How to Avoid the Seven Biggest Causes of Business Failure
You’ve probably never seen or heard anyone identify the TRUE reasons for nearly all business failures. In my opinion, university courses and statistics published by the government can be very misleading.
I could have easily titled this post “What They Don’t Teach You About Business Failure at Harvard, Yale or Stanford.” Instead, I’m going to reveal to you the biggest causes of business failures and how to avoid them from my perspective.
1. Falling in love with the product first, with the marketing second. Love’s going to getcha! You have to do the opposite in order to have success. Smart entrepreneurs identify the market first. Then they create the product focusing on their ideal prospects.
You must find out whether people actually want your product, can or will pay for it, and how much. The best way to find out is not a focus group or survey but an actual market test.
2. Image focus. A fancy office with high overhead or an expensive logo will not equate to your success. It could drive you out of business fast, as many people painfully discover.
Tip: Keep your overhead low. Operate from a home office or very modest one when you start out. Most of your prospects could care less. Carefully invest every dollar in your marketing. This dramatically increases your chances of success.
3. Business model too complex. Keep it super simple. The best business models are simple. Employees, suppliers, and customers should be able to immediately understand the nature and goals of your business.
4. Bad business partnerships. Many people rush into partnerships with little knowledge, communication, or diligence. A bad business partnerships is tougher to make work than a marriage. Most fail in misery and bankruptcy. And to make matters worst, lifelong friends often wind up hating each other and estranged forever.
Tip: Avoid partnerships completely if you possibly can. However, if you have strong business reasons to form a partnership, make sure right from the start you know your future partners strengths and weaknesses. Most importantly, clearly define in details exactly what you and your partner will be responsible for in the business.
5. Being a pioneer with a new product or industry. This can be tempting to some people, however you must resist this tendency as well. Only a few are successful, and most fail. Businesses that are radically different from existing known businesses can even scare off customers rather than attract them.
Tip: You don’t have to be king of the wild pioneer. Instead, simply do something far better, faster and cheaper than existing businesses.
6. You and the business are driven into bankruptcy by a lawsuit. You can be fully and personally liable in the event of a lawsuit which goes against you. And lose all your assets, including your home, savings, cars, etc…
Tip: Never operate a business without the protection of a corporation. Operating through a corporation gives you a “corporate shield.” You actually keep your personal liability limited to whatever assets you choose to put into your business. Worst case, in the event of a lawsuit you can simply fold your corporation and start another one.
Talk with a good lawyer and accountant to discuss your personal situation including tax aspects. You can probably eliminate close to 100% of all potential legal threats which could go against your personal assets.
7. Divorce. Untold businesses come to a halt each year when marriages fall apart. In most cases financial disagreements wind up in court.
Tip: Before getting married and no matter how unlikely it may seem at the time, have a good attorney prepare a prenuptial agreement which spells out exactly what will happen in the event of a divorce.
Avoid the above pitfalls and your path to business success will become much smoother than you could ever imagine.
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