Top Reason Most Businesses Fail (According to Their Founders)
As an entrepreneur who's personally experienced both surprisingly fast success, and incredibly defeating failures, I've come to learn a thing or two over the years about what differentiates successful companies from their less than lucky counterparts.
While every business is unique in it's own way, based on the results of the frequently updated CB Insights startup failure post-mortem's it's strikingly clear which dooming mistakes founders make most.
Most businesses, especially startups that raise outside funding, are started with a great idea.
They're setting out to solve a clear problem in a well-defined market, and they have a complementary team of industry-experts that are ready to build their new solution. The founders are passionate, motivated, and committed to seeing through their vision.
It's not for lack of wanting to succeed, that most businesses fail.
The most common reason (over 42%) that failed business owners cite as the biggest contributor to their ultimate demise, is a lack of market demand for their product or service.
They didn't fully validate their business idea. They failed to get enough feedback from their potential customers, on if they'd actually pay (enough for the company to make a sustainable profit) for the product or service they were building. They could've misjudged the size of their target market, or didn't create enough value to become a meaningful solution for their customers.
With more than half of all businesses in the United States not making it more than 5 years, it's very clear to see that this problem of creating products and services that aren't doing a great job of solving actual customer needs, is something that isn't going away anytime soon.
It's only through proper education, consistent training, and thorough observation, of the best methods for truly validating a business idea, that more entrepreneurs will be able to avoid eventual failure, due to lack of demand in the marketplace.
When I have an idea for a new business that I want to start, I focus 100% of my efforts on creating a very clear picture of who my ideal customer will be, estimating the size of that market as realistically as possible, and tracking down a handful of those people, to share my product or service idea and get their objective feedback on if it's something they'd be willing to pay for.
If the initial signs are looking positive, the next stage in the process of launching a successful business is to develop your Minimum Viable Product.
Your MVP is the absolute most basic form of your product or service, that's necessary in order to begin testing the marketplace with something tangible, so that you can get feedback for improvements, before you've already invested in large inventories. An MVP could be a prototype, v1 of your mobile app, or a blog post that's designed to test the validity of creating a more in-depth digital product.
My favorite form of an MVP is a quick, easy-to-build landing page that essentially sells your product or service as if it already existed. Create mockups, sample images, or photos of your prototypes, and make a visually appealing test page that highlights all of the benefits, features, and reasons why someone would want to purchase from you.
Then, instead of allowing people to purchase before the business has been created (i.e. crowdfunding), offer a waiting list for them to sign up and get a discount or other special incentive, for when you do launch.
If you can build your pre-launch waiting list to a sizable number of of potential customers, that you can comfortably say this business has potential, you're in a much safer position to invest further into getting your new business off the ground.