Why do entrepreneurs fail?

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When you learn from failure you never lose. You only lose if you don’t learn from it.

 

 

Don’t be scared but always be on the alert

It is the entrepreneur who generally drives an organisation and if the entrepreneur is not competent, or is suffering from a serious illness, then the organisation can be at risk. The following is a list of the more common things I have found that cause an entrepreneur to fail.

It is important to say that entrepreneurs are subject to the same things that cause other people to fail, however, there are differences. Don’t be afraid to work hard and take chances in order to reach your goals. Use the following suggestions as signposts to guide you away from the chance of failing.

You might well ask how can entrepreneurs position themselves to succeed when the majority of small businesses fail? The following will help you to better understand why entrepreneurs fail.

 

“One of the most important things that any entrepreneur can do when they’re looking like they might fail, is to take a step back. The next step is to clear your mind, make room for some new ideas, and get back to applying your entrepreneurial attributes”. Peter Sergeant

 

As you go through the extensive list, be honest with yourself and tick each of the signs currently present in your entrepreneurial life. The purpose is not to scare you, but rather to alert you and help you retrace your steps before your entrepreneurial journey falters.

 

Conflicting values

A conflict can occur because of fundamental disagreements on fundamental values. Conflicts in differing values can cause tension between individuals and can eventually turn bitter. These pent up feelings can erupt at any time leading to tension and ultimately conflict with the loser being the organisation as the entrepreneur will leave.

Usually, the conflict develops because the entrepreneur wants one thing the others want something different and there aren’t enough resources to satisfy both parties desires. The classic example is people fighting over money and resources and how they should be applied to the business. Conflict can also arise when one party wants to only grow the business to suit their leisurely lifestyle and the entrepreneur wants to work at a quicker pace as they can see the benefits to the people they are trying to serve.

There will be times when people have totally incompatible personalities and will find it difficult to tolerate each other, especially if they are forced to spend a lot of time together. Problems can also occur in entrepreneurial organisations if there is more than one entrepreneur and they both want control.

It was the lack of other people’s understanding of entrepreneurship that caused me to look more closely at the values of people I have had conflicts with over the years. As a result, I strongly recommend you look carefully at the values of the people you got into business with, before doing so. There are too many inappropriate relationships in business today relating to people’s personal and business values.

 

Control issues

When you study successful organisations, you are lured into thinking there is a lower chance of failure when there is more than one founding partner. Many problems that occur with entrepreneurs, can be traced to conflicts over who controls what, how, when and why.

Understand this issue and the values of the people you want to become involved with before making commitments to others.

Be aware that if you take on a partner you could be more likely to fail. The personal attributes of the partners who create the original idea have the risk profile and passion for getting the organisation off the ground, are usually very different from the skills required as the organisation matures.

This is where the troubles start to occur, particularly when partner’s spouses become involved. It is only the sound values of each partner that have any chance of avoiding failure.

A far better way to go it to attract external partnerships who support the business and include them in your value chain.

 

Trust is always a critical issue

As an entrepreneur, I tended to trust too many people, too much, too soon and expected them to behave with the same basic values I had so I didn’t need to watch my back.

While people generally respond positively to people who trust them, others take advantage of the situation and on reflection, I found it happened to me on far too many occasions.

 

“There is one thing that is common to every individual, relationship, team, family, organisation, nation, economy, and civilisation throughout the world, one thing which, if removed, will destroy the most powerful government, the most successful business, the most thriving economy, the most influential leadership, the greatest friendship, the strongest character, the deepest love”. Stephen Covey

 

On the other hand, if developed and leveraged, that one thing has the potential to create unparalleled success and prosperity in every dimension of life. Yet, it is the least understood, most neglected, and most underestimated possibility of our time.

That one thing is ‘trust‘.

 

Key numbers

Entrepreneurs, by nature, tend to be overly optimistic in their forecasting, particularly when they are starting a new venture because they’re excited about the outcome they can see.

It is important when analysing budgets and financial models to run through the downside with a ‘what-if’ and sensitivity analysis. Test the sensitivity of the numbers to adverse conditions in relation to turnover, gross profit margins, overheads, terms of trade along with hiccups in the sales process. Often you will need to prove what you can see to the sceptics,

 

Pareto’s Principle

The Pareto Principle, also known as the 80-20 rule, shows that 80% of your results come from 20% of your actions. Often this seems more like a 95-5 rule.

