Three out of every four businesses started this year are eventually going to fail.
According to the Bureau of Labor Statistics in the U.S., nearly half of all businesses fail in the first five years and only half of those survive another ten. Only four percent of the remaining businesses generate more than a million dollars in annual income. If you rely on statistics alone, there is a 75% chance that you’re going to fail and a 99% chance you’re never going to build a million-dollar brand.
When it comes to risking time, energy, resources, and your entire financial future on this one endeavor; you do not want to bet everything on odds that are worse than a hand of blackjack in a casino.
Fortunately, there are things you can do that can help mitigate the risk.
Business Planning Leads to Success
Instead of blindly rolling the dice, there is a framework you can follow which allows you to dramatically stack the odds in your favor. When you are more thorough and calculated in your approach, you will be able to effectively take control of your financial future.
To quote the famous Chinese military strategist Sun Tzu, “Every battle is won before it’s ever fought”.
The first thing you should do when starting your business is to gather intelligence. What you’re about to learn will provide you with an accelerated path to research the marketplace, uncover hidden business opportunities, and validate consumer demand before your product is even built.
This way you won’t spend tens of thousands of dollars and years of your life trying to build a product that nobody is ever going to buy!
You’ll be left with the confidence and certainty that you will achieve your goals and succeed.
Why Most Businesses Fail
According to the same study, the number one reason why businesses fail and fall into these statistics is because the owners did not thoroughly investigate the marketplace.
One of the first jobs I worked during high school was as a pizza delivery driver in Commack, New York. The owners of the restaurant decided to choose a location down the street from two of the top-rated pizza restaurants in the New York metropolitan area. Their justification for choosing this location on a whim? It was down the road from a high school and two other pizza businesses in the area were already doing well.
Nothing was unique about the pizzas they offered, the location was terrible, and they didn’t consider that there was more than enough supply to meet the limited demand. But they followed their passion for being in the restaurant business themselves.
Two years later, the restaurant went out of business with more than $100,000 in debt. The first owner’s wife left him, and he took a job working in the kitchen of his competitors. The other man filed for personal bankruptcy, moved back in with his mother, and developed an alcohol addiction to deal with the stress. Ultimately, the results of their business decisions led them to fall into the statistics above.
A few months later, the location was taken over by another restaurateur who opened a Mexican grille that went on to profit $250,000 per year. If the previous owners took the time to research the marketplace, survey customers from the area, sit down at their competitors’ restaurants and think about how they could be unique, as well as be more thorough in the planning of their business; they could have discovered an unfilled gap in the marketplace. There were no other Mexican restaurants in the area and this new restaurant effectively captured the market share of people not wanting to eat pizza every week.
Fortunately for the types of entrepreneurs who are reading this today, the 75 percent failure rate is an overall statistic. When you follow certain best practices, avoid the common pitfalls and failures, as well as learn from the lessons of experienced entrepreneurs; the odds of your business succeeding will be stacked dramatically in your favor.
Instead of relying on statistics and luck, following your passion and your dreams, or trying to force your ideas into a market that’s not open to receiving them; what if you do something a bit more calculated in your approach?
Just like the owner of the Mexican restaurant, you could make the decision to meticulously research an industry, find an opening or unmet need in the marketplace, and craft your solutions around what customers in that market are already saying they want? You can also measure the size and trends of the industry to see if there is room for you to enter. You could spend your time validating consumer demand before pouring tens of thousands of dollars and years of your life into something you’re not 100% confident with.
Wouldn’t molding your ideas around the needs of paying customers be a much better approach than going in blind?
Tips for Increasing Your Success in Business
First, you want to keep your focus narrow. You are solving one specific problem for a very specific group of individuals. While it can be tempting to do everything all at once or jump to the next hot opportunity when things get difficult, this will leave you scattered all over the place with no solid foundation to build something big from.
The resource Find a Business Idea: Validate Consumer Demand & Start Your Business shares some tips for performing market research to narrow your focus to an area of your industry that has a true missing gap that needs to be filled.
Secondly to that, you want to research your competition. During one startup we helped build, an entire day was spent going over a Customer Avatar exercise for who our ideal customers were and what products they were already buying. When we looked at our top five competitors, we learned that there was one specific thing about our product that allowed us to clearly stand out from them. This one thing became our unique selling point and allowed us to amplify this one single message all throughout the industry.
Two years later, we were ranked side-by-side in market research publications with the two leading competitors.
If you haven’t done so already, pick up a copy of Find a Business Idea: Validate Consumer Demand & Start Your Business by Andrew Alexander to learn more about starting your business.
Top Reasons Why Startups Fail
To be clear, there are many other reasons why businesses fail besides a lack of planning.
- Not enough execution.
- Lack of financing.
- Bad marketing.
- Small brand presence.
- Overextension of resources.
- Failure to adapt to changing market conditions
For this reason, it’s important to understand that most of the success in business is proper execution. But without the right foundation to build upon, everything you pour on top of it will be more likely to collapse.
If you’re looking for a great resource to help you with the planning of your business and choosing a business model that has a higher probability of success, check Find a Business Idea: Validate Consumer Demand & Start Your Business by Andrew Alexander