Eighty percent of new businesses fail, and often for reasons that were completely avoidable. Others fail because of a lack of organization, preparation, or a good understanding of what takes to run a successful business.
Unfortunately, I have experienced plenty of that failure myself.
When it happens, afterward, there is always a feeling of regret for things that, in hindsight, you would do differently if you had the opportunity.
Here are seven regrets that many failed business owners experience.
1. Didn't do any market research
The number one reason that startups fail, which accounts for 42 percent, is that they have created a product or offered a service that no one wants. It's great that you love your product, but if your customers don't want it, then you have no business. Do your market research. Find a problem that you can solve and offer a product that solves it.
2. Didn't know who their customers were
This one never ceases to amaze me. You would be surprised how many entrepreneurs, when you ask them who their ideal customer is, can't give a clear answer. Or, even worse, they tell you that everyone is potentially a customer. If you don't know who your customers are, then they probably don't know who you are, either, which makes it difficult for them to find you and buy from you.
The tighter you can define your ideal customer, the sharper and more targeted your marketing can be.
There are probably few feelings worse than seeing your business go bust with a sea of untapped customers available.
3. Didn't use their network enough
Selling to family and friends is hard. I know from my own experience that it doesn't feel quite right, or it can feel like you're asking for charity. But there are two quotes every business owner should remember.
"All things being equal, people will do business with and refer business to those people they know, like, and trust." --Bob Burg
"Your network is your net worth." --Tim Sanders
Your network is an invaluable source of leads and should not be overlooked, as they probably fall right into that know, like, and trust category and will be a great source of referrals and potentially direct business.
4. Didn't focus on sales enough
Sales is tough, very tough, and many of us, myself included, would much prefer to work in the business rather than on the business.
But spend too much time working in the business and pretty soon you will be out of business.
No sales, no business. It is as simple as that.
It's so obvious when you are looking back over the wreckage of your failed business, but sometimes we do not see it because we are so involved. Every business owner should set clear sales targets that are aligned with the overall business goal. These need to be monitored closely, with any necessary adjustments made quickly if we want to be successful.
If you're not aggressive about sales, then you don't have a business. You have a hobby.
5. Set prices too low
When it comes to selling services, it's easy to fall into the trap of selling on the basis of cost rather than value, often using a simple cost-plus pricing model.
However, this puts you into the category of trading hours for dollars, which, while OK, is probably not going to set the world on fire.
You should look to price things according to the value that you can bring to the customer rather than just the cost of doing the work.
6. Focused on revenue, not profit
It's not about how much you take; it's about how much you keep. If I had a dollar for every business owner who went out of business because he or she didn't understand the cost model, I'd probably have enough money to retire comfortably.
It's good to be focused on revenue, but you also need to understand your profitability, as it's profitability that determines the viability of your business. It doesn't matter how many widgets you sell if you're selling them at a loss. You will go out of business.
One client that I worked with, we just managed to keep her business afloat and then turn it around.
She first asked me to consult with her because she was taking $20,000 per month within just five months of starting her business, and she wanted to increase that to $40,000 because there was great demand for her products. When I asked what was the profit margin, I was met with silence. Then she said she didn't know.
Over the next two weeks, we looked to get a better understanding of the costs and profit situation. It turned out that she had a range of products that, depending on who supplied the components, varied in profitability from 5 percent to 50 percent, and at that time her overall average profit was 10 percent. This meant she was working more than 240 hours a month for $1,500 in profit, which is hardly a sustainable business model.
So rather than look to increase her revenue, we focused on switching out her less profitable suppliers to increase her overall profitability. This allowed her to achieve an average of 40 percent profitability, which increased the profit from $1,000 to $8,000 per month, without increasing revenue or work effort. This is a sustainable business and one that is worth growing.
7. Increased costs too quickly
When you're running your own business, it's easy to get caught up in the thrill of it and take new offices, buy lots of equipment, build an expensive website, get a company car, or something. There are many things we can spend money on, but you need to make sure your costs go up in line with your profits. I know in my first business not only did I pick offices that were grander (read more expensive) than I needed, I ended up paying for them for one year after the business closed down.
Focus on keeping your costs to a minimum, and only buy those things that you need.
Business can go bust for any number of reasons, but it's the ones that we could have avoided that will cause us the most regret and leave us to dream of what might have been.