Owners of smaller business are especially guilty of ignoring this as they spend their days answering phone calls, checking email, fixing a broken tap, making bank deposits and generally running errands.

This makes them feel busy, but it creates a false sense of output that ultimately leads to failure. Hire good help so you can focus your time on high impact activities and bring home the bacon.

Entrepreneurs tend to be incredibly ‘busy’ trying to run and grow their business at the same time. They can also be strapped for cash and tend to do everything themselves as they struggle to keep up with everything. Business coaching can help them to stop thinking operationally and to keep thinking strategically and growing the opportunity.

Slow down, as learning about visioning, resilience, agility and insight, which are important characteristics of an entrepreneur that takes time and helps you to avoid failure.

 

 “When you reach an obstacle, turn it into an opportunity. You have the choice. You can overcome and be a winner, or you can allow it to overcome you and be a loser. The choice is yours and yours alone. Refuse to throw in the towel. Go that extra mile that failures refuse to travel. It is far better to be exhausted from success than to be rested from failure”. Mary Kay Ash

 

No sector is as vital, dynamic and creative to the economy than entrepreneurship and there is never enough to go around, so let’s help the entrepreneurs to get out of the busy, busy syndrome and stay focused on growing new and better organisations. The entrepreneur’s life is challenging, unpredictable and usually stressful, so in the 20% of things you do, practice how to handle uncertainty and manage stress.

 

Outgrowing available resources

On many occasions, I have seen entrepreneurs outgrow their operations and their available skills and other resources. The organisations financial and other resources simply can’t keep up with the ideas that continue to keep coming.

I used to overcome this issue by getting in the car and going on a trip, leaving the employees to take care of things while I took time for me to consult with other people and think through the issues.

Managing an organisation as it grows can be difficult for an entrepreneur too. It takes the time to adjust to the new skills required to manage growing staff levels from 1 to 5, to 10, to 20, to 50 people and beyond. If you don’t devote the time to learning the new skills, you will fail.

 

Young entrepreneurs can be at risk

Young entrepreneurs have little or no experience and are often over-optimistic about their immature capabilities. In many cases, they can provide the vision and passion for a new opportunity, but soon become overwhelmed as the organisation begins to take control of them, rather than the other way around.

I have recalled the first experiences I had starting my first business and have written a book about them. People who know me, find it hard to believe unless they are entrepreneurs because I seemed to be a ‘maniac with a mission’ as I went through the start-up phase.

When I look back I can see so many things I did, that could have led to failure and there were plenty of people waiting to say ‘I told you so’. However, there were also many who wanted to find out how this young bloke (I was in my early 20s at the time) put the business together so quickly.

 

Lack of money

Without the money to pay accountants, bookkeepers, or money managers an entrepreneur is left in danger of failure, despite their resourcefulness. Entrepreneurs need to use their time concentrating on becoming financially savvy, in order to drive the organisation forward more safely.

The entrepreneur will readily make allowances for poor cash flow, but they need money to get things working just as a motor vehicles needs petrol. It is important to raise the required amount of money needed to succeed.

Being an entrepreneur means being able to do more with less. The entrepreneur on the path to failure is the one who is extravagant, flashy or wasteful. Thrift and being frugal are usually hallmarks of a true entrepreneur, but this should not be confused with running up expenses today in order to secure the future.

If your drive for money supersedes your drive to create innovative products and services that will add value to your target market, then is time for some serious soul-searching. Entrepreneurs know personal wealth is a result of consistently providing solutions to problems.

 

Losing focus

They say genius is the ability to focus on one particular thing for a long time without losing concentration and entrepreneurs are good at focusing. However, an entrepreneur who is good at focusing on a number of things at once and tries to do more than one thing at a time will eventually fail because they’re not able to devote the necessary time to all the final outcomes.

An entrepreneur can be seen as out of control, but in reality, it is how their mind works. They can take two seemingly different thoughts or ideas and suddenly as if from nowhere, they have a solution. It’s called joining up the dots.

Entrepreneurship is about using your passion for making a positive contribution for the benefit of others in a special way. They generally don’t do the things everyone else can do, they do things differently and rarely follow conventional thinking.

