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Having a great business idea doesn’t guarantee success, even the best ideas can fail catastrophically. The stark reality is, despite having a brilliant idea at the start, it can still be puzzling for many trying to figure out where they went wrong.
In fact, in most of the cases, ideas come to fruition when you aren’t actively trying to think of them. Having said that, people easily assume that when a great idea is blended with an innovative technology, the business world can be revolutionised, and new markets could be created for the future. Empirical data suggest that only a small fraction of startups become successful in the course of their journey. So, one thing is pretty clear – coming up with the revolutionary idea is not even close to being the hardest part. The most crucial and challenging part is translating that idea into what you can offer your target market and proving why you’re the one to do it creating a trusted brand in the process.
Here are the top 5 reasons behind the failure of great business ideas as well as how you can and should avoid them:
1. Lack of Fundamentals
The first and foremost requirement for wannabe entrepreneurs is to have a deep understanding of the impact of business fundamentals. For instance, a business is likely to run into problems if the product you have developed has a small or even no market at all. If you simply ignore the reality of your situation and the target market you are trying to capture, your product will not be useful in the marketplace. A good example of this is the Segway PT – a two-wheeled, self-balancing scooter, invented by Dean Kamen. The market which Dean was catering to, did not exist. Very rarely does a new product or service create its own market. The Segway was simply an invention marketed as an innovation; and coupled with poorly timed market positioning, it failed to create or capture an audience.
Secondly, leadership is one of the most fundamental and crucial pillars of successful businesses because it provides a much-needed focus and direction. Without leadership, all other business elements lie dormant.
The next fundamental element to understand is the essence of a business model that focuses on two significant points – a) implementing a scalable method of acquiring customers or clients, and b) monetising those customers or clients at a level higher than the cost of acquisition.
2. Unrealistic and Improper Business Plan
A common predicament amongst many entrepreneurs is that their eagerness gets the better of them and they rush through the initial process and come up with an unrealistic and improper business plan. You may have a business idea that nobody has ever thought of, but only a sound business plan gives you positive returns of time and money invested. It is a fact that no business has ever succeeded without a detailed and thorough business plan. A business plan may be deemed improper when it overpromises things to the team, shareholders, and anyone who has a stake in the operation of the business. An unrealistic approach to developing your business plan can cost your business a lot. You should rather make honest sales projections based on solid market research and competitive analysis.
Don’t do any of the following when forming your business plan:
- Mistaking tactics for strategy. Business tactics should inform the direction and goals of the company, while your business strategy should decide how these goals are achieved.
- Developing performance criteria that exceed industry averages
- Underestimating the business’s need for the capital.
3. Hiring the Wrong People
Nobody can deny the importance of a good team as far as the growth of a startup business is concerned. Henry Ford once famously said, “Coming together is a beginning. Keeping together is progress. Working together is success.” A strong team is the foundation of a high performing business. With the right team of people, all the tasks are effectively distributed among various individuals, and they work towards common goals and objectives. It goes without saying that no matter how unique and disruptive an idea is, it needs a great team to properly execute it. A productive team is basically comprised of different individuals with different degrees of talents and skill set. They, however, need to work together by properly communicating with each other. The goal of working together is obviously an increased output. On the other hand, different styles of communication in a team can lead to serious dysfunction down the road.
4. Lack of Persistence
Persistence is a key element that can even make up for any deficiency arising out of a shortage of skill or talent. It is the willingness to overcome a wide range of obstacles, and which usually determines the fate of a company. Persistence provides your business with an meaningful reason to continue its work and persevere. Even in times when a business is devoid of inspiration, persistence in the form of strong leadership and team values helps make it seem all worthwhile.
The value of persistence cannot be understood better than the famous quote of Thomas Edison, “Genius is one percent inspiration and 99 percent perspiration.” In the face of tough odds and adversity, it is natural to lose heart and strength, so persistence is the key that allows your startup to pursue its goals. Many entrepreneurs that don’t have tenacity to go the extra mile, and often burn out before becoming a success story. Being persistent allows you to find new solutions and new ways to do things when going gets tough.
5. Poor Risk Management
However safe and secure your business might appear, it is always associated with the risk of failure because of its complexities regarding the environment, management, system, processes, resources, and stakeholders. All these entities should be effectively managed and addressed in order to avoid potential risks arising in the future. Therefore, your business needs a proper risk management framework. Risk management is the process of identifying possible problems or disasters before they happen. Proper risk management allows you to set up procedures that can cope with the impact of any disaster.
In the likelihood of their occurrences and severity, risks can be mitigated by categorising them in the following ways:
- Risks that can be safely ignored
- Risks that can be managed via simple changes in behavior
- Risks that can be mitigated via insurance
- Risks that should be actively identified, monitored, and mitigated.
Financial risks are also among the biggest risks many small businesses face because cash flow is a major concern in the beginning. Without it, employees can’t be hired, inventory and equipment can’t be purchased, and taxes and bills can’t be paid. Taking loans from banks and other financial institutions is quite normal for businesses, but you have to make sure the debt doesn’t overburden you. A risk free line of credit can be important for consumer credit growth as well. In view of this, you may want to consider the current and future climate and prepare your business accordingly.
The Bottom Line
You could have the Taj Mahal of business ideas; but poor execution and a lack of willingness to follow through in key areas can mean catastrophic failure. If the idea of a startup business sounds very promising and lucrative, it is equally characterised by the inevitable risks and failures. Therefore, it is always incumbent upon the management to evaluate and avoid all the possible factors that contribute to the failure. Take stock of the points raised in this article in your business ventures and you will be on your way to success.
“The opinions expressed by BizWitty Contributors are their own, not those of BizCover and should not be relied upon in place of appropriate professional advice. Please read our full disclaimer."
