10 Reasons Why Your Small Business Will Fail - and How To Avoid These Tragic Mistakes

Summary

In this video, the speaker discusses why small businesses fail and provides valuable insights for business owners and freelancers. Key reasons include cash flow problems, over-romanticizing the business, not understanding customer needs, inadequate competition analysis, and lack of marketing strategy. The video emphasizes the importance of building a strong brand, staying innovative, fostering a positive company culture, and valuing customer service. The speaker also highlights the significance of having a solid marketing plan and recognizing the need for expert advice. By addressing these issues, small businesses can increase their chances of success.

Takeaways

• 💰 The leading cause of small business failure is cash flow issues, often due to insufficient capital to sustain early growth.
• 🌟 Over-romanticizing the business can lead to poor decision-making; successful businesses are run on facts, metrics, and processes, not just passion.
• 🤔 Understanding the customer's problem is crucial; a business must offer a solution that people are willing to pay for.
• 🔍 Failing to analyze the competition can leave a business without a clear differentiation strategy, which is essential in a crowded market.
• 🏆 A great product alone is not enough; visibility, authority, marketing strategy, and customer experience are also vital for success.
• 🛠️ Building a brand involves strategic processes and intentionality; a registered company is not the same as a well-defined brand.
• 🔄 Resistance to change and innovation can lead to business failure; adaptability is key in a rapidly evolving market.
• 👥 A strong company culture can significantly impact a business's success, while a toxic culture can be detrimental.
• 📢 Word of mouth and customer experience are powerful marketing tools; excellent service can lead to exponential growth.
• 📈 A solid marketing plan is necessary to increase visibility, capture attention, and communicate value propositions effectively.
• 🧠 Overconfidence can be a downfall; successful business owners recognize their limitations and seek expert advice when needed.

Q & A

What is the most common reason for small business failure according to the video?

The most common reason for small business failure is cash flow problems, which often involve not having enough capital to sustain the slow growth after launch.

Why is it a mistake to continue treating a business like a passion after it's launched?

It's a mistake because successful businesses need to be governed and run by facts, metrics, financials, processes, and rules. Running a business based on personal emotions can lead to poor decision-making.

How important is understanding the customer's problem for a business to succeed?

Understanding the customer's problem is crucial because successful businesses must satisfy a real need that people are willing to pay to have fulfilled.

What is the significance of analyzing the competition in the context of a new business?

Analyzing the competition is significant because it helps to develop a differentiation strategy, ensuring that the business stands out in the competitive landscape and can attract the target customers.

Why is having a good product or service not enough for a business to succeed?

Having a good product or service is not enough because success also requires visibility, authority, credibility, a marketing strategy, customer experience, and excellent customer service.

What is the difference between creating a company and creating a brand?

Creating a company is about registering a legal entity, while creating a brand involves strategic processes to build a specific intention, codify and define the brand's identity, and ensure consistent experiences for customers.

Why is it dangerous for a business not to think about change or innovate?

Not thinking about change or innovate is dangerous because history shows that companies that fail to adapt to trends and technological advancements are often outpaced by competitors and can fail.

What role does company culture play in the success or failure of a small business?

Company culture plays a crucial role as a strong culture can propel a business to success, while a toxic culture can quickly lead to failure. A positive culture encourages teamwork, loyalty, and high performance.

Why is word of mouth and customer experience considered the most underrated competency for businesses today?

Word of mouth and customer experience are considered underrated because every customer interaction can create significant growth opportunities or harm the business's reputation, especially with the power of the internet to amplify these experiences.

What is the importance of having a real marketing plan for a small business?

A real marketing plan is important because it strategically outlines how the business will become visible, capture attention, communicate its value proposition, and entice customers to engage with the business.

Why do small business owners who think they know it all often fail at higher rates?

Owners who think they know it all often fail because they may overlook the need for expertise in areas such as marketing, finance, and customer service. Successful owners recognize their gaps in knowledge and hire or retain experts to fill those roles.

