Why don’t we study failure?
pic courtesy of imagafter.com
If you look at the ranks of business books in any bookstore you will see lots of ‘how to’ books, and even more ‘how I did it’ guides. So if you just follow the route taken by Richard Branson or Robert Kiyosaki or Jack Welsh you too can be a success. Web sites (including my own business site) are filled with case studies of business successes. But where could you go if you wanted to study failure, if you wanted to avoid doing what caused the downfall of the failed entrepreneur?
Contrast that with learning to drive a car or fly an aeroplane. You may read stories of famous racing drivers or see films of daring fighter pilots, but that is not how you will train. Instead you will be taught how many ways there are to get it wrong, and what to do about it. Driving a car or flying a plane start with the belief that success is required, that failure is to be avoided. Business training seems to work on the basis that failure is expected, that success is for the few high priests of entrepreneurship, and we may be able to stave off disaster by following their lead. How peculiar.
Estimates vary but the widely accepted failure rate of start up business is somewhere about 70% in the first two years, and many of those will have read the success stories – which clearly did not help. There must be massive learning opportunities for prospective entrepreneurs in looking at those failures, analysing what went wrong and figuring out how to do it better. But that information is not widely available, if it is available at all. In flying or driving success is a requirement not an option, the punishment for failure may be a death sentence, so when I did a pilot’s licence a long time ago part of the instruction was reviewing accident reports. There were columns in the flying magazines giving recorded radio communications before a crash, and we practiced endlessly stalling and recovering from spins, simulated engine failure, being lost in bad weather and all the other potential causes of failure. Entrepreneurs starting new businesses should try to do the same.
So let us take a look at business failure. Some of the causes I have seen include:
- Overestimating the sales forecast. This problem is so widespread it could almost be a norm. Sales income forecasts are based on optimism, hope and what is needed to succeed rather than the grim reality of what is likely to be sold. When the sales fall short of expenditure the business consumes its working capital and fails. This is an everyday occurrence – why do entrepreneurs still fall into the trap? Perhaps by being starry-eyed? My advice is to be ruthless in your sales forecasts. Achieving the numbers is non-negotiable.
- Not having control of the income and finances. So many start-up entrepreneurs leave their bookkeeping and accounting to the auditor, or worse, just do not have accounts. This can extend to the entrepreneur not knowing what they sell in a month or a day, or what profit they make on sales. If you are a lifestyle entrepreneur you have a high risk of falling into this trap, and suddenly finding your business cannot continue. This is a bad experience, avoid it by knowing your sales, margins, cash position and obligations every day, and your profitability, debtors position and ratios every month. This may mean doing a course – the course costs lots less than business failure. Do it.
- Being too kind. Think of businesses which went into liquidation – it is my bet that at least one you know went under with substantial amounts owed by a customer, or with staff that everyone knew were passengers. Or with a supplier the business ‘helped’ by paying in advance for goods they were promised. Or with an arrangement to not attack the customers of a struggling competitor. Entrepreneurial business survival is tough, don’t make it worse by carrying debtors, salespeople, competitors, staff members, partners or suppliers you sympathise with. Be ruthless – it’s the kinder option, especially to your own good, loyal and hard working staff and suppliers.
- Being a ‘me too’ business. In every town you visit there will be hawkers selling the local produce and products, and they will all be the same. Whether it is avocados in Tzaneen or windmills in Colesburg you will find dozens of hawkers outbidding each other for the same product. Slowly the vendors at Johannesburg intersections are diversifying, so one will sell coat hangers, another display a range of sunglasses and a third cell phone accessories. Why have small businesses not learned the lesson the hawkers have? So many look-alike boutiques, garden services, car repairers, electrical suppliers and many others fail simply because there is too much competition and no differentiation. Learn a lesson – just because another entrepreneur has been a success in a field there is no guarantee you will be.
- Relying on the better mousetrap. Having a technologically advanced product or a unique service will, sadly, not see the world beating a path to your door. Firstly you will have to establish the need for the product or service, then you will have to communicate the benefits to potential buyers, and lastly show them the value proposition of using that which you sell, including overcoming fear of the unusual. Technology or uniqueness are fine in a well marketed range but do not stand on their own.
There are many lessons to be learned from failure. People reading this will have their own experiences and observations – please add those as comments to this article.
About Ed Hatton
Ed has mentored and advised entrepreneurs for many years from his consulting company The Marketing Director. He is known for his successful work with start up companies and in helping SMEs to grow and develop. He is a speaker and writer, the person behind the advice column The Start Up Coach in Entrepreneur magazine, and contributes regularly to other publications. More details are available here or contact Ed by e-mail
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