Do you know why most businesses fail?
It’s a simple question. But many business owners scratch their heads after their businesses fail. And if you think that businesses failing is for startups only, please think again.
Well-established businesses fail as much as startups. Even the titans of business fail.
Often the root cause of business failure is the desire to grow and the expenditure of money. Lots of money. Growth at any cost is expensive.
Let’s go beyond the surface and get to the root cause of why businesses fail. Both startups and well-funded companies focus on the wrong priorities. As a result, business leadership develops the wrong skills. Mastering the art of spending money puts you on the road called failure.
Startups or established businesses must make a wise choice about how they plan to grow.
Knowing what not to do is as important as knowing what to do in business and life.
Who am I, and how do I know?
I said “no” to a 7-figure offer and “yes” to mastering the art and science of a liquidity event. Two years later, I said “yes” to a 9-figure offer from a different buyer.
I created a 9-step roadmap of preparation for my liquidity event. Today, I pay it forward. I help business owners through the 90-day Deep Wealth Experience. At the heart of the Deep Wealth Experience is the exact 9-step roadmap.
Would you like to learn and master the strategies to have your business thrive and prosper?
Please keep reading.
Businesses Fail Reason #1: Growing Too Fast While Ignoring Profits
Three great forces rule the world: stupidity, fear and greed – Albert Einstein.
What can be so wrong with growing too fast?Fasts growth and private equity funding are the same. Investors expect a return on investment as fast as possible. So part of the “investment game” is creating fast growth by spending money.
We are now at the heart of the problem. The economic incentive for startup founders is high revenue as fast as possible. In some industries, startups have a value of 20X. A 20X valuation means that every $1 of revenue has a value of $20.
A startup with a value of $20M from only $1M of revenue appears attractive. But not so fast. Imagine that the same startup has $1M of revenue and $5M of losses.
The only “penalty” startup founders face happens at the end when it’s too late.
What’s the “penalty?”
You are losing your business when the money runs out.
When you are growing your business, there is one question that you must ask. The question is both simple and powerful. The question of questions to ask:
Is the business profitable?
When running a business, you have a choice to make. The choice is to either operate as a cockroach startup or raise capital.
There is one fatal mistake business owners make when raising capital. The fatal mistake is that the bottom line, net profits, is neither measured nor sought after.
Know that focusing on growth while ignoring net profits is a recipe for failure.
Do you know the next reason for failure when you ignore the bottom line?
Please keep reading.
Business Failure Reason #2: Lack Of Focus
Focus and simplicity…once you get there, you can move mountains – Steve Jobs.
Businesses fail when overlooking net profits in favor of forced growth.
Once upon a time, the search engine of choice was Yahoo.
As Yahoo became successful and focused on growth, it tried to be everything to everybody. Yahoo was chasing after growth for both site visits and revenue.
Let’s do a quick thought experiment with Yahoo and Google. For our thought experiment, let’s put aside what Google is or isn’t today. Instead, let’s go back to when Google was a startup with something to prove.
Thanks to the Wayback Machine website, below are two screenshots. The screenshots are from March 1, 2000, for the home pages of Yahoo and Google.
Today we know that Google decimated Yahoo and became the number one search engine.
Google focused on creating the world’s best search engine experience. The experience for Google starts with the home page. In the early days, part of Google’s focus was also on how to generate profits. We can all agree that Google also figured out the profit equation.
When you focus on the bottom line, you’re mindset and actions unite to welcome success. Net profit is a culmination of many factors. The common thread with these factors is customers. Your ability to be world-class in solving a painful problem is all about customers. Likewise, the customer experience is all about customers.
Your takeaway is to make net profits your focus. Everything else is a distant second.
Do you know another fatal mistake that happens when you don’t focus on net profit?
Please keep reading.
Business Failure Reason #3: Hiring Too Fast
At the end of the day you bet on people, not on strategies – Lawrence Bossidy.
Hiring for the sake of hiring ignores two crucial questions:
First, can you justify the number of employees for your profits?
Second, is it true that more employees create a better company?
A quick story.
Shortly after Embanet’s 9-figure liquidity event, I started another venture. My business partner was one of my partners from Embanet.
Our company was Total Health Diabetes (THD). THD had a contract with Medicare. As a result, all diabetic supplies were free for our customers.
THD was not private equity-backed. Instead, THD’s investors were my business partner and me.
