Five reasons most businesses fail... So you don't make these mistakes!

Failure. Yes, the beloved F word, well it’s not my beloved f word, I think we all know I have another favourite F word. Most businesses fail though, in fact it’s a common statistic that 65% of businesses will collapse in their first decade. While that may seem grim but I do think that failure to try something is a far greater failure than trying and failing.

But there are 5 very specific reasons behind why most businesses fail, and if you don’t know what they are, today we’ll be covering them and also how to combat them.

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Transcript:

Kia ora and welcome to Now That's What I Call Business. I'm your host, Brianne West, and you may know me as the founder and former CEO of Ethique or That Soap Company, as some of you may know it, or hopefully my newest startup, Incredibles. I absolutely believe that business done right, done ethically, is the way to change the world. So if you are looking to build your world-changing biz or you just want to find out how Incredibles is going, then you have come to the right place.

Kia ora, welcome back to Now That's What I Call Business and today we are talking about failure. Yes, the beloved F word, well it's not my beloved F word, I think we've probably ascertained I have a more favorite F word. Most businesses fail though, right? This is a well-known statistic that 65% of businesses will collapse in their first decade, which is grim. But also, I would like to say that failure to try something is a far greater failure than trying and failing, in my eyes at least. But today I want to talk about five very specific reasons that most businesses fail. 25% of businesses will do it in the first two years. We all know that running a business is hard, this is not news, these statistics are not here to scare you, but to highlight a reality that running a business is fucking challenging and not every venture will be a success story.

That's totally okay. Failure is not the end. But whilst we're acknowledging that failure is part of the journey, I think we all want to avoid it. And in today's episode, I'm gonna chat through the five biggest reasons that businesses struggle. This info comes from sources like Forbes, and Infestipedia, and EY.

So yeah, I've done my homework here, and it also comes from my own experience, and some of the mentees I've been working with lately. So let's chat where they are and how you can avoid them. Number one is money. Put your hand up if you're surprised. Yeah, I don't imagine there's any hands. Although, if you've put your hand up in your car as you're driving to work, hey, I love the commitment.

Money is the lifeblood of any business, big, small, whether you have a purpose or not. And often, when you are a mission-driven entrepreneur who is here for ethical business, money isn't what you are driven by. And as a result, you tend to think about it less. Yes, speaking from experience. Because what happens when there's not enough of it or it's not managed well? Yeah, that's bad. So insufficient capital is the number one problem that startups face. Most businesses will kick off with a fabulous idea but not enough funding. And I mean, that's not surprising. We often have ideas. You get them in the shower or at three o'clock in the morning, but we're stuck in a nine to five, you're barely getting by. And how on earth are you going to be able to invest in a business?

So I started to teach from my kitchen with a hundred bucks and those first years were beyond difficult. They were a lot of fun but they were hard. It's doable for some businesses because if you want to build rockets, well, you're going to need more capital than that hundred bucks that I had. But for those of you who don't need massive investment up front, it's still very hard. Bootstrapping is a skill and it is a skill you should learn because I believe some of the best business lessons you will ever learn are in those early years.

Some household names, billion dollar businesses, were bootstrapped like Spanx and MailChimp. That's phenomenal and most people actually don't know that because for some reason we give all the press to those businesses that raise $150 million and never turn a profit. That's another brand. There are options for those of you who are starting out and need a little financial help, of course. There's things like grants, there's angel investors, there's R&D loans, but you need to ensure that before you even approach those, you've put together a rock solid plan and done some homework first. Sure, insufficient capital, yeah, it's a big one. You know what I think's bigger? It's poor financial management. This is a skill that some people seem to have naturally, well, or at least they learned it as children, and some people don't.

That's me, I'm one of those. But you can learn, and you need to. You need to know what is coming in, what is going out, and what of that that is going out is helping to bring more in. That's, I mean, simplifying it to the nth degree, but you get what I mean. And something to note here too, if you raise a lot of money, that's not an excuse to become super relaxed about it, which is very easy to do, because it'll be gone quicker than you can think.