Outlines

00:00

📉 Small Business Failures: Common Pitfalls

The first paragraph discusses the harsh reality of small business failures, with 22% failing in the first year and 50% within five years. The primary reason cited is cash flow issues, but other factors include romanticizing the business, failing to understand customer needs, not analyzing competition, and underestimating the importance of a strong product or service. The paragraph emphasizes the necessity of differentiation, clear communication of solutions, and the multifaceted requirements for business success, including visibility, authority, marketing strategy, customer experience, and creating a brand.

05:02

🔄 Innovation and Adaptation: Keys to Business Survival

The second paragraph highlights the importance of change and innovation for business survival. It points out companies like Blockbuster, Nokia, Xerox, Sony, and Kodak that failed to adapt and were outpaced by competitors. The paragraph stresses the significance of a strong company culture, as demonstrated by Zappos, and the necessity of customer service and experience in today's digital age. It also underscores the importance of word-of-mouth and the speed and human touch in customer service, which can significantly impact a business's reputation and growth.

10:02

📈 Strategic Planning for Business Success

The final paragraph focuses on the importance of strategic planning in business. It outlines the necessity of a marketing plan, the value of customer service as an underrated competency, and the importance of recognizing when to seek external expertise. The paragraph warns against the pitfalls of overconfidence and the failure to delegate or hire experts in various fields. It concludes with an encouragement to stay open to learning and adapting, offering consulting services for brand building and business growth.

Keywords

💡Small Business

Small Business refers to an independently owned and operated business organization that is smaller in size and has fewer employees than a larger business. In the context of the video, it is the central theme as the speaker discusses the common reasons for their failure and provides insights for success. The video aims to educate small business owners and those who work with them.

💡Cash Flow

Cash flow is the net amount of cash moving in and out of a business. It is a critical financial metric because it directly impacts a business's ability to meet its financial obligations and invest in growth. The video identifies cash flow problems as the primary reason for small business failure, often due to insufficient capital to sustain growth post-launch.

💡Passion

Passion in the video is described as the initial driving force that can launch a business. However, it is also cautioned that treating a business purely as a passion post-launch can lead to failure. The script emphasizes the need to balance passion with practical business operations governed by facts and metrics.

💡Customer's Problem

Understanding the customer's problem is essential for a business's success. The video stresses that a business must satisfy a real need that customers are willing to pay for. It is not enough to love one's product or service; it must solve a specific problem and communicate this solution effectively to the target market.

💡Competition Analysis

Competition analysis involves evaluating a business's rivals to understand their strengths and weaknesses. The video mentions the importance of this analysis in developing a differentiation strategy, which is crucial for standing out in the market. An example given is GEICO, which differentiated itself in a mundane industry with quirky advertising.

💡Brand

A brand, as discussed in the video, is more than just a company; it is a result of intentional and strategic processes to create a unique identity in the market. The video points out that not creating a brand can lead to customers defining it for you, which may not align with the business's vision or values.

💡Innovation

Innovation is the process of introducing new ideas, methods, or products. The video uses examples of companies like Blockbuster, Nokia, and Kodak to illustrate the consequences of not innovating or adapting to market changes, which can lead to business failure.

💡Company Culture

Company culture refers to the shared values, attitudes, and practices within an organization. The video highlights the impact of a strong, positive company culture on business success, using Zappos as an example of a company that grew rapidly due to its culture and customer service.

💡Word of Mouth

Word of mouth is a form of informal communication between consumers regarding a product or service. The video emphasizes the underrated importance of word of mouth in business growth, noting that excellent customer service can lead to exponential growth opportunities through positive recommendations.

💡Marketing Plan

A marketing plan outlines how a business will promote its products or services to its target audience. The video identifies the lack of a real marketing plan as a reason for small business failure, stressing the need for a strategic approach to visibility, attention capture, and value proposition communication.

💡Expertise

Expertise in the video refers to the specialized knowledge or skill in a particular area. The speaker advises against the belief that a business owner knows it all, suggesting that recognizing one's limitations and seeking expertise in areas like marketing, finance, and customer service can significantly increase the chances of success.

Highlights

22 percent of business startups fail in the first year and 50 percent within the first five years.

The number one reason for small business failure is cash flow problems.

Over-romanticizing your business can lead to treating it as a passion rather than a business governed by facts and metrics.

