Why Do Entrepreneurs Fail in Thriving Economies? Three Reasons…

I work with entrepreneurs on a daily basis. Many go off to do wonderful things with their businesses, while others crash and burn miserably. Though a strong economy does influence a business in many ways, some entrepreneurs can push through despite the worst, while others fail miserable in the best of times. So, why do entrepreneurs fail, even when in a thriving economy?

Poor or No Planning

Direction to SuccessWhen I think of entrepreneurs, I think Risk Takers! Spontaneous! Go Getters! And really, planning gets in the way of all that excitement. In fact, people who like to plan (like me) can plan themselves right out of an idea. I could happily plan forever without taking one step on the path of opening a business. There has to be some happy medium between those who plan to the death and those who just go with it until their business goes away.

Well, here’s something to think about. The chances of you being successful doubles if you have a business plan. Regardless of failure rate statistics, you have the opportunity to double your chances of success, just by taking the time to write a business plan.

A business plan doesn’t have to be a 50 page book. On the other hand, it should address some key components

Underestimating Startup Costs

Falling Profit QuestionsI can’t express how bummed I am when a client walks into my office in desperation because they’ve spent their life savings on a business but still have purchases to make to make their business viable. They hope I have some miracle answer to save their business from going downhill. I want to ask them why they’re coming in penniless, when they should have come to see me before they spent a dime on their project.

Often times lenders don’t want to fund a project if the entrepreneur has no down payment or cash to supplement the money they’re lending. Sometimes a lender will look at your equity (how much your business has in assets, less the liabilities). However, your equity is typically valued a lot less than cold hard cash. In terms of worth, cash tops all, then land/property, equipment, and inventory, in that order. You might through a few other assets in the mix, but nothing beats cash. Why? Because cash moves. Land/property tends to hold value, but now the bank is stuck with something they don’t want and have to sell. Equipment and inventory are even less valuable to the bank. The thing is, the bank isn’t in the business of garage sells.

I have a 10% rule. Whatever my clients determine the cost will be to start their business venture, I tell them they need to come up with a minimum of 10%. They may need more, but at a bare minimum, we’re looking at 10% on their part. Lenders say time and time again, they want the entrepreneur to have some “skin in the game.” I hate that saying, but that’s the way is. Same thing when it comes to most business grants. The granting agency usually has a matching requirement. If you’re lucky, it’ll be as low as 1:4, but usually it’s a 1:1 match.

Here’s the thing. When you have money, it’s easier to get more money than if you’re scraping by. Lenders want to invest in a business that has a fighting chance, not a business that’s on its way out because of poor planning. Not only that, it’s far easier to ask once, then to come back a second time for more money because you didn’t plan. This is why it’s important to determine ALL of your startup expenses prior to spending any money. If your business is going to cost $100K and you have $50K, don’t try to make buy and lose your $50K in a failed startup. Ask for the other $50K to start your project and give your business a firm foundation.

Poor Marketing




Telling your friends and family that you’ve started a business should not be your entire marketing plan. A good marketing plan requires research. Your company should be providing products and services that are solutions to problems… problems your customers have. Speaking of customers, who are your customers? You’ll want to identify your target audience… and that audience goes beyond your friends and family.What do you plan to accomplish by marketing? Sure, the main goal is to attract more customers. However, you need to go beyond that. What kind of return on your investment are you expecting? Simply throwing money at a marketing venue and hoping for something in return, probably isn’t the best strategy. Take time to analyze the different ways you can market your products and/or services and determine which is going to give you the return you want.I only touched on a few items dealing with marketing. However, I want to leave you with one last word of advise when it comes to reaching your target audience. Be sure to measure the effectiveness of your marketing. There’s no sense throwing time and money at a method that isn’t giving you a return on your investment.

Final Thoughts

MazeSome entrepreneurs are successful regardless of the economy. Maybe they have luck… or maybe, they just know what they’re doing. They plan, the understand their business needs, and they know how to market properly. Others can setup shop in the best of economies and bomb every time. Unlucky? Perhaps.

What I will tell you is you don’t have to go it alone. Network! Many veteran entrepreneurs are willing to share their experiences to help you be successful. There are business centers around the country that offer free or low cost assistance. You just have to be willing to reach out for help. Plenty of folks are willing to help you navigate the maze called Entrepreneurship.

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