Squeeze every single dollar and make it work. If you are in the same category as me and you're not naturally good with money, put extra effort into learning. Find people who are cleverer than you. Find an accountant who will take the time to teach you, and I promise you, you'll get there. Because, fuck, if I can, anybody can. Because my interest in finance was below zero, and now I actually really enjoy it. And the final piece within the money section is lack of revenue. You can have what you think is the best business idea, but if it's not generating enough sales or revenue, you're going to have problems. Obviously, to begin with, as you start, sales are going to be slow, but if you are not starting to see your marketing efforts pay off, it might not be your marketing that's the problem. Lack of sales will kill a business just as surely as anything else. This leads really nicely into point two, no one wants what you're selling. Yeah, this is super common because we fall in love with our own ideas. We don't ask anyone else if they're any good. Would you set up a lemonade stand in the middle of a snowstorm? No.

Even if you've made the best lemonade in the world, how many people want lemonade in a snowstorm? It's kind of what it is when people are totally misjudging market needs because again, you're so in love with your idea, you haven't actually bothered to figure out if anybody wants it. It's a very common one for passionate entrepreneurs. There's a lot of big businesses out there that actually started with a totally different product. But it's also easily avoidable.

Talk to people. This is a common theme across my podcast. Talk to people, ask people, use surveys, social media, face-to-face conversations. Take a stroll down the street and just start talking to strangers. Sometimes that works well. Sometimes people look at you like you're an alien. But you want to know what people want. You're not selling a product, you're solving a problem.

Remember that important distinction. Even if someone wants your product, there comes the challenge of not having a unique value proposition. Why should your customer choose your product over its competitors? Because yes, you will almost certainly have competitors. I used to be asked all the time how I felt about all the shampoo bars moving into the industry and what it was like to now finally have competition, but we always had competition. We just competed with liquid shampoo.

It's the same problem, due to here, just a slightly different solution. So you need to think about what makes your product unique, what makes your business unique. You need to have a unique value proposition. This is one of those corporate terms I actually use. USP, you've probably seen it written as. Why does your core target audience want your products beyond all others? You need to identify what makes your business unique, and that doesn't necessarily actually mean the product. It can be your business, it can be the ethics, your value, your pricing, it can be a lot of things. It could be a combination of things, but it must be unique and it has to actually matter to your customer. Lots of companies out there with these factors they tout as unique and some factors actually nobody cares. How do you make sure people actually want what you're selling? Yeah, well, again, talk to them. It's exactly the same. If your business is already up and running, you still need to make sure this is the case, that the new products you're releasing are what people want, that your product is evolving in a way people are excited about. So you need to ask them on social media, ask for feedback, show that you're listening and willing to adapt. Build a community where customers feel heard and valued. I go on about this a lot, I know, but community-built brands go the distance. That way, even when trends change, you know what your customers want. Perhaps people don't want lemonade in a snowstorm, but they probably want hot chocolate. Right, you know what your customers want, you have what you call product market fit, your finances are top notch, so what else could possibly go wrong? Number three, and you'll see this a lot, and for big businesses with monopolies, it doesn't really matter as the customers don't have a choice. But if you're a small business or a startup, this one is a big one, and this is giving a shit about your customers. Have a think about how startlingly rare standout customer service is. If there is one thing I am absolute about, it is ensuring that your customers are happy, even if it costs you a little bit more to make them that way.

Yeah, we all know the customer is not right all the time or even half the time, but suck it up, buttercup, and try and make them have a positive experience anyway. You set customer service expectations with your team, or if you're doing it yourself, hold yourself to high standards. Till the day I stepped down as CEO of Ethique, I checked our customer emails religiously. I was looking for trends, potential issues, anything that was out of the blue or something that came up a lot so that I could reflect it into whatever we were going on to do. I wasn't checking in on the team because if you ever had an experience with America workers, you would have found that they are absolute legends. Regardless of how busy you are, you need to lean into your customer service. The only thing keeping you afloat is obviously your customers. So even when it's hard, you need to be honest and transparent and try and fix it. Better yet, of course, is to be so good to begin with that those incidents are rare. Okay, this isn't hard. It simply means being available, listening, being empathetic. What would you want out of a consumer interaction? Again, shitty customer service is something big businesses can usually get away with, but we can't. Another way to show that you actually don't care is actually by ignoring or not engaging with your customers, and you usually see this in social media. This is something else I was big on, was replying to every single comment, quite very minimum, if it's just like emojis, was liking it, showing that you were listening. It's also things like your newsletters, they're full of value beyond just buy my stuff or we're on sale. Again, create a community around the brand. Ask for opinions on what you should do next or what you should call your next product. And I mean, you don't have to use it, but show that you were listening and factor some of those in.