Understanding the customer's problem is crucial for a successful business.

Analyzing the competition is essential for developing a differentiation strategy.

A good product or service alone is not enough; visibility, authority, marketing strategy, and customer experience are also required.

Creating a brand involves strategic processes and methodologies, not just registering a company.

Innovation is key; companies that don't adapt to change often fail.

Developing a strong company culture can be the difference between success and failure.

Word of mouth and customer experience are the most underrated competencies in today's market.

Customer service creates geometric growth possibilities and can significantly impact a company's reputation.

The speed and human touch of customer service are crucial differentiators in a digital world.

Having a real marketing plan is vital for visibility and capturing attention in the market.

Owners who think they know it all are more likely to fail; hiring experts is crucial for success.

Small businesses can leverage their size to provide a more personal and human touch in customer interactions.

Maintaining a vibrant and successful small business requires open learning, growing, and adjusting.

Consultants can provide expertise at a fraction of the cost of full-time employees.

Transcripts

hey everybody welcome back let's talk

about small businesses in particular why

they fail now if you're a small business

owner you got to listen to this stuff

and if you're an agency or a freelancer

who works with small business

knowing this stuff will really help you

service your clients better so let's get

started starting a business of your own

is the dream of millions around the

world but the facts can be really harsh

in fact 22 percent of business startups

fail in the first year and 50 percent of

new businesses fail within the first

five years now the number one reason

really behind small business failure is

cash flow problems usually not having

enough capital to sustain the slow

growth that comes right after launch but

there are a number of other reasons

besides financial ones why small

businesses fail now i want you to stay

tuned because at the end of this video

i'm going to share the one most

underrated but necessary competency in

business in today's market environment

number one you over romanticize your

business

your passion can launch a business yes

but the mistake many business owners

make as they continue to treat it like a

passion after it's launched i'm sure

you've heard people say it's not

personal it's just business usually

that's used to deliver some sort of bad

news like a layoff but in a way it's

totally true successful businesses have

to be governed and run by facts metrics

financials processes and rules of course

you can and should care about your

business but you just got to make sure

that you don't run it based on personal

emotions now the second reason most

small businesses fail is that they don't

understand the customer's problem

successful businesses have to satisfy a

real need a need that people will

actually pay to have fulfilled

now you may have an idea you may love

your product you may love your service

but if that product or service doesn't

fix a specific problem your business

will fail and not only does it have to

fix that problem but you have to be able

to really communicate and articulate

clearly what that solution is and you

have to be able to do it in a really

motivating way so your target customer

will take action number three is that

you don't analyze the competition

developing a business plan either a

minimal very high level plan like a

business model canvas or a full-on

market analysis is critical to launching

a business successfully you have to be

sure there's a valid market need before

you try to start selling something you

need to do an analysis of the

competition so you can develop what's

called a differentiation strategy you

might have heard the expression

different is better than better well

it's true you aren't going to do

business in a silo there are a lot of

other people in your space out there

trying to compete for the same customer

that you are you have to intentionally

define how you're going to stand out

from all the others in the competitive

landscape who do what you do here's a

great example geico geico's in the car

insurance business are really boring

commodity space but in that boring space

they don't show up like a financial

institution they have super quirky

advertising they have characters they

have the gecko they have very funny ads

they super stand out from the

competition

in their market

number four is you think a good product

or service is enough having a great

product is not enough to succeed it

takes so much more here are just a few

more things that it takes takes

visibility so you have to be able to

establish a presence a brand awareness

of your existence it takes authority so

establishing reasons to believe that you

can deliver what you say you can deliver

you also have to establish credibility

that is proof testimonials case studies

that you can deliver what you can and

that you can do it for other people it

takes marketing strategy so promotion

and attraction so ads and possibly

content marketing and don't forget word

of mouth and i'll share a little bit

more about that later it takes customer

experience or cx you have to pay a lot

of attention to the purchase experience

that your customers have and you also

have to deliver incredible customer

service before during and also after and

more on that later as well number five

is you didn't create a brand you created

a company

anyone can register an llc but a company

is not a brand a two brand is created

