Being your own boss, playing by your own rules and changing the world while making millions. That’s the dream, right?
If this makes you excited, you might have already started your own business, or are planning to start a new business.
But what are your chances of succeeding?
It’s pretty high, if you go by the number of success stories you read in the news.
But if you dig deeper, you will find that surviving in business is not as easy as it looks: 5 out of 10 businesses don’t make it past their fourth year.
The big question is: why?
In my 10 years of helping hundreds of entrepreneurs develop businesses, I have found four big reasons why businesses fail.
These four reasons doom a business from the start, but can easily be avoided.
In this post, I hope to share all four reasons with you. More importantly, I want to teach you how to avoid making the same mistakes.
Why is it important? By knowing how others have failed, you don’t have to waste time making the same mistakes.
‘Learn from the mistakes of others. You can’t live long enough to make them all yourself.’ – Eleanor Roosevelt
I am now ready to explore with you the four biggest reasons businesses fail.
Reason #1: Having a weak entrepreneur mindset
It’s normal to feel passionate about your business idea at first. But while passion may make it easier to persevere during tough times, it is not all you need to survive in business.
If you want to survive, you need to have a strong entrepreneur mindset. A strong entrepreneur mindset helps create the right approach to starting a business. With a strong entrepreneur mindset, you will:
1. be willing to take on risks,
2. understand how to get started with nothing,
3. look at challenges as opportunities,
4. be ready to bootstrap
5. be able to envision and create the future
Most Asian startup founders lack a strong entrepreneur mindset. This means that although they are good in what they do, their weak mindsets limit them. So even when they are building a great product, they often can not find the resources to execute. In the end, they fail at building a business.
If you want to build a strong entrepreneur mindset, here are some ways to get started:
1. Learn to be resourceful.
Startups work in the world of limited resources, knowledge and expertise. To succeed, you need to be resourceful.
Start by asking yourself:
Who am I?
What do I know?
Who do I know?
What do I have?
What resources are within my means?
The answers to these questions will give you an idea on how best to start or progress.
2. Expand your network
Startup founders like networking within their own circle. This is OK when you just got started.
But as your business moves forward, you will need to network outside your circle.
Be part the chamber of commerce, an association or some business network. You can often find people who can help you there.
When your network expands, your resources expand. With more resources, you will be able to execute better.
3. Never adopt a victim mindset
Know this: the world owes you nothing.
It has already given you what you need.
If you say ‘I don’t have enough opportunities’, I say it’s because you are not resourceful enough.
If you want opportunities, create them. Harness resources from people, investors and the market.
But to do this, you need to change from a victim mindset to a success mindset.
How? First, you need to know the root causes of your limiting beliefs. What stops you from doing what you can?
Fight against those beliefs and end them. This way, you will finally be able to believe in yourself.
When you do, it becomes easy to imagine and create the future you want.
Finally, you can create the opportunities that you seek to grow your business.
Reason #2: Too much focus on product building
If I were to ask you, what is your business about? What is the value that you are selling? What would you say?
If all you can tell me is your product features, you are in trouble.
Product building is only one aspect of a business. But it’s the one many startup entrepreneurs put most of their focus on.
So much so that they don’t ask themselves:
– Who will buy this?
– How much will they pay?
– Is the problem that you are solving something which is ‘must-have’ or ‘nice to have?’
Because they ignore these questions, they build a product no one, or not enough people buy.
They then end up not having enough money to sustain the business and have no choice but to close shop or pivot.
This is what happened to Novelsys, a Singapore startup.
Novelsys was building a wireless charging sleeve.
The startup raised US$87,000 on Kickstarter and another SGD$55,000 to build its product.
It also took home many awards.
But even though it appeared successful at the beginning, Novelsys shut down in early 2016.
In his own words, Novelsys founder Kenneth Lou said it failed because ‘we failed to find a product-market fit.’
What are the things he would have done differently?
“1. Focus on real problems of your users, instead of on perceived problems.
2. Understand the market with extensive market research before jumping in.”
The truth is even when your product has the best features, when it does not solve a real problem, you will fail.
Your business will only survive when your product can add real value to your customers. At times you don’t even need cool features.
Take a look at Nuffnang.
Nuffnang is one of the longest surviving businesses of the Dot Com era in our region.
Nuffnang’s idea is simple. Connect bloggers who want to get paid with businesses that want to advertise.
By focusing on a real problem, its founder Timothy Tiah and Cheo Ming Shen have created a business that has been around since 2006. They now have over 1 million influencers on their platform.
The best thing?
Timothy and Ming started with RM150,000 of its their own money and did not raise funds.
Since they had no investor money, they had to build a business that was profitable from the beginning.
This way, they were able to sustain and grow their business.
Reason #3: Having no business model or having a business model that is not profitable
A business model tells you how you will make money.
You can become so focused on building the product that you forget to work on your business model.
The result? Not having a business model or having a business model that does not help your business.
For example, some people think that it is a good idea to give away your product for free and make money selling ads.
This is a mistake. Selling ads don’t work unless you have a solid database.
If you don’t, you are only wasting your time.
The other common mistake is to keep building a product hoping for investors to put money in.
‘Let’s build user traction first,’ they say. ‘We can then prove that our product works and get investors to put money in it.’
Hoping for investors to put money in does not solve the main question. How are you actually going to make money?
If you can’t answer this question, it doesn’t matter what you build. You will fail.
To have a chance at succeeding, you need to work on a profitable business model.
You can do this by asking yourself:
– Who are your customers?
– Where can you find them?
– What are they looking for?
– What is important to them?
– Will they buy your product?
– How much will they be willing to pay?
The answers to these questions will guide you on what to sell, how much to charge and how to charge.
By having a profitable business model, you will have a sustainable business.
Reason #4: Too much focus on getting investors and not enough on revenue traction
Many businesses fail because they run out of money. So it is crucial to keep a positive cash flow.
To keep a positive cash flow, you must either: 1) sell your products and services, or 2) raise funds.
Selling your products and services is a sustainable way of keeping positive cash flow.
It creates an environment where you are giving real value to your customers. And they are paying you for it.
The other way, fundraising, is not sustainable.
Relying on investor money to survive might mean you are not able to provide real value to your customers. So no one is paying you for products or services.
In fact, if the majority of your cash flow comes from fundraising, you are 90% towards failure. Instead of a real business, you become ‘venture-subsidized’ startup. Without investor money, your startup is dead.
Instead of wanting to get investors, it would be better to first build revenue traction.
Let me give you an example of a successful company that focused on revenue traction, not investor money.
You may or may not know Airbnb, but it is a startup that lets people rent out their rooms or apartments to other people.
Their business model is so successful that Airbnb is worth more than USD1 billion today. Though so, it did not get that way by depending on investors at first.
Its founder Brian Chesky bootstrapped the business for ten years. At one point, the startup was so low on funds, he sold breakfast cereals to keep Airbnb afloat. He did not immediately turn to investors for money.
By bootstrapping his business, he creates resiliency for the business, Airbnb and for himself, the entrepreneur.
It is easy to buy into the hype of billion dollar valuations. But the truth is, building a profitable business is hard work.
First of all, you need to have a strong entrepreneurial mindset. This way you can gather the resources you need for your business.
Secondly, you need to move your focus way from being only on your product. Because even if you build a perfect product, no one will buy it if it does not solve a real problem.
Finally, you need to create a business model that keeps your cash flow positive to keep your business afloat. You should not rely too much on investor money. Instead, aim to have clear market validation, business model and monetisation strategies.
By doing these, you will be on your way to building a successful business venture.
Written by Andrew Wong. Edited by Lu Wee Tang.