And yeah, you're gonna get negative feedback and that sucks, especially if you feel that it's unwarranted. But feedback is a goldmine. Seek out those opinions through surveys and comment cards. I don't even know if comment cards are still a thing. Or, you know, actual conversations. Create a system for tracking and analyzsng it and act on it.

Still don't care? Well, this might make you. Businesses collectively lose around 120 billion, with a B, every year because of bad customer service. How? By creating shitty experiences, you create switches. So customers who don't have any loyalty and simply chase price at all costs.

So you end up in a price war. You're the lowest one week, so your switcher goes to you. Your competitor is lower than next and you've got to keep up. And it becomes a vicious cycle. A good example in this one is Blockbuster. We all know of Blockbuster. Actually, some of you are so young you probably don't. Back in the Stone Age, we had to rent physical video cassettes and put them in video players.

I do not know how to explain what that is to those of you who have never seen one. It's like a black square thing. It's complicated. You know what, ask your parents. Blockbuster's demise is often blamed on streaming services, right? So Netflix, it's actually a funny story there too, but it's already too long.

But business analysts have pointed out that Blockbuster was failing well before streaming was really popular, and that even when they did offer their own competing service, customers didn't care because throughout its recent history, Blockbuster continually proved it didn't care about its customers.

They didn't respond to feedback. They didn't try and innovate to keep their customers happy. They didn't provide value. They didn't try and delight. They just didn't care. And finally, of course, I haven't even mentioned the possibility of reviews ending up on social media, but I don't think I need to. We've all seen what the internet can do.

Number four is team, and this isn't fourth. These aren't in any particular order really because people make a business and if you don't have the right people, well, you don't have a business. One of the biggest issues, of course, is ineffective leadership. Now, leadership is hard.

No leader is perfect and we can all do better. For me, among my many character flaws is I hate confrontation. I really struggle to hold people to account. I am very empathetic, very friendly. I make myself sound like a golden retriever. So I befriend team members. And whilst that sounds really nice on paper, it's actually not ideal.

I am working on it. All leaders have things to work on. I have met breathtakingly bad leaders in massively high positions of power, which is mind-blowing. I have met wonderful leaders who have this amazing unicorn skill of being firm and kind and fair and flexible, which is the gold standard, right? The whole point of a CEO or a leader is to inspire, to show your team what it is you want to achieve collectively and work with them to do it whilst removing obstacles out of their way. But poor leadership is common.

It means poor decision-making, a lack of vision, a failure to inspire or bring people together. I don't believe there are many born leaders. You will definitely get charismatic people, but that's okay because you can invest in leadership development, whether it's training or mentoring or coaching or just reading books. Strengthening those leadership skills is really important from day one. And you'll get it wrong. That's okay. Learn from it, move on, and don't drag yourself over the coals for it. Then there's hiring, of course. We all hire the wrong person at least once, or more likely many, many times. People are hard. There is no magic for this one, right? I guess you can lessen the likelihood of it being a complete catastrophe by being incredibly clear and transparent with what you want. You need to know your company culture and the specific skills needed for each role, thinking long-term and involving your team. During the hire process, look for candidates who not only have the right skills, but they fit with that company culture. Look for attitude over skills and qualifications. Use interview and selection techniques that remove the potential for bias, because we all have unconscious bias, and be open-minded. But don't compromise on that attitude. And don't say yes just because someone begs. Don't ask. Be in there. Finally, within the team sphere, there is team cohesiveness, you know, internal processes, operations. It's all of it working together. You could have the best team in the world, and again, remember your team, your biggest asset. But to get the best out of them, it involves good processes. And get a good operations person. If that's not your forte, it's not my forte. The best leaders know themselves, right?

