New Businesses Foreordained to Failure

In this rapidly changing world, it’s comforting to know that some things never change. They are as immutable as the Rock of Gibraltar, as permanent as the sands of the Mojave, and as unalterable as the seven seas and stars above.

Want an example? Try new business failure rates. The percentage of new businesses that go belly up is high today, and likely was high shortly after Adam and Eve went after the low-hanging fruit. Depending on what statistics you believe, either nine of every ten new businesses these days expire in infancy, or 50 percent of them are gone within four years. Either way, as he shreds his business cards, the dazed failed entrepreneur is left with one question: Would he have been worse off hanging out his shingle or suffering a case of shingles?

Reasons for new business flameouts are numerous. Failure to understand their customers, the dearth of a unique selling proposition and inability to correctly surmise whether folks will buy the product or service are all factors in the premature demise of many new businesses. So are poor locations, lack of capital, ill-conceived business plans, bad marketing and finance strategies, and the unwillingness of key outside salespeople to regularly apply deodorant.

Failure Was in the Cards

When sizing up a start-up. venture capitalists tend to ask more questions than a three-year-old. Many of the questions concern the character of the entrepreneur at the helm of the company. There’s good reason these questions are asked.

Based on what I’ve seen, heard and read about new business failures, I have to believe that many of them are 100 percent foreseeable. All you have to do is probe the founder’s performance over time not as Mr. or Ms. Start-up Launcher but as John or Jane Q. Public.

If the entrepreneur launching the business is constantly battling personal credit card debt, is there any reason to expect his company will operate in the black? If the individual behind the launch doesn’t research savings accounts rates or best credit cards, could we expect her to conduct other forms of due diligence? If the pair with their names on the business plan love the high life, where’s the evidence they will show the fiscal restraint to maintain low business expenses?

Before You Sign

Let’s say a friend or relative comes to you with the request you invest in his or her fledgling company. Before eagerly grabbing for your checkbook and pen, it might be wise to size up the would-be entrepreneur’s everyday traits.

Be especially cautious if you see the following behaviors before the enterprise is established, which may lead to the following dismal results after launch.

Before: When driving anywhere, the aspiring entrepreneur races to red lights, then slams the brake pedal through the floorboards and skids 400 feet to a halt. After impatiently waiting out the light, he leaves other motorists in a gassy exhaust cloud, rocketing away from the corner like a latter-day A.J. Foyt.

After: This individual stands a good chance of being the future business owner who, after finding his company in Chapter 11 bankruptcy court, laments his inability to keep costs in check. “All those little nickel-and-dime expenses!” he will be heard to moan. “I just could never get a handle on ’em!”

Before: This potential company founder has always had an unfortunate tendency to be too trusting, leading acquaintances, strangers, friends and family members to take advantage of her. That’s one reason her husband left her for a traveling carnival acrobat several years ago.

After: As she announces plans to shutter her company, the trusting failed owner bemoans her failure to check references and the accuracy of resumes. Had she only done so, she says, she never would have tabbed notorious check-kiting grifter “Eddie the Embezzler” to oversee accounting.

Before: This entrepreneurial hopeful has always insisted on the newest, largest and most dazzling consumer goods on his block. He’s the first to shell out for each new generation of big screen TV, trades in his Smart Phone each month as the latest updated version is introduced, and his chef’s quality backyard grill is substantial enough to have fed the 151st infantry.

After: In the wake of the big spender’s business being boarded up, a former customer will be overheard commenting, “Y’know, I think he had a pretty good company and I liked his product. But did he really need to advertise on the Super Bowl and take out retail space in a skyscraper? I mean, he owned a hot dog stand, for God’s sake.”

Before: This future business owner is glued to her mobile device 24 hours a day, taking it with her to bed and into the shower. But the place she’s most likely to be seen peering at it is behind the wheel while driving 45 to 80 miles an hour.

After: Sizing up the failure of her company, she will later admit she took her eye off the big picture, getting too involved in little inconsequential details. The months she spent in traction after auto accidents didn’t help either.

One Response to “New Businesses Foreordained to Failure”

  1. Anonymous

    I think the key is preparation. People have no idea how much hard work running a business really is! A product or idea is not nearly enough to act on alone.

    Jay

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