Why Most New Businesses Fail!

It is amazing to me that smart, rational people will start a business with what they think is a good idea and a bunch of their money (or worse, borrowed money) and just go. Yes, we are in the "just do it" world promoted by major sporting goods manufacturers but let's apply a little common sense.

By Mark Rosenzweig, Accredited Business Councelor Counselor, SCORE NE Mass

It is amazing to me that smart, rational people will start a business with what they think is a good idea and a bunch of their money (or worse, borrowed money) and just go. Yes, we are in the "just do it" world promoted by major sporting goods manufacturers but let's apply a little common sense.

If you decided to climb Mount Everest (possibly a good idea), would you just go and buy a bunch of climbing gear and start climbing? Of course not! You would find yourself some experts to teach you how to climb, learn all you can about climbing and especially about climbing Mount Everest, train like crazy and practice until you had a fairly good feeling that you could do it and not kill yourself in the attempt. Why then do so many people think starting a business is any different then climbing Mount Everest? It's not, it is harder! Why would you start a business just because it sounds like a good idea that should work? Business success requires a set of skills very different from those most people have experienced. You need to have an understanding of:

  • business planning,
  • marketing,
  • sales,
  • operations,
  • finance,
  • Human Resources,
  • product design,
  • packaging, and
  • manufacturing processes.

And in many cases in a new business, you have to be the one who does many if not all of these...full time. In climbing Mount Everest you would not even think of just going up the mountain without learning all you need to make it a successful and a safe experience. Starting a business requires the same approach.

WHERE TO BEGIN?
To make a successful attempt at a new business you need to understand what you already know and the rest of what you must know to make the climb to success. Business Planning is the best way to start the process. First and foremost, you need a good vision of what you are trying to create (the good idea taken to the next level). You need to answer the questions "who, what, where and how"; especially how! It is the game plan for the assault on the mountain!

WHO
The "who" is not as simple as it looks. First of all you need to do an analysis of skills necessary to run the business successfully. If you have them all, great! If not you will need to either learn them yourself or get other people involved who have the skills you are missing. They could be partners, investors, part time or full time employees or consultants. When you have identified and gotten them on board, you and your team are prepared to take on the mountain.

WHAT
"What" is probably the most straight forward piece. What are you going to do or make? But even this has challenges that you need to unravel in your planning. The detail of what you are going to do, the different items you will be making, the products or services you will be selling need to be understood. The more items contemplated, the more you need to build, or stock or market.

WHERE
"Where" is the physical site you will be using to run the business. What you will be doing and how you will be doing it will clarify what you need for a facility and where best to locate it.

HOW
"How" is the most complicated of the bunch. The complexity comes in understanding that there are lots of ways to get your thing done. For example, if it is a product you are going to build, will you manufacture it yourself or outsource it to someone else? If you are going to build it yourself, ask yourself where the parts will be made, where you will assemble it and how you will test it. These are all questions you will have to answer.

THE IMPLEMENTATION PHASE
Now that we have gotten the basics down on paper and we have the basic concept of what we would like to do and how we would expect to go about doing it, we need to determine if it will work out as planned.

FIRST
What might be some missing key pieces to the puzzle.

  • Is there a buyer for the good or service that we produce? If they are willing to buy it,
  • Will they pay what we need to cover our costs, pay ourselves a salary and generate a profit. That is what strategic marketing is all about.
  • Will enough people buy the product or service at a price for which you can produce it and make a reasonable profit? 
  • If not, you're going to fail. So save your money and either scrap the idea completely or modify it so that you can succeed.

SECOND
Hand in hand with all this is the financing and financial modeling of the business

  • What will it cost to produce or deliver your product or service?
  • Can you do it differently at a lower cost?
  • How much start up money will you need to get up and running? You will need enough cash on hand to:
    • cover your costs and any losses when you start the business and, until volume grows
    • to create a cash flow sufficient to match all costs and to generate profits. 
  • Where will the money to get started come from and what will it cost to get it?

All these are significant parts of the plan.

Okay, so now we know it is a good idea to prepare for the climb because it is complicated, unfamiliar and often very risky. Be aware that you are venturing into the unknown and you should not do that without a good chance of success. And just like climbing Mount Everest, you need guides and teachers to help you learn the ropes. That is what SCORE is here to do. We are the Sherpas that will teach you, guide you and take the journey up the mountain with you to improve your chances of success.