On paper, everything looked great. We had the money, experience, and team.
At the time, our motto and mindset for THD were “go big or go home.” In less than a year, THD was up to 7-figures.
Not so quick. The 7-figures were 7-figures of losses.
THD was later sold at a massive loss.
If THD was a success on paper, why did it fail?
THD’s root cause of failure was the mindset of growth at any cost.
I failed with THD because I was not passionate about solving a painful problem. Instead, I was chasing the money.
Had I had the cockroach startup mindset, I would not have started THD in the first place. There was one other fatal flaw with THD that is anything but the cockroach startup mindset.
Would you like to know what this fatal flaw was and what you can do to avoid it?
Please keep reading.
Business Failure Reason #4: Believing Management Is The Same As Leadership
Effective leadership is the key that unlocks massive success – Jeffrey Feldberg.
Please don’t make the fatal mistake of believing that a manager and leader are the same.
Regardless of title, everyone must think and act like a leader.
Leaders play to their strengths. Managers are copycats. Leaders have high emotional intelligence and display authenticity and transparency.
Leaders create raving fans from their team members. Think back to employees who tell you that their “boss” walks on water. The employees are advocates for their leader. Managers view employees as employees. Employees view managers and are more “yes” people than innovators.
Leaders create a powerful narrative for a vision. Managers create goals. Through their vision, leaders inspire team members for a better tomorrow. Part of the vision for leaders includes teamwork. Remember, when the team works, the dream works. By focusing on goals, managers can create an environment without teamwork.
True leaders look for successors who are more talented and skilled. Leaders look for A-players who are smarter and better than themselves. Managers tell employees what to do and how to do it. Managers do not leverage employees’ full potential and feel threatened by A-players.
Leaders view themselves as change agents for a better tomorrow. Managers subscribe to the saying, “If it ain’t broke, don’t fix it.” Leaders look for continual improvement even in world-class environments.
Leaders play the long game and do whatever it takes to achieve the vision. For leaders, motivation is internal and not dependent on rewards. Instead, managers focus on goals for the short term and look to external validation.
Given a choice, choose leaders for your team over managers.
Business Failure Reason #5: Choosing the Wrong Goals
Discipline is the bridge between goals and accomplishment – Jim Rohn.
You have one goal when you don’t bootstrap and receive outside funding. Your goal is to sell the company in three to five years. While there are always exceptions, you can’t assume your scenario is the exception.
Focusing on selling in three to five years no matter what has consequences. Say goodbye to building a sustainable business. You also take a pass on paying customers who generate dependable profits.
Companies that have stood the test of time play the long game. And the long game is doing what’s best for the business. In doing what’s best for the company, you put your customers first.
Net profits limit your business as you can’t be everything to everybody. So instead, you must focus on one target market. In the process, your business and the target market become one.
To be clear, bootstrapping is not easy. But one of the benefits is developing the skill of resilience. When it comes to resilience, resilience trumps resources. All-day. Every day.
Through bootstrapping and resilience, you create a solid foundation for your business. Your goal is clear as you do whatever it takes to survive another day. And when done right, you not only survive, you thrive.
Choosing the wrong goals is like building a house on sand instead of bedrock. A house on sand won’t stand the test of time.
With the wrong goals, negative consequences are often not equal but greater.
Businesses fail whether you’re a startup or an established company. The root cause of why businesses fail happens from five fatal mistakes.
Often the best of intentions lead to disastrous results. Even if you run a successful business, you’re not out of the wood. Within your success are the seeds of failure.
Knowledge is power, but only if you know where to look and what to do.
Some of my biggest failures have come right after massive success. A failure is only a failure if you don’t learn from your missteps.
I should know. I said “no” to a 7-figure offer and “yes” to mastering the art and science of a liquidity event. I said “yes” to a different buyer with a 9-figure offer two years later.
The “secret” to my 9-figure liquidity event was understanding the root cause of failure. The power of the 9-step roadmap that you learn through the Deep Wealth Experience is time. Through preparation, you leverage time to your business advantage. Your preparation today pays a high ROI in the months and years ahead.
What can you do, and where do you start?
Please start with the first strategy revealed in this article. Stay with the first strategy until mastered. Once mastered, move on to the next strategy and follow the same process.
Before you know it, you’ll have mastered all five strategies. At the same time, you position yourself for future success.
You can do it. I know you can.
Here’s to you and your success.
Your Biggest Raving Fan,