An entrepreneur’s strengths are in doing those activities they naturally enjoy. Things they would do for free if necessary. This is how many great entrepreneurs in history became successful, doing what they love. While they can be consistently questioned and challenged about what they are doing, but it’s like ‘water off a duck back’ to them.

There are successful entrepreneurs who regularly exhibit symptoms of Attention Deficit Disorder (ADD), which stops them from organising their thoughts and activities as well as impeding their ability to stay focused on the job at hand.

If entrepreneurs are being continually questioned or micromanaged then they will go into their shell and think of more pleasant things, outside of the business. They stop and become distracted from what they should be doing and what they’re good at. A business advisor can be surprisingly helpful to an entrepreneur when learning how to become organised and stay organised.

 

Negative interference with vision

The person and their business are on the road to failure if they have no vision, or it is constantly under siege. If they stop thinking past tomorrow and their long-term future, which is rare they are asking for trouble. They become like a headless chook.

Most entrepreneurs I know have good visioning capabilities and are equipped to see their business well into the future. Be aware that negative interference with an entrepreneur’s thinking will cause problems with their capacity for visioning.

Good entrepreneurs are not short-sighted and will avoid building an organisation the world no longer wants. Not having this consciousness is a reason why entrepreneurs fail, as they will be continually outperformed by those entrepreneurs who are consistently creating the future, today.

Losing sight of their aspirations can be an issue. Entrepreneurs fall in love with their projects and expect everyone else will too, while they beat a path to their door. They can become more committed to the project detail than succeeding with their vision.

Entrepreneurs like the idea of owning their own business, or being their own boss and are willing to work long hours, but when it requires making financial sacrifices to continue to fund the business they may give up. A negative attitude towards money can quickly turn an entrepreneur away from their vision, not because of the lack of money, but the negativity surrounding it.

When reality clashes with hopes and dreams, the young or inexperienced entrepreneurs are faced with difficult decisions and can go to water when they stop applying their unique entrepreneurial skills when most needed.

 

Short-term thinking

Short-term thinking can be a big problem for an entrepreneur, as it can for politicians who make decisions based on the electoral cycle. It’s not only that their values are compromised but the well-being of a business is at risk.

Whenever cash flow becomes an issue, or a crisis develops, entrepreneurs are no different. They tend to cut back in areas that helped them to get where they are. Working smarter is suddenly replaced by irrational short-term thinking.

Sometimes, when trying to make the wages for the month, an entrepreneur will take on a customer that is not part of their core business. While this may create a whole new revenue stream, it can also adversely impact the business and send it into decline, as scarce resources are already failing to meet customer’s expectations anyway.

Often you need to be patient, fix what’s broken, then move forward, even if it means taking a bit longer to achieve your dream.

 

Not taking sufficient risk

Entrepreneurs are only moderate risk takers, which is not how they are seen by most people. The first thing I do, with something new, is to analyse the risks. Having done this I move on to how I can make things happen.

When I expose my thoughts to others, I always give only the positive side, while most people would still be thinking about the negatives first and assume I hadn’t, therefore assuming I was a high-risk taker.

Being too conservative can be detrimental to an entrepreneur and kill a business. You need to learn to take risks and not be afraid to try something new if it brings value to the business.

People who continually try to stop you investigating something new are to be avoided as these dysfunctional relationships are the major reasons many entrepreneurs fail to take their brilliant ideas any further than the idea stage.

Unhealthy relationships inhibit businesses from moving forward and overcoming the risks involved. As an entrepreneur you need to keep one eye on your investors, keeping them informed and ensure they don’t lose faith in your fast pace.

 

There will always be something or someone trying to pull you down, just be aware.

 

Dealing with employees whilst letting go of control

I know that you can suddenly reach a tipping point where you as the entrepreneur have to engage employees. As most people do, you start your new business, and you do everything yourself. You think you know what they’re doing and feel that you know best what is good for the business. But with employees, it’s not just about you anymore.

Because entrepreneurs become so attached to their ideas, many insist on controlling every aspect of the business. Ideally, an entrepreneur should strive to do the least amount of work possible while still achieving their outcomes. But they often have problems letting go and letting others make some of the decisions.

