Top Three Reasons Why New Businesses Fail and What To Do About It

Smiling new business owner of a cafe.Starting a business? Good – keep reading. This is information every soon-to-be-entrepreneur needs to know, EVEN IF, you’ve already owned a business.  Since 1999, I’ve consulted for hundreds of entrepreneurs, and taught lectures for literally thousands.  In that time, I’ve certainly observed a few things about why and how people succeed, and why and how people fail.  My job is to help people succeed in making their dreams a reality.  I want to share why people fail so you can avoid that and create that successful dream.

To start, let’s just acknowledge some truth here.  Almost every entrepreneur is filled with wide-eyed enthusiasm, energy and optimism.  These are powerful gifts that fuel dreams and turn them into realities.  However, there is a dark side to those gifts – one that can bite that entrepreneur later because critical things get overlooked and missed. Instead, it’s better to be filled with cautious and questioning enthusiasm, double the energy you think you’re going to need (and then double that again), and instead of optimism, pragmatism.  I aim to help you with that here. Let’s dive in.

The main three reasons why new businesses fail is because they are:

  1. Under-Funded
  2. Under-Planned
  3. Under-Marketed

It can literally be any combination of the above, or all three.  Remember: Planning leads to questions, questions lead to answers, and answers lead to proper funding (or timing) and even more planning.  It’s a cycle, and if you keep asking questions, you’ll organically know when you’re done and ready to lay the foundation for a successful business.

When it comes to funding and planning, it’s important to understand that a proper plan will help you allocate proper time and start up resources to get your business started with the most advantages possible.  You might discover you need more money than you thought.  Good!  Better to know that before you leap, versus when it’s too late. You might discover you need more time before you can open or go to market.  That’s good too!  You have more time to prepare and start properly, than too quickly and make mistakes.  The entire point of a business (and marketing) plan is to discover as many landmines as possible BEFORE jumping in so you can avoid them and create the best chances of success for yourself.  Plan, question, revisit, and repeat.  This will help you to have the right amount of money and the best plan.  So what about the marketing component?

The Criticality of a Marketing Plan

Unfortunately, too many people don’t really carefully consider what it will take to build a proper marketing plan and then execute.  For those that don’t know, it’s a critical part of the business plan itself; it’s a plan within a plan.  The purpose it serves is to answer the questions – where will my income come from?  How will I get customers?  How will I get the word out there?  How do I build demand for what I’m building?

So if a marketing plan is so important, why doesn’t everyone carefully consider, build and execute it before starting their business?  The reasons are quite human: many people undervalue the impact of marketing, they don’t know what it can do, they don’t know what they need, it’s not their core competency so they ignore it, or their ego is so big that they think “build it and they will come” (sorry, no, they won’t).  So then here’s what happens to those businesses after they start without a proper plan and execution:

  1. immediately fail (common)
  2. fail after dragging the entrepreneur down into the depths of hell (yep, common too)
  3. eventually somewhat succeed but after a lot of struggle (very common for success stories)
  4. succeed right away out of sheer good fortune (rare, but it does happen – do NOT plan for this)

The Plan Itself and Budget

You can breathe a sigh of relief because those outcomes do not have to be your fate.  There are so many marketing companies out there that will build a marketing plan for you, for free, in the form of a proposal. You have nothing to lose in soliciting multiple marketing companies to receive a plan, and a corresponding budget. One smart thing to consider, in order to compare apples to apples, and create the best outcome for yourself, would be to get 3 to 5 plans, compare the common elements, and then average out the responses.

Another option to consider would be to hire a reputable marketing consultant or company (like us!) to build a custom in-depth plan for you to fit into your business plan.  Someone hired will put more effort into your plan, and will spend more time getting to know you versus the previously listed option.  Either option is a solid choice, with pros and cons to each.  There is no wrong way – there is only the best way for you.  I would suggest looking at both options.

If it were me, I would hire the consultant/company to set the baseline and use that as the benchmark for which to solicit the marketing companies’ opinions/proposals/bids.  This way, the marketing plan is in-depth, tailored, and isn’t biased toward one company’s methods or beliefs, and I could compare not just apples to apples, but Granny Smith apples to Granny Smith apples.

Ramp-Up Time

Having a proper runway for an airplane to take off is important for an airplane so it doesn’t stay grounded – or crash and burn.  The same is true of your business’s need for a proper runway to launch your marketing efforts.

Let’s say it’s February, and you know you’re going to open your business in August, and you’re opening a restaurant. Start your marketing in February. Yes, really. That seems really early or perhaps even grossly premature, but it’s actually a luxury and a gift to have all that time! The point is to build demand, for something people can’t have just yet. Curiosity is a powerful tool that is not leveraged nearly enough. You always want people to want something they can’t have. It’s the basic law of supply and demand.

Think of the lines outside Apple stores when the new iPhones come out!  They start marketing months ahead of time with rumors, announcements, media, social media and more.  Apple sells out of iPhones on their first day, often.  It’s no accident – they plan it that way on purpose.  No company understands supply/demand and building up excitement before people can have something better than that company.  So, be like Apple.  The longer you have time to get people excited, the bigger the groundswell of excitement and pent-up demand you’ll have when you finally do open up shop. This is critical.

The areas to consider in your ramp-up time the strongest will be: any and all publicity, branding efforts, and social media. You’ll want to use the power of the people and word-of-mouth to get the word out there.

In terms of schedule, let’s put this on a hypothetical timeline:

  1. Month 1, come up with business idea
  2. Month 6, complete business plan
  3. Month 8, complete marketing plan
  4. Month 9, secure lease on real estate, begin marketing program with branding, publicity, establish social media
  5. Month 10, begin construction, intensify marketing efforts with publicity and social, build demand
  6. Month 14, soft opening, media blitz, social media blizzard
  7. Month 15, grand opening, regular marketing programs kick in

There are clearly variables here, such as how long it will take you to complete your business plan, your marketing plan, whether or not you have construction needs, and what kind of publicity you’re going to require.  This is just an example, though a realistic one pulled from a real business we’ve worked with.

Bottom Line

Do not gloss over the criticality of a marketing plan, and proper budget.  Do not scale back your efforts and be cheap – this is not the time.  Instead of saying “I can’t afford it,” change your language to “How can I afford it?”  If you need to find more money – DO IT.  Do not underfund your marketing program.  It is wiser to start later but properly, than to rush and make mistakes!

Finally, do not underestimate the power of the ramp-up time.  The more time you have, the better, and oftentimes, the proper budget and plan will establish those needs long beforehand so you can afford to things the right way from day 1 instead of scrambling and wishing things had turned out better.

Have Questions?

Do you have questions about this article, your business or marketing plan?  We’d love to help.  Yes, we do marketing plans, and we can help you structure yours properly, and explore questions you may not know you need to ask.  Please call us any time at 508-754-3643.

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About the author : Vision Advertising

Vision Advertising is a full-service marketing agency enhancing the online brand presence of business-to-business and business-to-consumer companies across the US. We focus on providing custom marketing services to address unique client needs, customer profiles, and budgetary concerns, created in-house by our team of skilled marketing specialists. This author profile is used for deattributed posts or when content is posted to this blog without comment.