with a specific intention to build a

brand you have to undertake a series of

very strategic processes there are

agencies like mine that can guide you

through those steps there are specific

methodologies that are used to codify

and define a brand so from the very

start everyone is following the same set

of rules in everything they do

everything they produce and say you

might have heard the saying if you don't

create your brand your customers will

create it for you and it's really true

yes the aggregation of your customers

experiences will over time define what

your brand is but if you don't actually

in the beginning architect those

experiences with really specific

intentions every step of the way you're

leaving so much of this up to chance

number six is you don't think you have

to change or innovate

history is littered with companies that

didn't want to change blockbuster for

instance didn't see the trend in

streaming media or the opportunity to

deliver dvds by mail netflix did and

they totally ate their lunch nokia

didn't see the value in touch screens

xerox they invented the pc and didn't do

anything with it and then they actually

showed it to steve jobs at the xerox

park and he took that concept and

birthed apple right out of it sony

invented the walkman they totally owned

the mobile music market but then they

ignored the move to digital music files

remember culture doesn't stand still

even right now environmental concerns

and market demand are moving the auto

industry deeply and quickly into

electric vehicles technology also

doesn't stand still kodak didn't

recognize the move to digital and

thought film would always be preferred

and look where they are now number seven

is inside the business is as important

as outside the business developing a

strong company culture can mean the

difference between success and the

failure of a small business and toxic

cultures can kill a business really

quickly but a great company culture can

propel a business to success just as

quickly look at zappos they were in a

commodity space shoes they went from

nothing to being acquired by amazon for

1.2 billion dollars in 10 years largely

on their culture and their customer

service remember business is a team

sport successful businesses must develop

the ability to train delegate and trust

their employees and the inability to

encourage loyalty by compensating your

employees fairly and recognizing and

rewarding performance and not just

punishing mistakes is a must have for

small business number eight is

underestimating word of mouth and

customer experience now at the beginning

of the video i said i was going to share

with you the one most underrated

necessary competency for companies in

the market today this is it customer

service every customer interaction

creates geometric growth possibilities

for your company the internet has

created platforms that are essentially

massive soap boxes where virtually

anyone can publicly call out or shame a

company for inferior products or bad

service one fantastic customer

experience has the potential for a brand

to blow up in a really great way and one

bad experience can blow you up in a

really bad way

today also the speed of customer service

is more important than ever and also

human touch is a huge differentiator for

businesses in a world full of chat bots

and endless phone trees and offshoring

and this is also a really great

advantage for small business because

being small you can really accentuate

the idea of human touch in how you

interact with your customers the ninth

reason most small businesses fail is

that they don't have a real marketing

plan having a great product or is only

step one you have to strategically plan

how you're going to become visible

where when how frequently you're going

to show up

how are you going to capture attention

in the market how are you going to

communicate your value proposition and

then how are you going to entice people

and then transport them to where you

actually deliver the thing whether

that's a digital portal like a website

or an e-commerce store or a physical

retail outlet and the 10th reason small

businesses fail is they have an owner

who thinks they know it all having

confidence is really necessary to

starting and running a business but

owners who think they can do it all and

that they know it all fail at much

higher rates those who know what they

don't know

and hire or retain experts in things

like marketing and consumer research

finance sales design customer service

are much more likely to succeed even if

you can't afford to hire full-time

employees you can retain consultants to

get you up to speed at a fraction of the

cost and you can do it without taking on

continuing salary overhead or benefit

costs i've experienced exactly that in

my own business and working with dozens

of clients with my agency verhal brand

design

starting and maintaining a vibrant and

successful small business is one of the

most rewarding experiences you can have

in your working life it gives you a

sense of agency and control over your

own destiny if you go into it with your

eyes wide open and stay open learning

and growing and adjusting as you go

along your small business can succeed

just heed these 10 watch outs and you'll

be on your way so that's it i hope you

like this video and 10 reasons why small

businesses fail and if you did like it

make sure to hit that subscribe button

and bang that notifications bell and if

you need help with some consulting or

brand building for your own small

business reach out to me at

philippvandusand.com and let's get you

to the next level and with that thanks

again for watching and bye for now

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