Fail to Succeed: The Importance of Business Failure
Entrepreneurs are some of the most successful people in the world. Every business that you see thriving today, from Microsoft to Amazon, all started as startup ventures by risk-taking entrepreneurs.
But while we all know about their success, their failures are quite lesser discussed. Yet they, too, deserve the spotlight because they served as the building blocks for these businesses that survived the harsh market through the years.
Being a successful entrepreneur or business owner is ‘the dream’ for many of us. After all, being one has quite a number of attractive benefits from having a pay grade that regular workers almost never achieve, to being able to go on a holiday any time you want. Most of all, you won’t have to follow anyone’s orders. You’d be giving them instead.
The sad reality, however, is that not all who try succeed.
According to the Bureau of Labor Statistics’ Business Employment Dynamics, about 20% of businesses in the US fail in their first year. By the tenth year, only about 30% to 35% of businesses still survive. And this is not a one-time statistic but rather a consistent trend that has gone on for years.
The risk of failure in business is high. It’s almost as if it’s expected. And to some degree, it is.
No business is perfect, and challenges are part of its everyday operations. One day you’re haggling with suppliers, the next you’re scrambling to put out good PR to manage a failed marketing stunt that might have offended a portion of the population.
And what puts apart successful businesses from others is their willingness to face these challenges, take calculated risks, and accept failure without letting it stop them from learning and trying again.
Steve Jobs, the co-founder of Apple Computer, Inc., once said:
“I’m convinced that about half of what separates successful entrepreneurs from the non-successful ones is pure perseverance.”
We’re inclined to agree.
Perseverance or the ability to persist in one’s endeavors despite delays or hardships boosts the chances of success. Immediate surrender is not an option. To do well in business, you have to be tough. You have to take failures as valuable lessons to improve your chances when you try again.
So if you’ve experienced business failure or have one looming over your head, don’t lose heart.
Below, we’ve listed five common reasons to answer this burning question: Why do businesses fail?
But with them, we’ve also shared the invaluable lessons you can take from each to help you the next time you try.
5 Reasons why businesses fail (…and the lessons they teach)
1. Failure to plan accordingly for the business
Sometimes, businesses are destined to fail before they have even begun because they fail to plan accordingly. It’s not enough that you have the venture capital and an idea you’re passionate about.
You should also make considerations on whether the market truly needs your product, how to differentiate yourself from other brands with similar products, how to optimize your operations to be cost-effective, how to market your brand to make it appealing to potential customers, and when the best time is to release your products.
35% of startups fail because there is no market need (CBInsights, 2021). Loosely, it translates to businesses failing because they failed to plan accordingly.
Failing to plan does not only happen at the start of a business but also during its operations. Business owners should be able to plan quickly and effectively when faced with new challenges. Contingencies are a must.
Nearly a hundred thousand businesses in the US closed down by the 3rd quarter of 2020 due to the COVID-19 pandemic based on Yelp data. The number of business failures due to covid is even higher across the globe. Some brands that have filed for bankruptcy during the pandemic include New York & Co., Gold’s Gym International, and Park Avenue Leather Goods.
Learn from failure: Create a business plan that identifies your current state (i.e., point A), your goal (point B), and the details of how you plan to go from point A to point B, step-by-step. If you’re into ecommerce, having an online business checklist before launching your business can help ensure you don’t forget anything essential.
2. Failure to manage finances and operations
As they say, money makes the world go round. The same goes for a business.
Startup business failures are often due to mishandled finances. Some, in an attempt to beat the competition, price their products too low to generate enough profits to continue operations. Others place so much money in product development that they run out of budget for effective and wide-scale marketing. As a result, they are unable to sell good products and gain revenue.
38% of startups fail because of poor financial decisions. They either run out of money or fail to raise new capital. (CBInsights, 2021)
Mismanaging operations is also a common culprit for failure. Operations define the cycle of your business. And the people who handle them hugely impact how streamlined and effective operations are.
Incompetence can easily lead to many errors, repetitive processes, and wasted resources that can cost a business a lot of money.
As such, it is important that you hire the right people for the right job. At the same time, offering employees and/or team members satisfactory compensation and benefits allow you to keep and nurture the people that keep your business running.
According to a CBInsights report, 14% of startups fail because they have not organized the right team, while 7% fail because of problems among teams and investors.
Without proper budgeting and balancing of priorities within operations, failure is an eventuality.
An example you could learn from is Solyndra, Inc., a company that produced solar panels. It was once a very promising Silicon Valley venture. It even got a $535 million loan guarantee from the Obama administration. However, it later declared bankruptcy.
Prices for solar panel raw materials plummeted, allowing its competitors to create cheaper alternatives to their products. Solyndra was not able to keep up. Not only that, the company was found to have spent extravagantly on inessential additions to their plant including spa-like showers and conference rooms with glass walls. Financial and operations blunders due to poor management led to its downfall.
