat equity up front to help you get going, you need to make sure to reward them for the efforts they provided you and not be greedy. I watch the Dragon’s Den and Shark Tank and chuckle when an entrepreneur asks seasoned business people with experience and contacts for millions of dollars in financing for a business that has not made revenue for a low stake. The question to ask yourself is whether the decision now to be hard headed is going to hinder your success in the future. Your idea is worth nothing if you cannot execute a plan. I would rather have 20% of 100M dollars versus 100% of nothing.
If you are down the road with your company and you do not have a business plan and you are in need of financing – you do not have to throw up your hands and shut the door – it is not too late to push the restart button before you get to that point. Almost all of the excuses you would have if you let the business close can truly be resolved and a plan put in place of how to address them one by one – it is not futile – but you have to be patient.
The internet company that did not have enough money for spending on marketing to get the pull they needed could turn things around and get the financing they need if they have a solid business plan and the business makes sense. The high technology company that cannot afford to do the development for the “features” their customer needs to learn how to manage their development and product management and set up a pricing model that can support the development with release management. The part that may be missing and the owners may not have realized was the business was not a viable one from the start because due diligence was not done up front and proper financing was not obtained to support their business plan.
If you are a business owner and you are having a struggle and are wondering if you should throw in the towel – before you do – consider pushing the restart button. Look at having a business plan developed taking into account the past and what needs to be done to move forward and look at all of your financing options. There are grants, loans for small business from the different financial institutions, and alternate funding from investors you might know or angels and venture capitalists. In some cases, you may need more than just the financing and require the expertise of those who have a background in your industry and have the contacts to get you back on your feet. You may have to give up a stake in your business to find success, but you will still benefit in the long run from this decision. The key is to act before you have to throw in the towel and create an excuse like the ones above that you know in your own mind and heart could have been resolved if you developed a plan and had the financing and expertise to make the business successful.
Be the one in ten businesses that will succeed, not one of the nine that end up failing.
RK Fischer & Associates