What do Bill Gates, Henry Ford and Dave Ramsey all have in common? Despite their phenomenal success, each failed at business before becoming wildly successful. And they’re not alone; many famous entrepreneurs initially failed in spectacular fashion. But persistence pays off: The U.S. Census Bureau reports that nearly 16 percent of business owners who have paid employees previously started other businesses, and Harvard Business Review says the average age of a successful startup founder is 45.
A failed business does not mean you’re doomed to failure. In fact, it can prove to be the best business education you can get. The key to getting it right the second (or third or fourth) time around is to learn from past mistakes. Here’s how to learn from yours, so you can make your next startup a roaring success.
Why startups fail
CB Insights analyzed 101 failed businesses to identify why startups fail. Five of the top reasons are:
- No market need
- Lack of cash
- Wrong team
- Poor marketing
Do any of these sound familiar? If so, you’ve already learned a lot.
How to solve second (or third or fourth) startup challenges
Find success in your new venture by identifying the reasons your previous business(es) went belly up. Here’s how to tackle five of the most common challenges.:
1. No market need
Many entrepreneurs rush into what they think is a great idea without first validating it. Before you take your next leap, conduct market research to prove you have a viable product.
One strategy is to conduct surveys designed to prove or disprove the validity of your idea. If survey responses seem to indicate you have a sellable idea, take it one step further: Set up a “coming soon” landing page with an email subscription form for people who want to be the first to know when your product is available.
Take out targeted advertising (Facebook is one option) to promote your landing page. You can start by investing $50 in ads and scale if needed to get more results. Then, analyze the results to determine how many people in your target audience want to buy your product. Though this strategy isn’t foolproof, it’s a cost-effective way to gauge interest and simultaneously build an email list you can use to market your product when you launch.
2. Lack of cash
Cash flow projections are a major part of business planning, yet they’re difficult to do: What unexpected expenses are you failing to account for? And how quickly can you earn enough customers to cover overhead (and pay yourself)?
Solid research will help you estimate overhead, but without accurate revenue projections you can’t know how long your startup cash will last. Estimate wrong, and you’ll run out of money before you can turn a profit.
Solve the problem by working with SBA advisers and SCORE mentors — both free resources — who can help you develop realistic projections and account for unexpected costs.
Resist the temptation to spend on unnecessary items. Work out of your home if you don’t need a storefront. If you can get by with your desktop printer, skip the expensive copy machine for now. Instead, invest your effort in the most critical things you need to do to grow your business: sales and marketing. Customer acquisition generates revenue, and the only way to be successful is to yield income that outpaces your overhead.
Keep your product simple: Develop a minimal viable product now and wait until you’ve achieved success to add new features. You don’t need to solve every one of your customers’ problems out of the gate. You only need to solve one, and do it well, so you can operate a lean business focused on sales. Find customers now and focus on new product features and office space later, similar to how Ellen’s Bridal Boutique waited four years to launch branded retail packaging.
Another small business survival tip? Build an emergency fund. A healthy emergency fund should be able to cover three to twelve months’ worth of expenses.
3. Wrong team
Choosing business partners, employees, agencies, contractors and freelancers isn’t an exact science. Often, the best sales pitch wins regardless of qualifications, but this can lead to mismatches that doom startups to failure.
Carefully vet potential team members before bringing them on board. Look for real-world experience and a track record of proven results. If you’re considering taking on a partner, take a deep dive into their personal life and personality traits. Can you work with them? Do they share your work ethic? Do they make questionable decisions, or do you admire them? And, do you have complementary skills?
If you’re seeking investors, don’t take anyone who will open his/her wallet. Make sure the potential investor understands your vision and has the patience and willingness to let you see it through. Investor arrangements vary and investors deserve to know what you’re doing with their money, but relationships can quickly sour and businesses suffer if you’re not a good fit.
You might have a stellar idea, but you’re in a crowded space. How can you best competitors who are already successful? You don’t want to copy their efforts or compete where you can’t win.
For example, if a competitor is known for discount prices, it’s going to be difficult for your startup to offer better prices and stay in business. They already have the volume of business necessary for that business model to work, and they’ve probably built systems that can undercut you in a flash.
Instead, study the competition and identify what you can do different and better. How are you uniquely positioned to solve your customers’ problems in a way competitors can’t? This is your Unique Selling Proposition (USP), and it is the foundation of your brand.
5. Poor marketing
Don’t underestimate the power of sales and marketing to your startup success. If you’re not marketing your startup, you can’t acquire customers and you won’t stay in business long.
Make sure your marketing is on-target by identifying who your audience is and where you can reach them: direct-mail marketing, outdoor marketing, social media, email marketing and branding via promotional products are all valuable outlets.
Promote your USP on all your marketing materials and set a marketing budget with clear and measurable goals for leads and sales. Test different marketing strategies until you find one that works. It’s OK to start small, then scale your efforts once you taste success.
Remember our Facebook-to-landing page-to email subscription idea? It’s a cost-effective way to test your marketing until you find a combination of product, offer, copy, design and call to action that yields a high response rate. Those who test stand a better chance of success.
A failed business doesn’t mean you’re doomed to repeat your fate. Apply what you’ve learned from past mistakes, so you can avoid common pitfalls and make your new venture a roaring success.