Confident entrepreneurs are often eager to launch their new ventures to capitalize on a brilliant opportunity before competition emerges. However, new entrepreneurs can significantly improve their prospects for success if they start by researching technical feasibility, verifying buyer interest and understanding the competitive environment. Most business failures could have been avoided by impartially evaluating the magnitude of the value proposition and devising a feasible plan for success. Why Entrepreneurs Fail
Limited Understanding of the Value Chain
Value chains can change rapidly because of their dependence on hundreds of interrelated firms. Entire industries can be revolutionized overnight as new companies disrupt established norms. Partner firms can shift their focus to new fields or go out of business. Disruptive technology can force businesses to adopt new processes to remain competitive in the marketplace. Entrepreneurs who fail to carefully monitor the value chain could experience difficulty adapting to the dynamic nature of the real marketplace.
Losing a Key Partner
Some businesses are dependent on the resources of just a couple of partners. The loss of a key partner could undermine competitive advantage or force a business to close. Entrepreneurs should have contingency plans that account for the loss of critical partners. The availability of alternative channels can also reduce the ability of key partners to take advantage of their invaluable position in the value chain. Although many partners remain reliable for extended periods of time, entrepreneurs should never ignore the risks associated with losing a key partner.
Failure to Target True Buying Motives
New firms often fail to build traction because of their inability to address the ultimate buying motives of customers. For example, a business that sells affordable office chairs might mistakenly focus on advertising their friendly customer service. Although support is always important, most utilitarian customers are focused on low costs and financing offers. Focus groups would quickly reveal that expensive support services would increase the total cost of ownership and fail to add additional value. Developing close relationships with customers can help businesses to tailor their offerings to meet the needs of buyers.
Insufficient Preliminary Research
Many new entrepreneurs fail because they exaggerate the value that their position can add in the marketplace. Research can reveal underserved market positions that entrepreneurs can exploit to add more sustainable value. Preliminary research can protect entrepreneurs from investing resources in saturated markets with excessive competition. Initial market projections can prevent future capital shortfalls. Interviews with prospective customers can help forecast demand and verify sufficient customer interest to justify proceeding. Entrepreneurs who objectively research their proposed ventures can prevent wasting resources on opportunities that are unlikely to succeed.
Picking a Bad Location
Most businesses are dependent on their location to add value to customers. Retail businesses located in an inconvenient location could permanently experience difficulties attracting customers. Technology companies should operate near key partners, important customers, and skilled workers. Industrial firms must ensure that their production facilities can be scaled to meet dynamic changes in prevailing demand. Many businesses are unable to end their lease contract after discovering a problem with their location. Entrepreneurs who can pick profitable locations can earn a strong competitive advantage over rival firms.
Key partners must possess sufficient expertise and interpersonal skills to ensure the sustainability of their positions in the value chain. Some entrepreneurs find their partners unable to carry out their responsibilities after launching a new venture. Competent partners might lack the discipline to reliably manage their obligations to the overall organization. Partner firms might also exaggerate their industry expertise in an attempt to close the sale. Entrepreneurs must find ways to ensure that their prospective partners are qualified to complete their responsibilities.
Ignoring Legal Realities
Business concepts that are illegal could be subject to severe civil and criminal liabilities. Some entrepreneurs depend on the current legal status of an unethical practice as their exclusive basis of competitive advantage. Legal uncertainty can cause investors to question the sustainability of a proposed enterprise. Customers could be unwilling to purchase unethical products or services. Some businesses can acquire a bad reputation after the exposure of their unethical practices. Qualified attorneys can often advise entrepreneurs on the likelihood of future legislation that could eventually outlaw essential business practices.
Failing to Innovate
Some entrepreneurs can experience a false sense of security after realizing moderate success. Complacency can present opportunities for competing firms to take market share by advancing innovation to a new level. Entrepreneurs must constantly seek to improve their products and services to maintain their prospects for future competitiveness. Successful entrepreneurs can maintain their market position through ongoing investments in product research and by nurturing an entrepreneurial work environment. Acquisitions can sometimes be an effective way for established businesses to maintain their dominance. Entrepreneurs should seek perpetual innovation to ensure the sustainability of their market position.
Established Firms Entering the Market
New entrepreneurs usually lack the resources to compete with established rivals. A lack of differentiation could encourage established firms to compete with an entrepreneur in the same field. New businesses that compete in transactional markets could have difficulty competing with established firms that produce complementary offerings and enjoy established brand equity. Prospective entrepreneurs should devise strategies to keep strong competitors out of their niche. Partnerships may be necessary to prevent direct competition with an established rival.
Entrepreneurs who fail to conduct adequate market research often underestimate the capital requirements of a prospective business venture. Lack of capital is one of the primary causes of business failure. Therefore, entrepreneurs should not be afraid pursue new opportunities when investors are unwilling to offer enough capital to seize a market opportunity. Persistent entrepreneurs can modify their value propositions to adopt more feasible approaches to an opportunity. Entrepreneurs can always return to investors with an improved proposal after developing a new plan. However, entrepreneurs should never launch a venture that fails to acquire sufficient capital to prevent failure.
Entrepreneurs who understand how to avoid failure can substantially reduce their chances of experiencing losses. However, all business activities require some degree of uncertainty. Innovative entrepreneurs should not be afraid to take reasonable risks to achieve their goals. The ability to strike a balance between risk mitigation and innovation paralysis is what separates successful entrepreneurs from complacent dreamers.