Let's face it. The idea of starting a business, being your own boss, raising funds, increasing valuations, leading to a healthy exit or an IPO, is a very alluring idea. However, not everybody makes it out the other side. Truth is, most new businesses fail.
An IBM study from 2017 revealed that 90% of all new businesses fail within 5 years. 20% in the first 2 years. The stats if checked today may paint an even grimmer picture.
While willingness to take risks is critical to be an entrepreneur, these risks seem onerous. Odds are not just stacked against starting up, but almost discouragingly so.
There are many aspects that make for a thriving business. Even if one of them goes awry, the business will fail.
Here are a few common reasons why businesses fail.
1. DOING IT ALL ON THEIR OWN
At the beginning, the founder(s), quite obviously, make up the leadership team. However, they often tend to lack the experience needed to run operations at scale. While they have their core areas of expertise, they are not all-rounders.
It is important for founders to form an extended leadership team around themselves, to complement their skills, and leapfrog the stage of rookie mistakes. They must learn to delegate tasks even within their area of expertise, so they can focus on the most critical aspects of the business at any moment.
2. LACK OF AN INNOVATION MINDSET
In their urge to get started, many business owners are bitten by the 'me-too' bug. They see a business doing well and they believe they can do it better. While it is common sense that differentiation is the way to go, most businesses are kicked-off just looking to 'fit-in'.
In fact, lack of pioneering innovation is counted as the topmost reason for failure among Indian start-ups. Most VCs surveyed think Indian companies are constantly looking to emulate their western, and sometimes even local, counterparts.
If you do not have a strong and unique business plan that can give you a strategic advantage, there is a high chance that the business will end-up as an also-ran.
3. RAISING FUNDS TOO EARLY
When starting a business, one must be willing to use their own funds as capital. They can get their friends and family to pitch in, but the money must largely come from the entrepreneur(s). Being bootstrapped instils a sense of frugality within the organization and trains the team to make every rupee count.
Today, there is abundance of capital in the system. This encourages businesses to 'hack' growth by reducing prices, maximising revenue, and disregarding profits. In most cases, this is an unsustainable business practice.
Being bootstrapped enables businesses to set a realistic budget for operations and focus on profits than revenue.
This discipline also helps entrepreneurs make a better case when they eventually reach out to Angels and VCs for funding.
4. NOT BUILDING A BRAND
When a business becomes a brand, is when true value creation begins. A lot of entrepreneurs look at brand building as an afterthought. They also tend to confuse brand building with marketing.
Building a strong brand internally and externally can be more powerful than any marketing spends in the early stages. Business owners need to have a clearly defined brand strategy to complement their business strategy and this needs to be communicated to every individual in the organization.
Brand building should be used as a growth lever. A strong brand that connects with its stakeholders has a better chance of survival, despite all other issues.
CONCLUSION
If you're starting up your venture or already have, beware of these common pitfalls and you will have a better chance at success than 90% of the others doing so.
