Why do most entrepreneurs fail?

failure

Here is a YAL (Yet Another List) for founders to pore over. There are several problems with the list format. For one there is implied importance in the order list elements are presented, with importance normally perceived as from top down. But the magnitude of the vector is seldom present. Each element is presented and described as if it were just as important as all the other elements. Often far from true. Each element tends to get the same amount of “air time” – which many times is not warranted. There’s a tendency to trade in certain number of elements, such as “top ten” lists. Ok, as you can see I’m suffering from list overload. Check out FlipBoard if you would like to join me. While I have nor done a study my informal reading is that lists are the dominant format of this news aggregator.

Ok, so why present YAL, then? Well founders are busy, the don’t have a lot of time to read. Lists break big subjects – like why most entrepreneurs fail – into small, easily digestible chunks. Some list elements may even be memorable. Lists lend themselves to being updated on a regular basis – top ten startups of 2019, etc.

So here’s a YAL which I think is important for founders: Pasha Carter’s 11 Reasons Why Most Entrepreneurs Fail from the Forbes Coaches Council. I’ve annotated this list based on my own experience.

1. Not Having Enough Money

Duh! And the main reasons why there are so many people in cemeteries who aren’t alive? Because that’s where we buy dead people! One needs to dig into the multifarious reasons startups don’t have enough money. For one, they may not recognize that they are in a capital intensive business (such as manufacturing) and fail to raise enough money to get their product to market. For another, they often spend far too much money on customer acquisition. When CAC far outweighs CLV (Customer Lifetime Value) you have a simple formula for running out of money. Paying executives market rate salaries when they should be taking below market rate in exchange for equity. Not stretching the dollar: paying too much for ancillaries, like office space and perqs. As they say in Hollywood, investors want to see all their dollars on the screen. So yes, we need a list of a list elements here! Not having enough money just oversimplifies the problem and tells founders very little.

2. Not Knowing Your Market

This to me is the number one problem. Engineers like to build stuff; they rarely like to talk to people about their business problems. So I’m in total agreement that founders must be able to answer these questions and more during the customer discovery phase – a startup phase many founders don’t even know exists.

Who are your clients? Who is your competition? What is your target market willing to pay for your product or service? Entrepreneurs must be able to answer these and many more questions about their market in order to run a successful business. If you do not fully understand who your customers are, what they want and where else they can get it, you will be doomed to fail.

3. Lack Of Vision

I tend to find the opposite problem: too much vision. Most founders want to boil the ocean. They get upset when you suggest they try to boil a puddle first! The entire cult of personality built around legendary superstars like Steve Jobs by the popular and tech press has bred a generation of founders with too much vision. As Bill Gates has said, “Ideas are cheap. Success is all about execution.”

4. Biting Off More Than You Can Chew

While it’s true that many entrepreneurs fail because they want to boil the ocean, in reality “More startups die from indigestion than malnutrition.” Founders don’t plan for success and thus run out of parts or product, have overloaded servers, abysmal customer service or the many other sinking signs of a venture that just can’t handle significant growth in customer demand. Thus frustrated customers go away. And the venture then goes away also.

5. Trying To Be Everything To Everybody

Yep, this is the boil the ocean problem. Focus is the name of the game for startups – though that word is not mentioned in the Forbes article.  Startups need to be fast, focused, and flexible. Why? Because those are three of their advantages over large companies.

6. Not Enough Marketing

Marketing is a Goldilocks problem. Not enough marketing and your product or service may die from benign neglect. Customer can’t buy it if they’ve never heard of it. Too much marketing and your venture will run out of money – see item number 1. Every founding team needs someone who is tough minded and experienced to set the budget. But what about sales? Building a direct sales force is very, very expensive. All marketing and sales expenses need to be very carefully examined and make their case. And of course WOM – Word of Mouth is best for two reasons: one, it’s free and two, it has more credibility than other types of marketing, namely advertising. This is another over simplification. What type of marketing? How does marketing relate to sales?

7. Poor Planning

This tends to be a 20/20 hindsight item. As well as a diagnosis by  exclusion – we have ruled out the other ten items so it must have been poor planning! What is more important is adaptability: the ability to adapt to changing market conditions. Failure to adapt leads to extinction. Darwinian laws apply to startups as well as species. As Mike Tyson said, “Everybody has a plan. Until they get hit in the mouth.”

8. Not Accepting Constructive Criticism

This also tends to be a post hoc reason. “If they had just listened to me when I told them …” There are multiple reasons why constructive criticism is not acted upon: it may come from a source the founder doesn’t respect; it’s already been thought through by the team and rejected; it is offered – too often – too late in the game.

9. Not Delegating

Delegation all comes back to the goals of the founder. If the founder just wants to run a life style business there is no need to delegate – they should have their hands on everything. But if the founder wants to scale that’s when failure to delegate can indeed be a formula for failure of the venture. Founders need leverage and leverage comes from delegating the right stuff to the right people at the right time.

10. Lack Of Soft Skills

Soft skills are the missing piece to the success puzzle for many entrepreneurs. Soft skills are the sometimes intangible and non-technical talents entrepreneurs need to lead effectively. They include attitude, communication, empathy, motivation, teamwork, networking, leadership, decision making, problem-solving and conflict resolution.

Engineers tend to lack soft skills as their education and culture emphasizes hard skills: math, engineering and science. I can’t think of a company that has failed due to lack of soft skills. Bill Gates, Steve Jobs, Larry Ellison – there’s a long list of hard skilled mega successes. Problem solving is indeed important as most startups are a bucket full of problems. And conflict between founders didn’t even make this list, but should have. I’ve seen a number of early stage companies fold their tents due to irreconcilable differences between founders. That doesn’t mean that communications, leadership, etc. are not important, they are. But as stated above, list elements suffer from the problem of false equivalency. Just because something like empathy appears in a list doesn’t mean it’s as important as problem solving. Here’s a good example of where a weighted sub-list is needed.

But let me borrow something from Y-Combinator: “Build something customers want to buy.” If you do that you can work on this other stuff as you scale – mainly by hiring people who know how to plan, how to manage cash, how to delegate, how to lead – in other words, how to execute. In startups it’s execute or be executed.

Author: Mentorphile

Mentor, coach, and advisor to entrepreneurs, small businesses, and non-profit organizations. General manager with significant experience in both for-profit and non-profit organizations. Focus on media and information. On founding team of four venture-backed companies. Currently Chairman of Popsleuth, Inc., maker of the Endorfyn app for keeping fans updated on new stuff from their favorite artists.

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