6 Reason Why Entrepreneurs Fail Before They Ever Begin

6 Reasons Why Entrepreneurs Fail Before They Ever Begin

· Add Your Comments

Learning from Other Entrepreneurs

Spending time with entrepreneurs gives me a chance to hear other people’s stories of how they do. And most, not surprisingly, fail. They think, “I’ll put up a storefront, make millions, and then retire to the islands.” The reality is not that they don’t think it’s tough, but I believe people come in with the wrong expectations and then poorly allocate their limited resources. Before they know it, first time entrepreneurs waste time, effort and money before shutting their doors. And worse yet, many never go back to try again.

This shouldn’t be the case. Most entrepreneurs can avoid many of the pitfalls before they even spend their first dime. If you expect to become a successful entrepreneur, here are 6 “Must Know” considerations before opening your own business.

Define your niche – Let’s face it. Coming up with an original product or service is genuinely hard. It’s not because we are not innovative, but there just happen to be too many people out there already competing in a great number of businesses. The next best thing we can do is to find out how to improve upon a current service or product being offered. By doing this, we are able to better define our niche within a market, or more plainly, develop a professional brand that sets us apart from everyone else. Defining a niche gives the customer a convincing reason to do business with us again because a well defined niche helps the customer to remember to come back or simply to refer you.

Understand the barriers to entry – If you want to become a real estate agent, all you need to do in most states is to take a test and then hang your license with a real estate broker. With an MRI imaging center, you need to lease a million dollar piece of equipment, apply for a Medicare provider number (which can take up to a year) and find a facility. The barrier to entry with MRI is extremely high, so not many are doing it, while being a licensed real estate agent is only as good as your last customer. Understand the barriers to entry and their benefits or detriments of what you are going to do before you do it.

Know thy customer – While you did find a niche and you are a little clearer about the competition, do know for certain what you are going to provide is what your customer wants. Did you ask? Find out, and make some calls. You are going to have to talk with your customers anyway. If you happen to be selling something more tangible like clothes, try the local flea market or have an existing shop showcase your wares. One friend I know built software based on something he thought the non-profit industry would need, only to rebuild the entire software program again to give his customers what they really wanted to buy. Fortunately, that lesson only cost him $30,000.

Marketing – Have you clearly defined how you are going to create and sustain revenue? I have talked with many SCORE counselors who chuckle when someone comes in and says, “I have all the necessary capital for inventory and build out,” but yet expect customers to flood the doors when they open. Underestimating marketing is probably the biggest mistake entrepreneurs make. The customers don’t find you. You have to find them. How are you going to get them? And how do you keep them coming back again and again? What are those costs going to be? And are you just making assumptions that they will find you? Putting a website up or opening a store or putting an ad in a local paper is not good enough to generate sustained traffic. The truth is you can expect marketing to consume 80% of your time and resources, so it is critical that you don’t just make assumptions. Find out what works and what doesn’t before you do anything. If you can’t draw that line to your customers, walk away. Here are a few sourcing tips:

Pick up a few books on which marketing strategies work best for your niche.
Call a competitor that is out the area and ask them
Talk with your industry association (use the local library to locate them)
Make an appointment with your local SCORE or Economic Development Office, and be clear about your objective
Source marketing experts in your industry via the internet or newspaper. Some will have already put together materials and eBooks to better target your specific market.

Market and Industry trends – I got my real estate license a few months before the peak of the housing bubble. Fortunately, it was not my mainstay, nor was I ready to jump in at the time I got it. You can imagine some of the responses I got 6 months after the peak from brokers calling me to join their team. “This is the best time to get in and learn the business. When the real estate market turns around in 6 months, you’ll be an expert.” That was almost 4 years year ago. While it may be a great business in the long run, you don’t need to pick some industry that is slowing down. It’s better to stick with an opportunity where the market has been stable or is going strong. Here are a few considerations:

Are your profit margins persistent or have they been going down over the long term?
Can the market still grow or is it pretty much saturated?
How are you going to be affected by changing demand or supply factors, like higher gas prices, raw materials or fickle demands of customers?
Are there foreseeable laws or market regulations that will change the way you do business?
How is your business affected by the downturns in the economy?

You are not going to be perfect in uncovering everything you need to know, nor did I cover every single aspect you need to consider, especially since you will have different business model that will require specialized knowledge. All you need to be aware of is these considerations are free to do now, and you will end up saving a great deal of time, money and effort before starting your business. It may be tempting just to dive in and hope for the best, but that approach will not increase your chance for success. If you want to succeed as an entrepreneur, take the time to confront all your assumptions.

Like what you read, share here: