7 Reasons Why New Businesses Fail And How to Avoid Them

We live in an era that fetishizes entrepreneurship, where start-ups have captured the imagination well beyond the business pages. The prevailing myth is one of a ‘self-made hero/heroine’. We see the likes of Elon Musk, Steve Jobs, Sara Blakely and Kylie Jenner become inspirational role models for millions around the world – driven by vision and singular focus. Sadly however, the normal trajectory of start-ups does not end in a billion-dollar IPO and a portfolio of houses with absurdly large windows overlooking natural wonders. The gritty truth is that many new businesses will end in failure. One in five don’t make it to the end of their first year, only 50% make it to 5 years and less than one third will be celebrating 10 years in business. So why, and how, do so many fail? Are there patterns? How can we improve the odds?

We recently conducted a study which found that the most successful entrepreneurs (and investors) tend to focus less on “what” (the idea) and more on the “how” (what you do after “launch”) and the who (the team). Entrepreneurs told us that, contrary to the hero/heroine myth, they rate being flexible and open over being persistent and instinctive and that a successful business needs a team who can learn, adapt and stretch.

So, what does “stretching” mean? From our work creating and working with start-ups and multi-nationals, we have identified 7 elements which seem to make the difference:

  1. Having the answer to a question no-one is asking: 95% of the ideas in Shark Tank or Dragon’s Den are based on an idea which no one wants – that is why it’s fun to watch. The first question is to make sure that you are solving a problem which exists in the world and which people will pay for. This is the SCOPE of your business.
  2. Not starting with the end in mind: When we sit with a start-up, we want to know what the end result of all the hard work will look like for them. If you don’t know what you are trying to achieve, if you have no TARGET, then there is nothing to make decisions against. This is especially important when times get tough.
  3. Not understanding the necessary investment: The financials obviously matter hugely – top line for vanity, bottom line for sanity and cash flow for reality. However, beyond this, understanding the type and quantity of RESOURCES (time, money, people) needed is key. Side hustles are really hard to scale because they never really get resource (time). It’s also worth remembering that not having much resource can be a very good thing. Our research shows that in many big companies there is an inverse relationship between resource and return on investment. Scarcity of resource drives creativity.
  4. Not daring to be different: Seth Godin calls businesses or brands that dare to be different “Purple Cows”. Customers and consumers now have more choice than ever before, so standing out like a purple cow in a field of brown cows matters more than ever. This means doing things differently, being bold and getting noticed in all aspects of your in-market EXECUTION.
  5. Being narrow-minded: Those who succeed in business seek inspiration and learning from TECHNIQUES used outside of their domain. In our time spent with professional athletes and adventurers it is amazing to see just how broadly they scan to uncover the source of even a fractional advantage. In our work, we have used military thinking to help locate factories and spent time with top end bartenders to help distributors of industrial parts. There is always someone else trying to solve the same challenges as you – you just have to find them!
  6. Not understanding the ‘creative curve’:  It takes one sort of COURAGE to start a new business but a much rarer one to keep it going. This little “c” courage is about dealing with everyday tests. We often refer back to a tweet by Marcus Romer, a British director. In it, he broke the creative process down into seven distinct phases: This is awesome; I am awesome; This is tricky; This might be ok; This is awesome. It takes courage to hold on, to get to the last one!
  7. Being content: The most successful teams (in business and sport) we have met or worked with, are never lacking HUNGER. Whether they succeed or fail, they are restless and always prepared to kick-on.  Like on a motorway, they keep a metaphorical two chevrons between themselves and their ambition.

So, if your business or team can avoid these 7 potential banana skins then you have all the ingredients to successfully STRETCH. As with many things, the reality behind the headlines is more complex and less glamourous. Successful businesses are only as strong as the weakest link and have to have the self-awareness and honesty to know it and tackle it.