Treat your team as your biggest asset. Pay them fairly, at minimum a living wage. I'm sorry, anything less? I truly believe it's exploitative. Again, that's another podcast. Learn from the people you work with and hire. Yes, as a leader, you can learn from those people you are leading. Every single team member will change your company culture.

And with a bad culture, you're in for a world of pain. And although I haven't mentioned purpose yet, a big part of your company culture and the motivation comes with it, it comes from doing something that matters to your team, and that stems from leadership. And finally, it's an S word, strategy. Without it, you're like a ship blowing around in the wind without a compass. You have no direction and you are just at the mercy of whichever way the wind is blowing. It might be fun to do for like a day or two, but it's not going to get you very far.

A total lack of strategy or business plan is a disaster. And honestly, if you had told me 15 years ago that I would be saying this, I would laugh in your face. I hated planning and I loved the fact I was always spontaneous. I thought it made me fun. What it made me was unproductive. You need a plan. It doesn't have to be 50 pages long, but it should outline your business goals, your steps to achieve them, and how you can measure success. Most importantly, you need to reread it often, tweak it as needed, and stay mindful of the goals, otherwise you're going to be off chasing any opportunity. And yeah, recommending a plan on a page, because that's all that that is. Then there's the failure to adapt. So you might have a strategy and you might think, come hell or high water, I'm going to stick to this. And a great example is Kodak, who by the way, actually invented the digital camera, which went on to kill their business because they just didn't adapt quick enough.

It's quite a long and complicated story and it's simplified in popular culture a little bit, but markets evolve, consumer behaviors change, and technologies advance, and you need to adapt because it is terrifyingly quick and it's getting quicker. Having a plan does not mean writing that plan all the way down to the ground. It means being aware that maybe the steps to achieve your goal need tweaking depending on the world around you. That's why the best plans on a page are something you refer to regularly and update as needed. And special bonus point here talking about marketing strategy because actually a lot of businesses don't have one and actually, Ethique did not have one for most of its life and that was my fault because I didn't really know how to build one or why it mattered. We had a collection of incredibly talented people with incredibly strong values and ethics and I never really ever pulled that together into a strategy per se. Well, lesson learned, because no matter how loud you are, if you're not reaching the right people with the right message, it's kind of just a waste of your time. I always find it really amusing when I receive ads for things like childcare, because obviously I don't have children, or oddly one time I actually got one for shampoo to combat male pattern baldness. I am very much not their target audience, and that is a huge waste of money for them.

A scattergun approach to marketing is not effective. You need to craft a winning marketing strategy. You need to know who you're talking to, their needs, their preferences, their behaviors, and a lot of businesses skip this step. Or they do it and then they ignore it, which is pointless. And yes, at Business With Better, February is all about marketing. So hang around and you might just find out how to build your marketing strategy. Of course, there's already a module on it over on businesswithbetter.com.

Now no business is immune to failure. There is all sorts of things that could happen that are totally out of your control. And every business is going to do one or all of these points wrong at some point in the journey and that's okay because if you recognize it quick enough, you might be able to prevent real damage. But again, to reinforce my very first point, failure is not a dirty word. Even if your business was to fail, you should be so fucking proud that you gave it a shot anyway because the vast majority of people don't. And it is so sad and such a waste.

Thanks for listening team. I hope it was interesting. Reading about the deaths of businesses around the world was kind of a little grim, but forewarned is forearmed and all that. Thanks again. Ka kite.

Short and sweet, like all the best podcasts, right? Thank you for learning with me. It is always an absolute blast to put these together and share these stories, some of them which are a little ridiculous, and they all come from building a business that will hopefully change the world. If you enjoyed this episode, don't keep it to yourself and feel free to drop me a rating and hit that subscribe button. Kia ora and see you next week where I will have another and hit that subscribe button.

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