You need to trust employees and people you outsource to, to do their jobs effectively. If you fail to relinquish control, you cannot grow. Some entrepreneurs who buy businesses want to take control because they think they know best. You need to learn how to hire the very best people with the resources available to you. It’s hard I know, as it can take many years to build a good team, a value chain and a network of supporters.

 

The know-it-all syndrome

The know-it-all, who gives the impression they know everything and insist they have an expansive comprehension of a topic, is taking unnecessary risks. Often, their comprehension is inaccurate or shallow. You know the types, they think they have a superior education, a ‘big’ job’ or have accumulated wealth and are as good as any entrepreneur.

In fact, they are a turn-off to entrepreneurs. A know-it-all is a form of a bully even if though they may not be aware of it. Entrepreneurs have a tremendous capacity to see things that others can’t and can be an annoyance to the know-it-all.

It is the continuing know-it-all attitude that will eventually cause the entrepreneur to stop focusing on the business and to start looking for a new opportunity. Entrepreneurs have a low tolerance of these people, particularly when they try to micro-manage them.

The know-it-all can damage a person’s self-esteem as they seek to undermine their self-confidence. The trouble is they can be hard to deal with especially if they happen to be a peer.

 

Sales and marketing knowledge is always a critical success factor

Sales and marketing are the only activities in any business that generates revenue, everything else is an expense. Therefore, particularly in the formative stages of a new organisation, failure to invest every possible penny into those critical cash-generating initiatives puts the entrepreneur at risk.

Failures are often attributed to lack of education or experience in the marketing field. There are many company directors who have a very poor understanding of basic marketing, never mind the exponential changes taking place because of the Internet and global competitive forces.

An entrepreneur who lacks confidence in their product often changes it frequently based on suggestions from customers. Improving is fine but too many changes cause confusion with everyone involved. The entrepreneur must be constantly putting their energy into lead generating and building connections in the market, with a focus on customer service and the customer experience.

Building a new product or starting a business at the right time in the right industry is an important skill, it should not be based on luck. For an entrepreneur playing at business, failure becomes inevitable, because their ability to do anything becomes limited to what they know.

 

Fear of failure

Fear can grip any entrepreneur like most other people. The difference being a real entrepreneur will have a better capacity to reverse the situation. The entrepreneur on the path to failure is the one who has a fear of failure, an irrational fear that they cannot shake off.

The greater the fear the more an entrepreneur will procrastinate, even to the point of freezing up. Fear of losing money ranks high on the list, being laughed at or made to feel incompetent runs a close second.

Many businesses fail because the principles are so risk adverse and won’t invest their own money because they may lose it, although they expected others to risk money on their ideas.

Little did they know by not investing they are running a bigger risk of failure. If you are not prepared to invest your own hard-earned money then don’t expect others to support you.

Don’t allow the fear of failure hold you back.  What matters is you are passionate enough and care enough that you are willing to look your fear in the face and do whatever it takes to make your idea become a reality.

 

The wrong business model

Because an entrepreneur has a business it doesn’t mean they have the correct ‘Business Model’. However, some of the hardest working entrepreneurs are left with just enough to pay their bills, while others are working much less and making much more because they have a business model that works well all day, every day.

One of the recurrent challenges isn’t the lack of time for the business or personal life, it’s the wrong business model which isn’t aligned with the purpose, vision and objectives, or indeed their lifestyle. The entrepreneur’s business model can also be misunderstood.

When starting the business, the entrepreneur is confident the right business model is in place. Then complacency can set in, and they forget to adjust the model to accommodate changes in the market and the changes in the size of their business. Suddenly they become an accident waiting to happen.

 

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Personal Experience

An obsolete business is something we all have to guard against in the new business environment. There are so many changes and disruptions taking place it can be easy to overlook critical things, so keep your entrepreneurial mind active.

Any business in today’s market can become obsolete almost overnight. This often happens if the entrepreneur is not able to keep applying entrepreneurial attributes about the future because others in the business or the investors keep them too involved in day-to-day operational issues.

Unfortunately, some organisations fail because the entrepreneur involved does not confront their management limitations. It is one thing to have an idea, a passion, and the ability to obtain the first sale of a product but, it is another to build a strong organisation.

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