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Succeed By Addressing The Root Cause Of Start-up Failure

Thousands of promising start-ups flounder every year because business owners make a few basic errors right at the start. Avoid them, and greatly improve your chances of success.

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Thousands of promising start-ups flounder every year because business owners make a few basic errors right at the start. Avoid them, and greatly improve your chances of success.

Guides

Succeed By Addressing The Root Cause Of Start-up Failure

Thousands of promising start-ups flounder every year because business owners make a few basic errors right at the start. Avoid them, and greatly improve your chances of success.

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Studies have consistently shown high failure rates amongst start-ups. And in a recent survey entitled ‘Growing Pains’, by insurer RSA, the number of UK businesses surviving up to five years is fewer than 50% and figures have worsened in the recent past, despite improved economic conditions.

Interestingly, the report cites taxation, bank lending and high costs as reasons for failure. These are no doubt important factors. But if your business failed, how likely are you to hold your hands up and admit you were the main reason your start-up, stuttered, toppled and eventually hit the ground and bit the dust?

In my experience, so many business start-ups fail because from the outset the business owners love their product too much and pay way too little attention to the market. Research is treated as a sideshow rather than the main show, even though robust market intelligence is required to inform so many decisions, especially in the early days.

Story of simple errors

The majority of people starting out in business fall into a common trap and go onto make the same few but fundamental errors that result in failure. Here’s how the story typically goes…

In the beginning a wannabe start-up comes up with what they think is a sound business idea. In their own head they nurture this thinking and tell a few close friends and family about their secret plan. Not wanting to hurt any feelings, feedback is typically supportive and subjective.

"Start-ups love their idea and don’t want to hear objective views that may cut across their thinking"

Based on their original idea, the start-up makes plans, develops their product or service further and layers on additional thinking. A business advisor may be engaged but the relationship between the two people is insufficiently strong for the start-up to make any serious changes to the business model or trajectory.

The start-up is required to complete market and competitor research for a business plan so that funding can be accessed through a bank, angel and/or investor. Data is quickly gathered to prove the validity of the original idea and some or all of the finance is released.

Despite the start-up working incredibly hard, sales volumes never hit forecasts. Gradually the owner’s energy and enthusiasm for the business ebbs away. Within five years (and often much less) the business fails. The End.

sales

No one ever expects this to happen when they start a business

What goes wrong

The main trap is that start-ups love their idea and don’t want to hear objective views that may cut across their thinking. It’s only natural and fun to work on what you love rather than seek the views of and listen to people who might disagree with you. But in terms of business, this thinking is fatal.

As a result of working without sound market intelligence, people make flawed assumptions which ultimately lead to bad and very costly decisions about how they are going to market and sell their wares. Unfortunately, business is cruel and a product or service that is incorrectly shaped for a market won’t sell well enough or won’t sell at all.

Solutions

When thinking of starting in business, the place to start is not simply an idea, product or service. The place to start is a solution to a problem. And when you think through possible solutions it’s critical that objective feedback is gained from people who have indirect and direct experience of the problem so that the issue can be fully understood.

It is extremely rare for a real business opportunity to show itself; instead they exist in niches and hidden places that require digging and careful exploration. Let’s take a look at 3 examples as to the kind of information that has to be gathered in different industries.

Retail store: If you are thinking of setting up a shop you should talk to people who might buy the products you will sell, but you also need to understand footfall at the proposed site(s), retail and online competition, the local high street economy as well as issues connected with access, cost and pricing.

Invention: If you are thinking of launching a new gizmo, build prototypes as cheaply as you can with a view to talking to as many people who are mostly likely to use it. The reaction you receive will say so much. Are people curious, excited, amazed or desperate for you to get it on the shelves, or do they just think it’s nice. Based on what you learn, review the prototype and repeat and/or test the idea with a different market.

Service: If you are thinking of creating a new service-based business in a competitive market, you will want to talk with potential customers and observe competitors closely to identify where the USP (Unique Sales Proposition) opportunity lies. Research will identify how you can differentiate your offering so that you stand out in the crowd. If you can’t identify any real USP consider engaging a different market segment.

accounting

Research is the saviour of businesses everywhere

Recommended reading

Thinking about a solution to a problem and completing thorough market and competitor research is the key to creating a successful business that has the best chances of growing. It may feel unnatural and even uncomfortable at first, but working with potential customers pays dividends long-term.

In 2015, Diana Kander wrote a bestselling book that I strongly believe all entrepreneurs should read. Laced with detailed and clear advice, ‘The all in Startup’ is a fast-paced novel about a man who falls into the product-loving trap but learns how to turn his business around.

Peter Harrington is the founder of business-simulation programme SimVenture

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Succeed By Addressing The Root Cause Of Start-up Failure

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