Learn from failure: Plan your finances from the get-go. List all your operating expenses and overhead cost. In doing so, you can arrive at the correct product pricing that would allow you to generate enough income to achieve a return on investment (ROI) and earn enough profits to continue running and growing your business.
3. Failure to do market research and apply a fitting marketing strategy
Marketing is selling your products to your market. And the process should start as early as in the product development phase, specifically during market research.
Market research results identify what your market wants and demands. It is an important process that decides whether or not you come up with a hit product or service. It also guides other phases of operations including the direction of your marketing campaigns and how you provide customer service and logistics.
But market research also doesn’t stop at product development. It is a continuous process that keeps up with the changes in your target market.
Startup founders who become lazy with their market research jeopardize their entire operation. Neglecting to do proper marketing research can lead to an ineffective marketing strategy that:
- targets the wrong market;
- offends sensibilities;
- functions illegally; and
- fails to sell your products and generate profit.
An effective marketing campaign is one that is guided by market research and which revolves around product-market fit.
Results of interviews conducted by Failory revealed that 22% of businesses do not succeed because of marketing mishaps.
Remember when Pepsi got flak for their ad involving Kendall Jenner getting between Black Lives Matter protesters and the police, offering the latter a Pepsi? That cost the company. In the same year, Pepsi’s brand value decreased by 4%.
Now 4% doesn’t seem like a huge number but for a company as big as Pepsi, 4% translates to millions of dollars. That’s a lot of money. A small business experiencing the same negative publicity due to a failure in market research and strategy may experience bigger consequences such as a complete shut down of operations.
So be careful as you’re starting a blog, doing email marketing, creating a Youtube channel, posting on social media, and generally creating marketing content. Each piece of content you put out has consequences, whether good or bad.
Learn from failure: Get to know the people you want to buy your product or service. Find out their sex, age, location, habits, and culture. Create a buyer persona for your target audience and build your marketing strategy from it. Present your products in a way that they find appealing, in a time when they are most inclined to buy, and on a platform that is convenient for them to make transactions.
4. Failure to care for existing customers
Many businesses become too focused on getting more and more leads while failing to realize that they can get more from their existing customers. Instead of giving incentives, priority, and full customer aftercare services to customers who already patronized the brand and are known to have a purchase interest, they try to sell more to new customers, with fewer chances of success.
As a result, existing customers feel neglected, leading to a loss of interest in the brand. Worse, it could lead to flak against the brand through word of mouth and reviews from disappointed customers
Did you know that businesses have a 60% to 70% probability of selling to an already existing customer while they only have a 5% to 20% probability of selling to new leads based on Marketing Metrics?
Bolstering this finding is NewVoiceMedia’s report stating how businesses lose $75 billion dollars because of poor customer service that results in 67% of customers switching between brands instead of becoming loyal patrons. This huge percentage can easily result in startup failures given how new ventures generally have a harder time reaching potential customers.
Learn from failure: Provide customer aftercare to show your appreciation for patronage and to encourage existing customers to buy again. Conduct surveys about their previous experiences with you to get real insights about your products and services. Those are the keys to better business planning and product development.
5. Failure to adapt to change
With the world continually changing and technology developing nonstop, a business should be flexible enough to change and innovate with it. Failure to do so will result in a business being outdated, inconvenient, and ultimately, unpatronized.
20% of startups fail because they are outcompeted (CBInsights, 2021).
Let’s take the story of the Vine, for example. Vine can be considered a pioneer when it comes to short-video platforms. It let users create 6-second video clips with great success, resulting in many a meme especially during 2014 when it peaked in terms of popularity.
However, as competitors started to create their own short-video features, including Instagram video, Snapchat, and TikTok, it failed to innovate against the competition. It retained stale features regardless of the changing demands of its market while others continued to improve on their services, adding filters, animations, and more. In 2016, the mobile app was shut down.
Learn from failure: Keep track of the latest trends in your industry. Read the news, attend seminars and industry events, and learn new skills. At the same time, try to innovate your own business and become an industry leader. Do so by continually aiming to address the changing needs of your target market.
An entrepreneur who never gives up never truly fails
As long as you keep on trying, failure is temporary and success is a possibility. It is only when one has stopped putting in the effort and has thrown the white towel does one truly fails for good.
However, repeating the same mistakes and asking the same questions on how to avoid business failure will not lead you to success. Be smart every time you take risks. Use your experiences as teachers that will guide you to better business strategies and performance. As Henry Ford said,
“Failure is simply the opportunity to begin again, this time more intelligently.”
And it’s true. Every failure comes with a lesson that may just be what makes your next venture successful.
Learn from failure and plan for success with Cafe24
Is starting an online business hard? As in any other business, the answer is yes.
In bringing your online business ideas to life, you should be open to failure. But should you experience it, that failure should not be the end of the road. Instead, it should be a new starting point.
And if there’s one thing it teaches you, it’s that planning ahead and teaming up with the right people and experts will help you succeed.
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