Entrepreneurship has been glorified by conferences, media stories, biographies of successful entrepreneurs, and events like ‘entrepreneurship week,’ ‘business plan competitions,’ and ‘entrepreneurship awards.’
Business schools have developed inspiring spiels about becoming an entrepreneur and many governments around the world have made entrepreneurship the centerpiece of policy. Being a successful entrepreneur has unintentionally been portrayed as something easy where some may believe that success could just be around the corner. It’s important to get the record straight here.
No matter how glamorous entrepreneurship is made to look, the reality is so very different. Research around the world shows that most new enterprises don’t last very long. Only around half of new enterprises formed in the first year survive, with less than 10% lasting over 10 years.
That’s the bad news. But there are reasons for this. If you know the reasons then maybe you can be one of the enterprises that survive, and better still – flourish.
1. Avoid Crowded Business Fields: The major reason why most businesses fail is because they go into very crowded business areas that are extremely fragmented. This means that most new businesses try to copy what others are doing, a factor that makes it difficult to grow beyond your immediate neighborhood. So many people are doomed from the start and struggle to make ends meet until they just give up.
If you decide to do something new, the fact is that around 80% of new products and services fail. Look around you, how many new restaurants survive past a few months, and even if they do, they struggle. Chances are the restaurant is doing the same things others are doing, or at the other end providing something that people may not be ready for. For those of you of my vintage, you may remember long it took color television to become used in homes. It took a few years for people to accept the product and now almost every home has a color television. Although initially cost had a lot to do with it, it takes time for consumers to accept new products. The Wright Brothers did not benefit greatly from their adventure, it took a couple of decades for aviation to become accepted in society – ironically war bringing on potential uses, spotting and bombing. The automobile was the same, and the personal computer likewise. Not all inventors/entrepreneurs are that persistent. Sometimes it takes a long time to get above break-even point. New products need to provide value that people will be able to see and accept, and that requires time. It’s not easy to do.
2. Don't Mistake Aspirations for Opportunity: Many people mistake their aspirations for opportunity. For example people put their money and efforts into a boutique, restaurant or spa for the wrong reasons because they like fashion and shopping, food and cooking, or aromatherapy and massage. Perception of a potential business opportunity is influenced by their likes and desires. This is not really an opportunity at all and can be dangerous if one is unaware of this trap.
3. Experience: Another common reason for failure is just lack of experience. When you open a business in a very competitive environment with little opportunity for high growth, you need to be a very skillful person. Research shows that the more experience a person has the less likely they are to fail. Many successful people learn from previous failures and develop the wisdom they need in subsequent ventures they participate in. Many successful new enterprises are actually started by people who are already in the industry or know the elements of the business very well.
Many businesses are just poorly run, where mistakes are made either due to inexperience or poor ‘diligence’. Some of the common mistakes occur through lack of marketing, expecting sales to self-generate, competing on price unnecessarily, selecting markets that are too small, overestimating the ability to penetrate the market, lack of technology, providing poor customer service, failing to make decisive decisions, and failing to mange funds and cash-flow prudently. Founders also have the tendency to get ‘bogged down’ in administrative matters when they should be guiding the strategic direction of the business.
So how do you avoid being one of these failed businesses?
Firstly try and find a business area where there is little competition and where customers will appreciate new forms of value. Secondly learn the ropes of the business, all the technical aspects. You don’t want to be in the position of opening a restaurant where the chef just before opening asks for an increased salary. You have to be able to do every job yourself, if necessary. You have to know how to learn on the run. Be prepared to climb that steep learning curve quickly. Ask yourself everyday – What did I learn today? Finally don’t become a perfectionist. Perfectionists are slow movers, you have to move on things quickly – hesitation killed the cat. Learn how to blend in perfectionism with practicality and you will master your business.