5 Reasons Why Businesses Fail
My first business failed. It was not a failure to launch and find customers. In fact, the business existed for over 13 years and we worked with plenty of clients, including well-known brands. At our peak, we had 12 employees and generated revenues of over $1,000,000 a year. But despite all that, we failed due to a number of avoidable mistakes. Hopefully, you can learn from my experience and avoid these common reasons why businesses fail.
You fail to leverage technological change
My first business was a digital marketing and web design agency, so you would think we would know something about disruption (We did - in theory). However, we failed to build a strategy around any one of the technologies that we saw gaining traction in the marketplace. Had we done so, we could have ridden the wave created by growing user adoption, built credibility around specialized knowledge and designed repeatable processes.
Instead, we stayed “agnostic” and experienced price pressure from cheap new web and marketing automation platforms. Eventually, we tried to make the leap to enterprise level services, where we failed miserably due to a lack of credibility and experience.
You pick the wrong partner
My partner was a smart guy, and on paper the relationship looked great. He was a former CTO who appreciated the value of branding and I was a branding guy who loved exploring the possibilities that technology offered. However, he came from an enterprise background where the job of working with technology was primarily abstract rather than hands on. We wasted a ton of time in meetings defining, discussing and over analyzing problems. Someone with less of an “executive” approach might have just rolled up their sleeves and gotten it fixed.
In addition, we had very very different personal styles that never really gelled in terms of the way we dealt with employees and clients. He is probably the right partner for somebody - just not for me.
You fail to find a clearly defined niche
We knew we needed to focus more on a niche audience, but we were terrified of turning away paying clients who would find us through a web search or referral. After all, we needed to keep the lights on and new work gave us time to sort out our long-term strategy.
Eventually, however, this became a downward spiral. In taking the work we “needed” to survive, we diluted our focus, which in turn made us feel like more of a commodity service desperate for every project we could get.
You put more emphasis on revenue than profits
My tendency was to look at our monthly overhead (mostly payroll) and figure out how much business we would need to cover it. This lead me to get caught up in the vanity of chasing ever larger engagements.
In theory, these should be more profitable because there is efficiency in dealing with one client rather than several. However, larger projects also tend to be exponentially more complex and therefore difficult to accurately quote. Getting 4 times as much in fees for a project is a losing proposition if you are doing 8x as much work - which was too often the case.
You lose passion for the business
There was a time when I loved what I did and saw great potential for the business. However as the business strategy got reduced to “stay alive for another month”, it was hard to focus on any type of long-term vision. This quickly trickled down to the staff, who also lost their edge. As passion faded, problems increased and the willingness to solve them diminished. Clients began voicing their frustrations and I was starting to wonder why I bothered anymore. By the time I shut things down I felt more relief than sadness.
I hope that by better understanding some of the common reasons why businesses fail, you can take the appropriate actions in advance and avoid some of my mistakes. On the other hand, despite your best efforts, all business involves risk and failure is not the end of the road. In my case, it opened up new possibilities and has helped me learn invaluable lessons.